Custodial wallet

In this model the keys live in the custodian's infrastructure, usually in hardware security modules (HSM) combined with cold storage and multisig or MPC schemes. User balances are often pooled into omnibus accounts and reflected in an internal off-chain ledger, so transfers between clients may never touch the blockchain. The user delegates account recovery, KYC/AML and regulatory compliance to the provider.

It lowers friction: there is no seed to lose, there is support and password recovery, and it is the dominant model for retail users and for companies that prefer not to manage keys. The trade-off is counterparty risk, captured in the idea that whoever does not hold the keys depends on whoever does. That is why the custodian's strength, its audits and its fund segregation are the variables that truly weigh on the choice.