How a custodial wallet works
The user sees a balance and a deposit address in an app. Behind it, the provider keeps the keys in its own infrastructure, usually pooling customers' assets in shared hot and cold wallets, and records each customer's share in its ledger.
A withdrawal is a request: the provider checks the login, the limits and its risk rules, then signs and broadcasts. Transfers between two customers of the same provider never reach the blockchain.
What the user of a custodial wallet gains and gives up
- Recovery: a forgotten password can be reset, a lost seed phrase cannot
- Convenience: no keys, network fees or networks to manage
- Counterparty risk: the assets are only as safe as the provider
- Control: the provider can freeze, delay or refuse a transfer
What offering a custodial wallet involves
The provider is doing custody. MiCA defines that service as safekeeping or controlling, on behalf of clients, crypto-assets or the means of access to them, and Article 75 attaches the duties: segregation of client assets, a register of positions and liability for losses attributable to the provider.
A transfer between custodial wallets at two providers is also a transfer between providers under the Travel Rule, with data on the sender and the recipient passing between them.
Custodial or self-custodial wallet?
- Self-custodial wallet
- The user holds the keys, and no one else can move or freeze the assets. Nobody can restore them either if the keys are lost.
- Embedded wallet
- A wallet created inside an app. It is custodial only if the provider could sign alone.
Where a custodial wallet shows up in a platform
Modules that do the work
- Custody & walletsWallets on every major chain, with MPC custody from leading providers or your own keys.
- LedgerThe double-entry book of record behind every balance, fee and transfer.
- AuthenticationSign-in, passkeys and second factors for customers and staff, on your identity provider or ours.
Platforms that need it
Guides that go deeper
Where it is written
The laws and standards this page's facts come from.
General information, not legal advice: what applies to you depends on your services and your market.