How Does the Lack of a Traditional CCP in Many DeFi Derivatives Protocols Increase Protocol Risk? ▴ Learn

How Does the Lack of a Traditional CCP in Many DeFi Derivatives Protocols Increase Protocol Risk?

Traditional DeFi derivatives protocols often lack a centralized CCP to act as a guarantor, leaving participants exposed to counterparty risk. If a large trader defaults, the protocol's insurance fund or remaining liquidity pool must absorb the loss, potentially leading to insolvency or a liquidity crisis.

This contrasts with a CCP's robust, mutualized default management process and segregated margin accounts.

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