A custodial wallet is a crypto wallet where a third party (usually an exchange or wallet provider) holds and manages the user’s private keys. This means users don’t have full control over their funds, but they benefit from ease of use, password recovery, and customer support. While convenient, custodial wallets pose a security risk if the provider gets hacked or becomes insolvent. “Not your keys, not your crypto” is a common phrase warning against overreliance on them.