How Does a Lack of Transparency Affect an Exchange’s Perceived Counterparty Risk?

A lack of transparency regarding the insurance fund significantly increases an exchange's perceived counterparty risk. If traders cannot verify the fund's size and health, they must assume the worst-case scenario: that the fund is insufficient.

This uncertainty makes traders less willing to hold large, leveraged positions, as they fear the high likelihood of Auto-Deleveraging (ADL) or socialized losses in a market crisis.