Custody is a financial services term that refers to the ability to hold, move, and protect assets.
You can either either do this yourself (self custody) or you can get someone to do it for you (custodial solution).
Custody is a broad term that can be applied to a number of different solutions for digital asset storage. People have many choices when it comes to storing their crypto assets, and the connectivity of those solutions poses unique concerns for their customers. Solutions range from self-custody options like a hardware or software wallet, to third-party, offline storage
Custody needs vary greatly, some investors might need to infrequently access or move their cryptocurrencies compared to others who trade more frequently. Some investors might prefer to self-custody, while some institutions might require a third-party solution.
Self-custody (Your own solution)
There are many ways to self-secure digital assets, these range from using consumer hardware wallets (ledger and trezor), to creating complex setups for the duplication, storage, and backup of printed-out private keys. Some people opt for complete control of their digital assets, and self-custodying provides a good solution.
A key consideration though is that when dealing with self-storage and private keys there are no resets, a lost key is gone forever. Self-custodying, like keeping cash in your physical wallet or locked in a drawer, poses its own risks. There is no third-party involved to manage that risk (or your funds) if you were to lose access to your keys, experience a destructive event like a fire, or pass away unexpectedly. Backup plans are therefore very important and holders should consider their access to software updates, their personal capacity to correctly backup, restore and implement geographic redundancy. Individuals should also consider how family members or intended beneficiaries would recover funds in emergency situations.
Custodial Solutions (Third-party custody - Managed solution)
These solutions allow customer funds to be held and managed entirely by a solutions provider. The user entrusts their assets to this provider, who is then the only entity acting on the customer’s instructions (the customer is not involved as a direct signing authority) - users have given access to their private keys. SLAs dictate the terms and timing conditions regarding the storage, access, and movement of customer funds.
Investors and institutions, such as asset managers, hedge funds, and/or high-net-worth individuals often go for these solutions as digital asset security is not their core business. These customers sometimes even use multiple third parties if they want two or more providers involved to verify instructions and move funds. Third-party custody solutions come in two forms, which are often referred to as online (“hot wallets”) or offline (“cold storage”) systems. The difference between the two amounts to whether the storage system is networked or in any way remotely operable.
Our offerings and solutions (one of each)
We currently have a crypto offering that uses a custodial solution (more information can be found here on “Rational Active Allocation Index”) and we have recently added a solution for verified clients who prefer self custody (more information can be found here on “Momentum-Analytics.io - DEFI”).
All circumstances are different, so individuals should always seek independent financial advice, please ensure you have read our disclosure.
(Please note there are partial custody options (hybrid), these are self-managed wallets that offer some level of third-party assistance and related institutional controls or protections. Customer and the third party are generally required to cooperate as part of the signing process based on a legal arrangement between themselves.). If you would like to learn more on digital asset custody, see more from Gemini - Guide to crypto custody article.
