How Does the Transparency of the Blockchain Help in Assessing Counterparty Risk?

The transparency of the blockchain allows anyone to verify the state of a smart contract and the collateral locked within it in real-time. All transactions and collateralization ratios are publicly recorded and auditable.

This means that a user can independently verify that a protocol or a specific loan is sufficiently collateralized, without needing to trust a third-party report. This radical transparency reduces information asymmetry and allows market participants to make more informed decisions about the risks they are taking, thereby reducing overall systemic risk.