Definition ∞ Custody risk is the potential for loss of assets held by a third party due to various factors, including theft, fraud, or the custodian’s insolvency. In the digital asset space, this risk pertains to the security of private keys and the integrity of custodial services. It addresses the hazards associated with entrusting digital funds to an external entity. Minimizing this risk is paramount for asset security.
Context ∞ Custody risk remains a critical concern for both individual and institutional holders of digital assets, driving demand for secure and regulated custodial solutions. Debates involve the trade-offs between self-custody and third-party custody, weighing control against professional security and insurance. Regulatory bodies are increasingly focusing on establishing clear guidelines for digital asset custodians to mitigate these risks and protect investors. News often highlights incidents where poor custody practices led to significant losses.
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