What Are the Counterparty Risks Associated with Over-the-Counter (OTC) Hashrate Derivative Contracts?

OTC contracts are privately negotiated, non-standardized agreements, meaning they carry significant counterparty risk. This is the risk that the other party in the contract will default on their obligation before the contract expires.

Unlike exchange-traded derivatives, there is no central clearing house to guarantee the trade, making due diligence on the counterparty's financial stability crucial.