> For the complete documentation index, see [llms.txt](https://help.rails.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://help.rails.xyz/getting-started/custody-and-collateral.md).

# Custody & Collateral

## Custody

When trading digital assets (like cryptocurrencies or tokenized securities), **custody** refers to how your assets are secured and who holds the cryptographic "[private keys](https://www.investopedia.com/terms/p/private-key.asp)" required to access and move them.

Rails supports two custody models, based on account type:

{% tabs %}
{% tab title="Business Accounts" %}
For institutional clients, Rails supports an **off-exchange settlement (OES)** model.

Rails handles execution, margin, and net settlement. Assets stay under the protection of a regulated custodian throughout the trading lifecycle.

* Rails does **not** take custody of institutional capital.
* The qualified custodian attests to available collateral.
* Rails treats attested balances as margin.
* Only net **P\&L**, funding, and fees are settled between parties, typically on a daily basis.

{% hint style="success" %}
This model supports institutional treasury, risk, and compliance requirements.
{% endhint %}
{% endtab %}

{% tab title="Individual Accounts" %}
For individual Rails users, funds are held in an **on-chain, audited smart contract**.

Unlike traditional finance, where a bank or financial institution holds physical cash or electronic records of your shares, digital assets exist on public, immutable blockchains. Whoever controls the private keys controls the assets.

{% hint style="success" %}

#### Smart Contract Audits

The smart contract that holds individual funds has been independently audited, and the contract address and audit report are published on our [platform intro page](/getting-started/our-platform.md) so you can review them directly.
{% endhint %}

This model provides full on-chain visibility and integrates directly with the Rails trading system.

* User funds are secured in an audited smart contract.
* The smart contract processes deposits and withdrawals.
* On-chain deposit events credit user accounts in real time.
* Withdrawal requests are routed through Rails based on verified balances.
* Trading activity is consolidated off-chain, then validated and recorded on-chain every 30 seconds.

This approach combines fast trading performance with on-chain integrity and auditability.

{% hint style="success" %}
Learn how to [connect a wallet](/manage-account/wallet-connection.md), or about how to [fund your account](/manage-account/manage-funds.md).
{% endhint %}

#### What this means for your funds

Because your funds sit in the smart contract rather than in a private company ledger, the rules that govern deposits, withdrawals, and balances are enforced by code that anyone can inspect. Rails cannot move your funds outside of the conditions defined in that contract, and every change to your balance is anchored on-chain.

Use our [Block Explorer](/manage-account/block-explorer.md) to independently validate any transaction against its on-chain record.

Trades are matched off-chain for speed, but the resulting balances are validated and recorded on-chain roughly every 30 seconds. This means you never have to take Rails' word for your position: you can independently verify every deposit, withdrawal, fee, and settlement yourself.
{% endtab %}
{% endtabs %}

## Collateral

{% hint style="info" %}
This section only applies to individual accounts, as Business Accounts use the off-exchange settlement model described above.
{% endhint %}

For individual accounts, all collateral must be deposited in **USDT** on a supported blockchain.

Rails handles the conversion path as part of the deposit flow using USDT's omni-chain properties. This means you can fund your account without leaving the platform, even if your USDT starts on another supported network.

#### What this means in practice

* **Individual accounts** post collateral by depositing USDT through Rails.
* Deposits are converted into the required collateral format during the deposit flow.
* Only funds that have been successfully deposited are available as trading collateral.
* Collateral in use for open positions or orders may not be available to withdraw or transfer.

{% hint style="info" %}
Need help funding your account? See [Deposit](/manage-account/manage-funds/deposit.md), [Transfer](/manage-account/manage-funds/transfer.md), and [Bridge](/manage-account/manage-funds/bridge.md).
{% endhint %}

#### Why USDT?

{% columns %}
{% column width="83.33333333333334%" valign="middle" %}
We choose to leverage [Tether's](https://tether.to/en/) USDT token, as USDT is the most widely accepted stablecoin in the world and has a [cross-chain transfer service](https://usdt0.to/transfer) which makes it easy, fast and low cost to bridge other USDT tokens to other supported networks. Additionally, leveraging a single token enables clearer and more transparent tracking and auditing of funds.

{% hint style="success" %}
Learn more about USDT & USDT0 on [Tether's website](https://usdt0.to/assets/usdt0).
{% endhint %}
{% endcolumn %}

{% column width="16.666666666666657%" %}

<figure><img src="/files/oHMkA8yd9pEPfn6Sv5eq" alt="" width="128"><figcaption></figcaption></figure>
{% endcolumn %}
{% endcolumns %}

#### Procuring USDT

There are a few options to procure USDT:

{% tabs %}
{% tab title="Buy USDT with fiat" %}
This is the most common path if you're starting with fiat (or, traditional currency like USD, EUR, etc.):

1. Create and verify an account on a reputable centralized exchange (for example, Kraken) that supports USDT.
2. Deposit fiat (bank transfer, card, etc.) and purchase **USDT**.
3. Withdraw the USDT to the [wallet you'll link & connect to Rails](/manage-account/wallet-connection.md).
4. Buy and withdraw a small amount of **ETH** on the same network to cover gas.
5. Return to Rails and follow the [Deposit](/manage-account/manage-funds/deposit.md) steps.

{% hint style="info" %}
When withdrawing from the exchange, double-check the **network** and **wallet address** before confirming. Most exchange withdrawals are irreversible.
{% endhint %}
{% endtab %}

{% tab title="Swap a token you have" %}
If you already hold another cryptocurrency (e.g. ETH, BTC, or another stablecoin), you can convert it to USDT instead of buying with fiat.

* **On a centralized exchange:** trade your existing asset for USDT, then withdraw on a supported network.
* **In a self-custody wallet:** use your [supported wallet's](/manage-account/wallet-connection.md) built-in swap feature, or a decentralized exchange, to swap to USDT on a supported network. Keep enough of the network's native token (e.g. ETH) to cover swap and transfer gas.

After swapping, you'll still need **ETH on the same network** for gas before you can [deposit](/manage-account/manage-funds/deposit.md).
{% endtab %}

{% tab title="Buy USDT inside your wallet" %}
Many self-custody wallets include a built-in fiat **on-ramp** that lets you buy USDT with a card or bank transfer and receive it directly in your wallet.

1. Open the buy/on-ramp feature in your [supported wallet](/manage-account/wallet-connection.md).
2. Select **USDT** and a supported network.
3. Complete the purchase. The USDT lands in the wallet you'll [link to Rails](/manage-account/wallet-connection.md).
   {% endtab %}
   {% endtabs %}