Counterparty Risk is the risk that the other party to a financial transaction or contract will fail to meet its obligations before settlement, causing loss to the non-defaulting party. It is central to derivatives, lending and securities trading, and is managed through collateral, netting and central clearing. Blockchain settlement and atomic swaps aim to reduce counterparty risk by removing reliance on trusted intermediaries.
Overview
- Counterparty Risk is the risk that the other party to a financial transaction or contract will fail to meet its obligations before settlement, causing loss to the non-defaulting party.
- It is central to derivatives, lending and securities trading, and is managed through collateral, netting and central clearing.
- Blockchain settlement and atomic swaps aim to reduce counterparty risk by removing reliance on trusted intermediaries.
- It is modelled as a subclass of Risk Management within the blockchain domain.
Key aspects
- Clearing House is a constituent or mechanism relevant to Counterparty Risk.
Mechanisms
- Counterparty Risk supports Blockchain.
Applications
- Applied in contexts involving Blockchain.
- Applied in contexts involving Decentralized Finance.
- Applied in contexts involving Finance.