What is Custody Risk?
Custody risk is the possibility of losing cryptocurrency due to failure, compromise, or misconduct of the entity holding the private keys — whether that's an exchange, a custodian service, or the key management infrastructure used for agent wallets.
WHY IT MATTERS
FTX, Mt. Gox, QuadrigaCX — crypto history is littered with custodial failures. When you trust someone else with your keys, you're exposed to their operational security, financial health, and honesty. Custody risk is counterparty risk applied to key management.
For AI agents, custody risk takes additional forms. If the agent's signing keys are managed by a third-party service, that service's failure means your agents stop functioning. If the key management infrastructure is compromised, all wallets are at risk simultaneously.
Mitigating custody risk means minimizing trust dependencies. Self-custody eliminates counterparty risk. MPC distributes risk across parties. Smart contract controls limit damage even if keys are compromised. The goal is defense in depth.
HOW POLICYLAYER USES THIS
PolicyLayer's non-custodial architecture eliminates custody risk. Your keys stay in your infrastructure. PolicyLayer enforces spending rules without ever touching private keys — providing controls without introducing a new custody dependency.