What is federated custody, and how does it secure my bitcoin?

Federated custody, also referred to as community custody or 2nd-party custody, can be thought of as a middle ground between self-custody and 3rd-party custody, requiring less personal responsibility than the former and implementing a different trust model than the latter.

Instead of relying on entities like exchanges, community members rely on the guardians of a federation, who can either be known members of the community or entirely anonymous. The federation model is highly customizable, and users should allocate resources accordingly.

By distributing custodianship across federation guardians, federated custody flips the prevailing trust model on its head, creating a "best of both worlds" scenario where users can onboard to Bitcoin in a highly convenient way without sacrificing autonomy.