What Is “Smart Contract Risk” and How Is It Different from Traditional Counterparty Risk?

Smart contract risk is the risk of financial loss due to flaws, bugs, or vulnerabilities in the smart contract's code itself. This includes coding errors that cause the contract to behave unexpectedly or security holes that could be exploited by a hacker.

It is inherent to the technology. Traditional counterparty risk is the risk that the other party in a transaction will fail to fulfill their contractual obligations due to insolvency, unwillingness, or some other reason.

It is a human or financial risk. Smart contract risk is about the integrity of the automated system, while counterparty risk is about the integrity of the opposing party.