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Can a Decentralized Finance (DeFi) Derivative Eliminate Counterparty Risk?

DeFi minimizes traditional counterparty risk by using smart contracts but introduces new risks like smart contract bugs and protocol governance failure.
Greeks.Live23.11.25

Can a Decentralized Finance (DeFi) Derivative Eliminate Counterparty Risk?

DeFi derivatives aim to minimize traditional counterparty risk by replacing human intermediaries with immutable smart contracts. However, they introduce new risks, primarily "smart contract risk" (bugs or exploits in the code) and "governance risk" (changes to the protocol).

While the risk of a centralized entity defaulting is eliminated, the risk of technical failure remains and can lead to loss of funds.

What Are the Counterparty Risks Associated with Using Decentralized Derivatives Platforms for Hedging Impermanent Loss?
How Does a “DAO” Govern a DeFi Derivatives Protocol?
Can Smart Contracts Eliminate Counterparty Risk in a Crypto Trade?
How Does Decentralized Finance (DeFi) Introduce New Security Risks Compared to Centralized Exchanges?

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