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Key facts (as of 29 October 2026)
- Three models: a balance on an exchange or broker (an omnibus pool, which becomes an unsecured claim if the venue fails); a licensed custodian (segregation and contractual title); or self-custody (no counterparty risk, but all operational risk sits with the holder) (private.law).
- MiCA custody: CASPs must segregate client crypto-assets and may not use them for their own account (Articles 70 and 75). Liability for losses attributable to the custodian is capped at the asset's market value at the time of loss (Article 75(8)). There is no deposit guarantee. A CASP that uses another provider for custody may only use CASPs authorised under Article 59, and must tell its clients (Article 75(9)). ESMA has said MiCA prohibits CASPs from outsourcing custody to entities not authorised as CASPs (ESMA, 17 April 2026).
- US: the OCC's GENIUS Act final rule includes custody standards for OCC-supervised entities, effective 18 January 2027.
- Theft risk: FATF called the US$1.46bn Bybit theft of February 2025, attributed to DPRK actors, the largest single virtual-asset theft in history (FATF). The FBI dated the theft to on or about 21 February 2025 (FBI IC3).
Comparing the models
| Model | Counterparty risk | Operational burden | Insolvency treatment | Typical use |
|---|---|---|---|---|
| Exchange or broker account | High | Low | Unsecured claim unless structured as segregated custody | Short-term conversion balances |
| Qualified custodian | Moderate | Low to moderate | Segregated; depends on the custodian's jurisdiction | Reserves, larger balances |
| Self-custody (multisig or MPC) | None from intermediaries | High | Not applicable; key loss means asset loss | Operating wallets for frequent payouts |
Examples of licensed custodians include Anchorage Digital (OCC national trust bank charter, January 2021), Coinbase Custody Trust Company (NYDFS limited-purpose trust charter, 2018) and the Swiss banks Sygnum and AMINA (FINMA) (private.law). These are examples, not endorsements.
Choosing a model
flowchart TD
A[Balance to hold] --> B{How fast must it move?}
B -- Minutes, many times a day --> C[Hot or warm MPC/multisig wallet with limits]
B -- Daily to weekly --> D[Custodian or warm wallet with approvals]
B -- Rarely --> E[Cold storage or custodian]
C --> F{Above operating cap?}
F -- Yes --> D
D --> G{Regulated client money?}
G -- Yes --> H[Use segregated, licensed custody as the law requires]
G -- No --> I[Policy decision with counterparty limits]Self-custody techniques
| Technique | How it works | Strengths | Watch-outs |
|---|---|---|---|
| Multisig | A transaction needs several signatures, for example two of three | Transparent on-chain rules | Signers must check what they sign |
| MPC | The key is split into shares, so the full key never exists on one device | Flexible policies; chain-agnostic | Reliance on the platform provider |
| Single seed phrase | One secret controls the funds | Simple | private.law calls it "long considered poor practice" for material amounts |
Institutional MPC platforms include Fireblocks (private.law).
Operational controls
| Control | Purpose |
|---|---|
| Address allow-lists | Payments only to pre-approved addresses |
| Multi-person approval | No single person can move funds |
| Hot / warm / cold tiers | Keep only operating balances online |
| Test transfers | Confirm new addresses before large sends |
| Pre-send screening | See Wallet screening |
| Key ceremonies and backups | Documented creation, storage and recovery |
| Access reviews | Remove leavers; rotate keys when people change |
| Signing-device hygiene | Dedicated devices; verify transactions on the device |
| Network checks | Confirm token and network match the recipient's expectations |
WarningStablecoin transfers are final. A mistaken address, a wrong network or a signed malicious transaction cannot be reversed by the sender. Only the issuer may be able to freeze tokens, and only in some cases.
NoteMany businesses mix models: operating balances with a custodian or in MPC wallets, and a reserve under stricter controls. Match the model to how quickly each balance must move.
Lessons from large thefts
Public reporting on the Bybit theft described an attack that manipulated what signers saw while approving a transaction from a multisig cold wallet. Whatever the exact mechanics, the general lessons for operators are:
- Signers must verify transaction details independently of the interface proposing them.
- Large cold-wallet movements deserve extra checks, delays and out-of-band confirmation.
- Third-party wallet software is part of your attack surface.
Jurisdiction notes
| Jurisdiction | Custody point |
|---|---|
| EU | MiCA custody rules for CASPs; segregation; liability capped at market value; no outsourcing to non-CASPs |
| US | OCC rule covers custody for supervised entities; state trust charters (e.g. NYDFS) |
| UK | Cryptoasset regime from 25 October 2027; stablecoin backing assets on statutory trust under CASS 16 |
| Switzerland | Banks such as Sygnum and AMINA under FINMA |
Illustrative example: a PSP's wallet tiers
Illustrative example. The figures are invented.
A PSP pays out about US$600,000 a day in USDC. It keeps up to US$250,000 in a hot MPC wallet with a 2-of-3 policy and an allow-list of payout addresses. A warm wallet holds up to US$1.5m and needs 3-of-5 approvals, including one from finance. Anything above goes to a qualified custodian with a 24-hour withdrawal delay. New payout addresses get a test transfer and screening before being allow-listed.
Q/A
Is a custodian insured?
Sometimes, privately, within limits. There is no statutory deposit-guarantee scheme for crypto-assets in the EU. MiCA offers segregation and capped liability instead.
Does the GENIUS Act cover custody?
Yes. The OCC's final rule implementing the Act includes a section on custody, alongside reserves, redemption and risk management. See GENIUS Act and the OCC rule.
Can I recover tokens sent to the wrong network?
Sometimes, if the receiving party controls the same address on that network and cooperates. Often not.
Who should hold keys?
Several people in different roles and places, with documented recovery. Never one person.
How do auditors check balances?
They match on-chain balances to the ledger and test control over addresses. See Accounting, reconciliation and tax.
Is MPC better than multisig?
Neither is always better. Choose based on the chains you use, your providers and your approval policies.
Sources
- private.law, Crypto private wealth: https://wiki.private.law/en/crypto-private-wealth
- private.law, Stablecoins: https://wiki.private.law/en/stablecoins
- private.law, MiCA: https://wiki.private.law/en/mica-eu
- ESMA, Statement on the End of Transitional Periods under MiCA (17 April 2026, ESMA75-113276571-1679)
- FATF, targeted update on virtual assets and VASPs (26 June 2025): https://www.fatf-gafi.org/en/publications/Fatfrecommendations/targeted-update-virtual-assets-vasps-2025.html
- OCC Bulletin 2026-50: https://www.occ.gov/news-issuances/bulletins/2026/bulletin-2026-50.html
- FBI IC3, PSA on the Bybit theft (26 February 2025): https://www.ic3.gov/PSA/2025/PSA250226
- Regulation (EU) 2023/1114 (MiCA): https://eur-lex.europa.eu/eli/reg/2023/1114/oj
- ESMA, statement on the end of transitional periods under MiCA (17 April 2026): https://www.esma.europa.eu/sites/default/files/2026-04/ESMA75-113276571-1679_Statement_on_the_end_of_transitional_periods_under_MiCA.pdf
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