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What is counterparty risk?
What is counterparty risk?

Counterparty risk is the potential loss due to the other party failing to meet their obligations.

Updated over a week ago

Counterparty risk is the risk to each party of a contract that the counterparty will not live up to its contractual obligations.

Need a crypto wallet that gives you full control of your assets without counterparty risk? You can download Exodus here.


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What is counterparty risk?

Counterparty risk is the risk to each party of a contract that the counterparty will not live up to its contractual obligations.

In the world of cryptocurrency, counterparty risk comes into play in specific circumstances.

While decentralized, open blockchains like BTC are designed specifically to eliminate counterparty risk. However, some assets that are issued by centralized platforms carry counterparty risk.

Centralized platforms also carry counterparty risk. Centralized exchanges control your private keys, and may or may not have enough funds to cover every depositor.


What is counterparty risk with stablecoins?

Digital assets tied to real-world commodities or government-issued fiat currencies are good examples of assets that carry counterparty risk. These assets are dependent upon a company holding enough of a given currency or commodity to "back" the digital currency in circulation. The risk inherent to such a model is that the company issuing the digital asset may not actually own or control the real-world asset to back the digital counterpart.

This class of cryptocurrencies, known as stablecoins, are particularly susceptible to counterparty risk as stablecoins achieve relative "price stability" by holding as collateral the underlying asset in question. Stablecoins that are backed by US dollars illustrate this risk, as the company issuing the coin may not have the US dollars on hand sufficient to back the digital asset.


Is there counterparty risk in Exodus?

Exodus is not a centralized exchange and does not store private keys or sensitive user data in any form. The Exodus wallet itself is free of counterparty risk - however, certain assets within Exodus may carry this risk independent of the wallet software itself.

In Exodus, the stablecoins Tether (USDT), USD Coin (USDC), Binance USD (BUSD), DAI (DAI), Gemini Dollar (GUSD), Origin Dollar (OUSD), Paxos (PAX), and TrueUSD (TUSD) are assets that carry counterparty risk. Please bear this in mind should you choose to hold or exchange these using the in-app swap in your Exodus wallet.

Binance will cease support for Binance USD (BUSD) on December 15, 2023, and recommends trading BUSD to another asset. If you have questions or need assistance, please email us at [email protected].

Counterparty risk is commonly discussed in the cryptocurrency sphere as it pertains to holding coins on a centralized exchange. Doing so introduces counterparty risk as the centralized exchange controls your private keys, and, thus, may or may not have enough funds to cover every depositor.

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