What Is “Herstatt Risk” and Its Relevance to Crypto Settlement?

Herstatt Risk, also known as principal risk, is the settlement risk specific to transactions where one party delivers the asset but the counterparty defaults before delivering the corresponding payment. In crypto, this relates to cross-chain or fiat-to-crypto settlements where the transfer of the two legs of the trade is not simultaneous.

This temporal gap creates a window for default. Atomic swaps are a technology aiming to eliminate this risk.