What Role Does a Third-Party Custodian Play in Mitigating Physical Settlement Risks?

A third-party custodian specializes in securely holding the underlying assets, such as cryptocurrencies, on behalf of the traders. They take on the responsibility of key management, cold storage, and security infrastructure, significantly reducing the risk of theft or loss for the individual trader.

By using an institutional-grade custodian, the trader substitutes self-custody risk for counterparty risk with the custodian.