What Is Counterparty Risk and How Is It Mitigated on Centralized Crypto Options Exchanges?

Counterparty risk is the risk that the other party to a financial transaction will fail to fulfill their contractual obligations. On centralized crypto options exchanges, this risk is largely mitigated by the clearing house or the exchange itself.

They act as the central counterparty (CCP) to every trade, guaranteeing the performance of the contract. This is typically backed by a robust margin system that requires both buyers and sellers to post collateral.