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

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.

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What Is the Role of a Clearing House in Traditional Finance Finality?

How Does the Lack of a Central Clearing House Affect Over-The-Counter (OTC) Crypto Derivatives?

What Is the Function of a Central Clearing House?

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Can Smart Contracts Fully Replicate the Role of a Central Clearing House in Options Trading?

Glossar

Counterparty Risk

Exposure ⎊ Counterparty risk represents the potential loss incurred when a trading partner defaults on their contractual obligations.

Centralized Crypto Options

Exchange ⎊ These platforms serve as the central counterparty for options contracts written on cryptocurrencies, managing order books and collateral requirements.