Custodian risk is the inherent danger associated with entrusting digital assets to a third-party custodian, such as a cryptocurrency exchange or a specialized custody provider. This risk encompasses the potential for the custodian to experience a hack, internal fraud, operational failure, or regulatory seizure, which could lead to the loss of client assets. It represents a significant counterparty exposure inherent in relying on external entities for asset security. Thorough due diligence is essential when selecting a custodian.
Context
High-profile exchange collapses or security breaches frequently bring custodian risk into sharp focus within crypto news. Debates continue regarding the optimal balance between self-custody and institutional custody solutions, especially for large investors and financial institutions. Regulatory frameworks are increasingly addressing custodian responsibilities and mandating insurance requirements to mitigate these prevalent risks.
The compromise of a single, centralized Official Keeper's 2FA bypassed the smart wallet's recovery logic, exposing user assets to unauthorized transfer.
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