How Does a DAO Structure Mitigate Counterparty Risk?

Counterparty risk is the chance that the other party in a transaction will default. In a DAO, the transaction rules are enforced by immutable smart contracts, which hold the collateral and automatically execute the terms.

This eliminates reliance on the trustworthiness of a human or central entity. The code, visible on the blockchain, is the sole arbiter, significantly reducing counterparty risk.