In traditional finance, custody is a service in which a financial institution holds securities on behalf of the client to reduce the risk of the client losing his/her assets or having them stolen.
In cryptocurrency, custody solutions are security systems and independent storage to hold large quantities of token. These services are mainly aimed at institutional investors who hold large amounts of digital assets. Custody solutions generally incorporate a combination of hot storage with connection to the internet, and cold storage that is disconnected from the internet.
There are two reasons why custody solutions are needed. First of all, custody solutions hugely increase the safeguarding effectiveness of digital assets. Secondly, custody is required by regulation. According to SEC regulation, institutional investors with more than $150,000 worth of customer assets are required to store the holdings with a “qualified custodian”. Since very few mainstream banks offer custodian service for cryptocurrency, custody solutions are needed.