How Does Counterparty Risk Manifest in a Crypto OTC Transaction?

Counterparty risk is the risk that the other party to the transaction will fail to fulfill their side of the agreement, such as failing to deliver the agreed-upon crypto or fiat currency. Since many crypto OTC trades are bilateral and not centrally cleared, this risk is direct.

Mitigating this involves thorough due diligence on the counterparty and potentially using escrow or a trusted third-party settlement agent.