How Can Users Assess the Counterparty Risk of a Specific Custodial Exchange?

Users can assess counterparty risk by researching several key factors. This includes examining the exchange's regulatory licenses and compliance with financial authorities in its jurisdiction.

It is also important to review their proof-of-reserves, which demonstrates that they hold sufficient assets to cover user deposits. The exchange's history of security incidents and its insurance policies for user funds are also critical indicators.

Finally, reviewing the terms of service can clarify how user assets are held and protected in the event of insolvency.