What is Custody Risk?
Custody risk encompasses the potential loss of assets held by a third-party custodian due to theft, hacks, insolvency, or operational failures. This is particularly relevant for institutional crypto investors.
Sources of Custody Risk
- Security breaches: Hacks or insider theft
- Custodian insolvency: Bankruptcy affecting client assets
- Operational errors: Lost keys or failed processes
- Regulatory seizure: Government actions against custodian
Risk Mitigation
- Use qualified custodians with insurance
- Implement multi-signature solutions
- Verify segregation of client assets
- Consider MPC wallet technology