Does a Centralized Exchange Custody Eliminate All Security Risks for the Trader? ⎊ Path

Does a Centralized Exchange Custody Eliminate All Security Risks for the Trader?

No, centralized exchange custody does not eliminate all security risks; it merely shifts the nature of the risk. While the trader is protected from the risk of losing their own private keys, they are now exposed to 'custodial risk.' This includes the risk of the exchange being hacked, becoming insolvent, or engaging in fraudulent activity.

Traders must trust the exchange's security measures and financial integrity, making 'counterparty risk' the dominant concern.

Define “Custodial” versus “Non-Custodial” in Crypto

What Is the Difference between a Custodial and Non-Custodial Derivatives Exchange?

What Regulatory Differences Exist for Custodial and Non-Custodial Derivatives Exchanges?

What Is ‘Counterparty Risk’ in the Context of Centralized Crypto Exchanges?

What Is the Primary Difference in Custody of Funds between CEX and DEX Derivatives Trading?

What Is the User Experience Trade-off between Custodial and Non-Custodial Wallets?

What Is a ‘Custodial Wallet’ versus a ‘Non-Custodial Wallet’?

How Does the Regulatory Environment Differ for Custodial CEXs versus Non-Custodial RFQ Platforms?

Glossar

Centralized Exchange Custody

Control ⎊ Placing digital assets under the care of a centralized exchange fundamentally shifts the locus of ownership away from the individual trader.

Centralized Exchange

Custody ⎊ Centralized Exchanges function as custodians for digital assets, managing private key infrastructure and providing a regulated framework for asset holding, a critical component for institutional adoption within cryptocurrency markets.