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Explain the Risk of Counterparty Default in a Centralized versus Decentralized Exchange

CEX bears centralized counterparty risk; DEX risk is managed by smart contract, introducing protocol or code failure risk.
Greeks.Live23.11.25

Explain the Risk of Counterparty Default in a Centralized versus Decentralized Exchange.

In a Centralized Exchange (CEX), the risk of counterparty default is primarily borne by the exchange itself, which manages the insurance fund and acts as the central clearing party. In a Decentralized Exchange (DEX), the risk is distributed and managed by the smart contract, which handles collateral and settlement.

The CEX risk is centralized failure; the DEX risk is smart contract or protocol failure.

What Is the Main Difference between a Centralized Exchange (CEX) and a Decentralized Exchange (DEX)?
How Does a Centralized Exchange (CEX) Price Feed Differ in Risk from a DEX Feed?
How Do Options Contracts on a CEX Compare to Perpetual Swaps on a DEX in Terms of Counterparty Risk?
Compare the Counterparty Risk on a Centralized versus a Decentralized Options Exchange

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