Issuer, Custody & Operational Risk

Issuer, custody, and operational risk are inherent whenever tokenized real-world assets depend on off-chain entities and processes. Tokenization does not eliminate reliance on issuers, custodians, administrators, or settlement infrastructure; it simply makes those dependencies more transparent. Even in regulated environments, risks can arise from operational failure, asset mis-segregation, governance breakdowns, fraud, or temporary service disruptions. These risks are not theoretical. They are well understood, documented, and actively managed across traditional financial markets.

The critical question, therefore, is not whether such risks exist, but how they are controlled and absorbed. rwaUSD addresses issuer and custody risk first through strict eligibility and counterparty standards. Only assets issued and custodied by institutional-grade counterparties are eligible for inclusion in the rwaUSD primary liquidity class. Issuer quality, custody arrangements, legal enforceability, and operational resilience are treated as first-class risk inputs, rather than secondary considerations. This approach reflects the reality that global asset managers and custodians, such as BlackRock and its peers, operate at a scale where operational failure or asset mis-segregation would have systemic consequences far beyond any single tokenized product. The controls, audits, and governance frameworks applied at this level are the same ones relied upon by sovereigns, pensions, and central banks.

That said, rwaUSD does not rely on reputation alone. Counterparty exposure is actively managed through diversification and explicit concentration limits. Where possible, collateral exposure is spread across issuers, custodians, and structures rather than concentrated in a single dependency. In cases where diversification is still developing, parameters are set conservatively to reflect that concentration risk explicitly, rather than assuming it away.

Importantly, rwaUSD is designed with layered protection, not single-point reliance. Custody diligence, legal structuring, operational monitoring, solvency buffers, and transparency reporting are all applied simultaneously. In addition, rwaUSD is designed to incorporate an insurance framework underwritten by Lloyd’s of London, intended to provide coverage against defined adverse scenarios affecting eligible collateral, subject to policy terms and exclusions. The role of insurance here is not to replace operational controls or due diligence, but to act as an additional backstop against low-probability, high-impact events.

This layered approach reflects how risk is managed in institutional finance. Large asset managers do not assume that any single safeguard will hold under all conditions. They assume that failures can occur, and design systems where multiple, overlapping controls absorb shocks before they reach end holders. rwaUSD applies the same principle on-chain. By combining institutional-grade counterparties, conservative exposure management, and insurance as supplemental protection, issuer and custody risk is reduced to a level consistent with how real-world collateral is already trusted and deployed at scale.