Definition ∞ A custodial arrangement involves a third party securely holding and managing digital assets on behalf of an owner. This service provides enhanced security and convenience, especially for institutional investors or individuals preferring not to manage private keys directly. The custodian assumes responsibility for safeguarding the assets and executing transactions as instructed by the owner. It represents a trust-based system for asset management.
Context ∞ The regulatory environment for custodial arrangements in the digital asset sector is a significant area of evolution, with various jurisdictions proposing specific licensing requirements. Debates persist regarding the security trade-offs between self-custody and relying on third-party custody solutions. Future innovations may include hybrid models offering superior security features and greater client oversight.
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