Custody is the holding and safekeeping of assets on behalf of a client, generally performed by a specialized institution called a custodian.
In traditional finance, custodians hold assets like stocks, bonds, or commodities in segregated accounts that are legally separate from the custodian's own funds. This can mitigate security risks like theft or loss.
Custody in Crypto
In cryptocurrency, custodial solutions are those where a third party holds the private keys to the user’s funds. The custodian is the only party able to send and receive the user’s coins. While the user legally owns the coins, they have no ownership at the protocol level. Most centralized exchanges employ a custodial approach, which provides a simpler user experience.
Where security is concerned, custodial solutions may be safer for new users who are inexperienced with key management. However, this also opens users up to counterparty risk. A custodian could be compromised or shut down, leaving users with few remedies to reclaim their coins.
Custodians nonetheless play a significant role in the ecosystem, from onboarding newcomers to providing veteran users with sophisticated trading tools.
A growing number of businesses handle storage and management of assets at an institutional level, and some are insured to reimburse their clients in case of loss of funds. In 2025 in the US, the OCC expanded the pool of regulated crypto custody providers.
In Europe, under the MiCA regulation, roughly 200 crypto-asset service providers were authorized to offer custody and administration services by 2026..
Custody vs. Self-Custody
Self-custody is the alternative arrangement in which users hold their own private keys, taking full responsibility for storing and protecting them, typically in cold storage for long-term holdings.
As a general rule for the average user, significant amounts of funds that are not actively being used are often kept in cold storage. Examples of active use include staking, trading, or other forms of passive income.
The choice between custodial and self-custodial arrangements involves trade-offs: custodians offer convenience, recovery options, and support, while self-custody removes dependence on third parties but places the full burden of key management on the user.