Custody risk
The risk a custodian (bank, exchange, qualified custodian) loses, mismanages, or is denied access to reserves it holds.
For fiat-backed stablecoins, custody risk is concentrated at the banks holding reserves. The March 2023 USDC depeg is the textbook case: $3.3B of $40B reserves at SVB became briefly inaccessible. Concentration limits, FDIC-eligible diversification, and Treasury-money-market structures all reduce this vector.
Related terms
- Counterparty riskThe risk a transaction counterparty fails to meet its obligation — applies broadly to issuers, custodians, and exchanges.
- Bank runCoordinated mass redemption that exhausts an issuer's liquid reserves before all holders can be paid.
- ReservesThe assets backing a stablecoin's outstanding liabilities — for fiat-backed stables, predominantly cash + Treasuries.
- Segregated assetsReserves held in a way that legally insulates them from issuer-corporate creditors in bankruptcy.