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What Is ‘Counterparty Risk’ in the Context of Centralized Crypto Exchanges?

The risk that the centralized exchange fails (e.g. insolvency, hack, freeze) and the arbitrageur loses funds.
Greeks.Live23.11.25

What Is ‘Counterparty Risk’ in the Context of Centralized Crypto Exchanges?

Counterparty risk is the risk that the centralized exchange (the counterparty) will fail to honor its obligations. This includes the risk of the exchange being hacked, becoming insolvent, freezing user funds, or engaging in regulatory non-compliance.

If an exchange fails, the arbitrageur's funds held there are at risk, potentially leading to a loss of the entire capital used for the arbitrage trade. This risk is inherent in CEX-based arbitrage.

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