Asset Custodian Risk

Definition ∞ Asset custodian risk signifies the potential for loss or compromise of digital assets held by a third-party service. This risk stems from the custodian’s operational failures, security lapses, or insolvency. It directly affects the safety and availability of client funds entrusted to these entities. The reliance on a custodian introduces a centralized point of potential failure for distributed assets.
Context ∞ Asset custodian risk is a central topic in cryptocurrency regulation and institutional adoption discussions. News often highlights incidents where custodians suffer security breaches or financial difficulties, leading to asset freezes or losses for clients. Regulatory frameworks aim to mitigate this risk by imposing strict capital requirements and operational standards on custodians.