# What Constitutes a "Credit Event" That Would Trigger a CDS Payout? ⎊ Path

**Published:** 2025-12-04
**Author:** Greeks.live
**Categories:** Path

---

## What Constitutes a “Credit Event” That Would Trigger a CDS Payout?

A credit event is a specific, predefined trigger in a CDS contract that prompts a payout from the protection seller to the buyer. While contracts can vary, the most common credit events are bankruptcy of the reference entity, failure to pay on its obligations, and debt restructuring that harms the creditor.

The International Swaps and Derivatives Association (ISDA) provides standardized definitions for these events to ensure clarity and consistency in the market. The occurrence of a credit event must be publicly verifiable.

- [What Is Counterparty Risk in the Context of CDS?](https://learn.greeks.live/path/what-is-counterparty-risk-in-the-context-of-cds/)

- [What Is the Difference between Physical Settlement and Cash Settlement after a Credit Event?](https://learn.greeks.live/path/what-is-the-difference-between-physical-settlement-and-cash-settlement-after-a-credit-event/)

- [Why Does Theta Benefit the Option Seller but Harm the Option Buyer?](https://learn.greeks.live/path/why-does-theta-benefit-the-option-seller-but-harm-the-option-buyer/)

- [Does Theta Benefit the Buyer or the Seller of an Option?](https://learn.greeks.live/path/does-theta-benefit-the-buyer-or-the-seller-of-an-option/)

- [How Does a ‘Credit Default Swap’ (CDS) Work?](https://learn.greeks.live/path/how-does-a-credit-default-swap-cds-work/)

- [What Is the Concept of a “Credit Event” in a Credit Default Swap (CDS)?](https://learn.greeks.live/path/what-is-the-concept-of-a-credit-event-in-a-credit-default-swap-cds/)

- [How Does a Debt Restructuring Trigger a CDS Payout?](https://learn.greeks.live/path/how-does-a-debt-restructuring-trigger-a-cds-payout/)

- [Why Might a CDS Contract Not Cover Certain Types of Government Intervention or Bailouts?](https://learn.greeks.live/path/why-might-a-cds-contract-not-cover-certain-types-of-government-intervention-or-bailouts/)

## Glossar

### [Credit Event](https://learn.greeks.live/area/credit-event/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Event ⎊ In cryptocurrency derivatives, a Credit Event signifies a pre-defined occurrence triggering accelerated settlement or modification of a contract, mirroring concepts from traditional credit default swaps.

### [Payout](https://learn.greeks.live/area/payout/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Delivery ⎊ The final payout represents the culmination of the option contract, involving the transfer of the underlying asset or a cash equivalent from the losing party to the winning party upon exercise or expiration.

### [CDS](https://learn.greeks.live/area/cds/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Structure ⎊ Credit Default Swaps, within cryptocurrency derivatives, function as a mechanism to transfer credit risk associated with a specified reference entity or asset.

### [Credit Events](https://learn.greeks.live/area/credit-events/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Default ⎊ Credit Events are predefined occurrences, typically standardized by ISDA, that signal a material deterioration in the creditworthiness of a reference entity, triggering the settlement of credit derivative contracts.

## Discover More

### [Why Would a Trader Focus More on Implied Volatility than Historical Volatility?](https://learn.greeks.live/path/why-would-a-trader-focus-more-on-implied-volatility-than-historical-volatility/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Why Would a Trader Focus More on Implied Volatility than Historical Volatility?](https://learn.greeks.live/wp-content/uploads/2025/10/Micro-Electromechanical-Systems-Encoding-Quantum-Settlement-Finality-in-Decentralized-Finance-Oracles.webp)

Because trading is about predicting the future, and implied volatility is the market's official prediction.

### [For Derivatives That Track a Specific Index, Would TWAP or VWAP Be a Better Benchmark for Execution?](https://learn.greeks.live/path/for-derivatives-that-track-a-specific-index-would-twap-or-vwap-be-a-better-benchmark-for-execution/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![For Derivatives That Track a Specific Index, Would TWAP or VWAP Be a Better Benchmark for Execution?](https://learn.greeks.live/wp-content/uploads/2025/10/Aerodynamic-Digital-Asset-Futures-Contract-Execution-Through-Quantum-Resistant-Cryptographic-Hashing-Apparatus.webp)

VWAP is a better benchmark for index derivatives as it aligns trades with key high-volume periods like the market open/close.

### [In Options Trading, What Is the Equivalent of a Price Discrepancy That an Arbitrageur Would Exploit?](https://learn.greeks.live/path/in-options-trading-what-is-the-equivalent-of-a-price-discrepancy-that-an-arbitrageur-would-exploit/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![In Options Trading, What Is the Equivalent of a Price Discrepancy That an Arbitrageur Would Exploit?](https://learn.greeks.live/wp-content/uploads/2025/10/Abstract-Depiction-of-Cross-Hedged-Digital-Asset-Volatility-Surface-and-Structured-Products.webp)

Arbitrage exploits violations of pricing models, such as the Put-Call Parity principle, between related options and the underlying asset.

### [In Derivatives, When Would a Contract Use a "Request and Response" Model?](https://learn.greeks.live/path/in-derivatives-when-would-a-contract-use-a-request-and-response-model/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![In Derivatives, When Would a Contract Use a "Request and Response" Model?](https://learn.greeks.live/wp-content/uploads/2025/10/Macro-Visualization-of-Precision-Time-Decay-Modeling-in-Decentralized-Derivatives-Execution.webp)

For discrete, non-continuous events like options contract settlement at a specific expiration time or a binary outcome resolution.

### [How Would the Options Market for a Cryptocurrency React to the News of Its Underlying Hash Algorithm Being Vulnerable?](https://learn.greeks.live/path/how-would-the-options-market-for-a-cryptocurrency-react-to-the-news-of-its-underlying-hash-algorithm-being-vulnerable/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Would the Options Market for a Cryptocurrency React to the News of Its Underlying Hash Algorithm Being Vulnerable?](https://learn.greeks.live/wp-content/uploads/2025/10/Abstract-Volumetric-Visualization-of-Cryptocurrency-Options-Hedging-Strategy-Implementation-Across-Decentralized-Exchanges.webp)

A vulnerable hash algorithm would cause crypto option prices to soar, especially for puts, as traders panic and liquidity vanishes.

### [What Are the Main Arguments for and against the Regulation of Naked CDS?](https://learn.greeks.live/path/what-are-the-main-arguments-for-and-against-the-regulation-of-naked-cds/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Are the Main Arguments for and against the Regulation of Naked CDS?](https://learn.greeks.live/wp-content/uploads/2025/10/Futuristic-Decentralized-Finance-Propulsion-System-Representing-Algorithmic-Option-Hedging-Mechanisms.webp)

For regulation: they cause systemic risk. Against regulation: they provide liquidity and efficient pricing.

### [What Would Happen If the Bitcoin Network Difficulty Never Adjusted?](https://learn.greeks.live/path/what-would-happen-if-the-bitcoin-network-difficulty-never-adjusted/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Would Happen If the Bitcoin Network Difficulty Never Adjusted?](https://learn.greeks.live/wp-content/uploads/2025/10/Visualizing-Delta-Hedging-Mechanics-Utilizing-Light-Transmission-Through-Opaque-Housing-Structure.webp)

Block discovery time would become unstable, leading to rapid inflation or network paralysis as hash rate changes.

### [What Is the Process of Novation in a CDS Trade Cleared through a CCP?](https://learn.greeks.live/path/what-is-the-process-of-novation-in-a-cds-trade-cleared-through-a-ccp/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Process of Novation in a CDS Trade Cleared through a CCP?](https://learn.greeks.live/wp-content/uploads/2025/10/Intertwined-Quantum-Digital-Asset-Hedging-Mechanism-Through-Option-Strike-Price-Boundaries.webp)

Novation is when the clearinghouse replaces the original parties in a trade, becoming the counterparty to both.

### [How Would Technical Analysis Be Viewed under the Weak Form of the Efficient Market Hypothesis?](https://learn.greeks.live/path/how-would-technical-analysis-be-viewed-under-the-weak-form-of-the-efficient-market-hypothesis/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Would Technical Analysis Be Viewed under the Weak Form of the Efficient Market Hypothesis?](https://learn.greeks.live/wp-content/uploads/2025/10/Crystalline-Pyramidal-Volatility-Proxy-Mounted-on-Decentralized-Ledger-Hardware-Interface-Analysis.webp)

Weak-form EMH says all past price data is already in the price, making technical analysis a useless art.

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