Custody Arrangement: Decision Framework

The three questions

Each of these appears in the published material of a licensed digital asset custodian, which is a useful cross-check.

Question	If the answer is	Then
Can you staff key management?	Fewer than three people who will rehearse the procedure	Provider arrangement
How much is held?	Below the threshold justifying a dedicated process	Provider arrangement
	Above a single provider’s meaningful insurance ratio	Split across arrangements
Whose money is it?	Clients’	Regulated custodian, usually mandated

None of these concern which key management technology is used.

What self-management actually requires

Three to five key holders, geographically separated, each with a tested backup.

A signing procedure that has been rehearsed rather than written.

A recovery procedure tested annually, with real signatures, by someone who did not set it up.

A plan for a holder leaving, being ill or unreachable.

Documentation surviving the departure of its author.

Failure characteristics

The business equivalents of these terms appear in the documentation of a platform built for institutional allocations.

Arrangement	Probability	Severity
Self-managed, disciplined	Low	Total and irreversible
Self-managed, decayed	Higher	Total and irreversible
Regulated provider	Higher	Partial, with a defined process

The most common self-management failure is not compromise. It is that the person who understood the arrangement left.

The arrangement most organisations reach

Working balance with a provider, where movement is frequent and coordination would be constant.

Reserve self-managed or with a second provider, where movement is rare.

That bounds the loss from either failure mode without requiring excellence at both.

Provider verification, before committing

On trading terminology specifically, a crypto exchange with published fees publishes its fee schedule using these definitions.

Authorisation covering custody, verified on the register, entity matching the contract.

Segregation model, evidencing mechanism and assurance provider.

Insurance limit alongside total assets under custody.

Insolvency position, with the legal basis cited.

Time before a new withdrawal destination becomes usable.

The question that should decide it

Not which is more secure in principle.

Which arrangement your organisation will actually operate correctly every quarter for the next several years.