A custodial wallet is a type of cryptocurrency wallet where a third party, such as an exchange or a financial institution, holds and manages the private keys of the users on their behalf. This means that users do not have full control over their funds, as the custodian has the authority to access and manage the funds stored in the wallet. It provides convenience for users who may not want to manage their own private keys, but it also comes with security risks as users are relying on the custodian to safeguard their funds.