Custodial tokens are digital assets held and managed on behalf of an owner by a third-party service provider. This arrangement means the owner does not directly control the private keys associated with their assets. Instead, a custodian assumes responsibility for the security and management of these tokens. This model offers convenience but introduces counterparty risk.
Context
The state of custodial tokens is marked by increasing institutional adoption and regulatory focus on the security and solvency of custodians. A key debate concerns the trade-off between user convenience and the decentralization principles central to many digital assets. Future developments will likely involve advanced auditing requirements and technological solutions to enhance transparency and reduce single points of failure within custodial services.
Australia's Draft Bill mandates an AFSL for all custodial digital asset platforms, fundamentally restructuring compliance obligations for market access.
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