Custodian Single Point of Failure
One custodian, one signing arrangement, or one operations team stands between holders and their assets, so a single failure can be terminal.
How it happens
Custody reduces to who can produce a valid signature, and every custody design concentrates that ability somewhere. A single signer with no documented succession is the sharpest version, but concentration also appears when a multi-party computation setup runs in one data center, when several nominally independent signers use the same vendor, or when a regulated product names one custodian for all of its holdings. Insurance is commonly limited to hot-wallet balances and to specific causes of loss, so it rarely covers the largest exposures. Subcustody adds an unobserved layer, because the named custodian may place assets with another firm whose controls are not disclosed.
What you can actually observe
Establish who can sign, in what quorum, under what recovery procedure, and whether any independent party has tested the key ceremony and the disaster recovery plan. Check whether the custodian is a regulated trust company or similar, what its financial statements show, and whether it discloses subcustodians. Read the insurance policy's scope rather than the headline figure, since cause and wallet type limitations do most of the work.
Precedent
QuadrigaCX customers lost access to assets in 2019 when the exchange said that only its founder, who had died, held the keys to its cold wallets.
What makes it more or less material
Look at the signing quorum and the independence of signers, the documented recovery and succession procedure, whether an independent audit tested it, the regulatory status of the custodian, and whether subcustodians are disclosed.