What is Custodian?
Let's find out Custodian meaning, definition in crypto, what is Custodian, and all other detailed facts.
A financial custodian, or a bank custodian, is a business responsible for holding the financial assets on behalf of an individual or a business in its custody. Brokerage firms, commercial banks, and similar financial institutions can play the role of financial custodians.
Custodians hold physical authority over financial accounts such as 401k, savings, or checking. If an entity deposits funds into the account, the custodian receives the checks against the appropriate account number.
Account management, foreign exchange transactions, tax assistance, payment collections, and transaction settlements are among the services provided by custodians. Clients can be charged at varying rates, depending on the service itself and its provider. In some cases, based on the value of assets in possession, clients may be charged a quarterly fee.
Organizations acting as custodians are typically large-scale and hold a reputation for upkeeping the security of assets worth millions or, in some cases, billions of dollars. The role of a custodian can be taken up by both individuals and companies.
A custodian is often used in the context of the entity entrusted to handle the assets of a minor until they reach adulthood. The term can also be used by investment advising companies regarding the funds that they manage for their clients.
The power of attorney acts as a custodian function, allowing the entrusted party to claim the custody of assets on behalf of another party. The custodian is then able to make decisions regarding financial operations.
Some of the biggest custodian organizations in the US are The Bank of New York Mellon, JPMorgan Chase, and Citigroup. Other international organizations that serve the custodian purpose are Credit Suisse in Switzerland, Deutsche Bank in Germany, and HSBC in the UK.
In the context of the crypto market, custodian services typically relate to institutional investors who hold a significant amount of cryptocurrency. Cryptocurrency exchange platforms that store wallets play the role of custodians.
Due to the digital nature of cryptocurrencies, the process of holding them differs from that of physical fiat currencies. Banknotes are generally kept in physical locations, such as safes or wallets. Cryptocurrencies, on the other hand, are contained solely in a blockchain.
Cryptocurrency holders possess keys that unlock their blockchain addresses which hold their cryptocurrency assets. Software-based hot wallets or physical cold wallets represent the custodian of cryptocurrency. They are known as Digital Asset Custodians and are secured by cryptocurrency exchange platforms.
Cryptocurrency custodian solutions are systems designed with enhanced security and storage functionality. The recipients of these services are typically institutional clients who have significant crypto holdings. Custodians can use a combination of hot and cold cryptocurrency storage tools.
While the cryptocurrency custodian industry is relatively new, it is already seeing increasingly growing competition. Some established solution providers hold a large market share. However, new solutions are being developed and small decentralized finance (DeFi) organizations, like BitGo and Coinbase Custody, are gaining traction.