Definition ∞ Fiduciary risk pertains to the potential for harm or loss arising from a breach of trust or duty by an individual or entity managing assets on behalf of another. In the context of digital assets, this risk materializes when custodians, fund managers, or platform operators fail to act in the best interest of their clients. Such failures can include mismanagement of funds, security lapses, or conflicts of interest. This risk underscores the importance of transparent and accountable asset management practices.
Context ∞ The application of traditional fiduciary duties to the digital asset space is a prominent legal and regulatory discussion. Debates revolve around how existing laws apply to decentralized autonomous organizations (DAOs) and self-custody solutions, where traditional intermediaries are absent. Future regulatory clarity will likely define the scope of fiduciary responsibilities for various participants in the digital asset ecosystem, impacting investor protection.
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