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How Does Tokenization Impact the Counterparty Risk Inherent in Traditional Over-the-Counter (OTC) Derivatives?

Tokenization eliminates counterparty risk by using smart contracts for automated, collateral-locked execution and settlement.
Greeks.Live16.11.25

How Does Tokenization Impact the Counterparty Risk Inherent in Traditional Over-the-Counter (OTC) Derivatives?

Tokenization significantly reduces counterparty risk by replacing bilateral agreements with smart contracts and collateral held on-chain. The derivative's terms are immutable, and execution is automatic upon contract expiry or exercise, removing the need to trust a counterparty to honor their obligation.

Collateral is locked in the contract, ensuring funds are available for settlement.

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