What Is the Difference between Settlement Risk and Credit Risk in This Context?
Credit risk is the risk that a counterparty will be unable to meet its financial obligations under the contract at any point. Settlement risk is the risk that the exchange of value (e.g. crypto for fiat) does not occur simultaneously, meaning one party delivers their side while the other defaults before delivery.
Settlement risk is a specific type of credit risk that arises during the final phase of a transaction.
Glossar
Settlement Risk
Exposure ⎊ Settlement risk in cryptocurrency, options, and derivatives arises from the failure of a counterparty to fulfill contractual obligations post-trade, specifically during the settlement period.
Finality Guarantee
Settlement ⎊ Finality Guarantee, within cryptocurrency and derivatives, denotes the irrevocable confirmation of a transaction’s completion, mitigating counterparty risk inherent in decentralized systems.
Credit Risk
Exposure ⎊ Within cryptocurrency derivatives and options trading, exposure to credit risk arises from counterparty obligations, particularly when dealing with leveraged instruments or decentralized exchanges.