Clear DefinitionsThird-Party Custody
1 min read
Pronunciation
[third par-tee kuh-stuh-dee]
Analogy
Like depositing valuables in a safe deposit box at a bank.
Definition
Custody model where an external service provider holds and manages users’ private keys and assets.
Key Points Intro
Third-party custody offers:
Key Points
Managed security: Provider handles key storage.
User convenience: Simplified UX and recovery.
Regulatory compliance: KYC/AML by custodian.
Insurance: Often covers theft or loss.
Example
Users keep assets in Binance custody, trading and withdrawing via the exchange’s interface.
Technical Deep Dive
Custodian uses HSMs, multi-sig, and operational security controls. Clients access via API with OAuth or API keys. Withdrawal workflows include whitelisting and manual approvals.
Security Warning
Counterparty and regulatory risk: funds can be frozen or lost if custodian fails.
Caveat
Loss of direct control; users rely entirely on provider integrity.
Third-Party Custody - Related Articles
No related articles for this term.