FAQ Answer
Escrow and Trade Protection
What is the difference between custodial and non-custodial escrow?
Custodial escrow places cryptocurrency under the control of a platform or third party. Non-custodial escrow uses a smart contract to hold and move the asset according to defined rules.
Answer
The difference between custodial and non-custodial escrow is primarily who controls the cryptocurrency while a trade is active.
With custodial escrow, a platform or third-party operator receives the cryptocurrency into wallets it controls. Users depend on that operator to safeguard the funds, maintain accurate internal records and process the final release or return.
Non-custodial escrow uses a blockchain smart contract to hold the cryptocurrency according to programmed rules. The platform does not hold the asset in a conventional company-controlled wallet. Deposits, releases and other escrow movements can be recorded on-chain.
Feature | Custodial escrow | Non-custodial escrow |
Control during the trade | Platform or third-party custodian | Smart contract |
Transaction records | Often maintained internally | Escrow movements recorded on-chain |
Release mechanism | Executed by the custodian | Executed through contract functions |
Main dependency | Operator security, solvency and internal controls | Contract code, network operation and permitted administrative functions |
Typical risks | Withdrawal restrictions, custodian failure or wallet compromise | Smart contract bugs, incorrect signatures, network errors or misunderstood contract permissions |
Senpero uses on-chain escrow for the cryptocurrency side of a P2P order. The seller deposits the asset into the escrow contract, while the fiat payment moves directly between the buyer and seller. Senpero does not hold the fiat transfer.
Non-custodial does not mean that an escrow has no rules, administrators or dispute mechanism. A contract may include specific functions that allow an authorized dispute outcome to determine where the locked asset is sent. Users should understand the contract’s permissions rather than assuming that every non-custodial system works identically.
Non-custodial escrow reduces reliance on platform custody, but it does not remove blockchain risk, smart contract risk, payment fraud or the need to verify the counterparty.