Custodial failure describes the inability of a third-party service to securely hold and return digital assets belonging to its users. This event can result from security breaches, operational mismanagement, insolvency, or fraudulent activities by the custodian. When a custodial failure occurs, users risk losing access to or ownership of their deposited cryptocurrencies. Such incidents underscore the inherent risks associated with entrusting digital assets to intermediaries.
Context
Recent high-profile custodial failures within the crypto industry have heightened scrutiny on centralized exchanges and lending platforms. Regulatory bodies are increasingly focusing on robust consumer protection measures and stricter oversight for custodial services. These events reinforce the adage “not your keys, not your crypto” for many market participants.
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