How Is Counterparty Risk Managed in an OTC Crypto Trade?

Counterparty risk in OTC crypto trades is managed through several mechanisms. These include conducting thorough due diligence on the counterparty, utilizing collateralization agreements, and employing legal documentation like ISDA Master Agreements.

For large institutions, bilateral netting agreements can reduce exposure. In some cases, a central clearing counterparty (CCP) may be used, though this is less common than for exchange-traded products.