Counterparty Failure

Definition ∞ Counterparty failure describes the risk that one party in a financial transaction defaults on its obligations, causing financial loss to the other party. In digital asset markets, this can arise from an exchange, lending platform, or other service provider becoming insolvent, experiencing a security breach, or failing to honor agreements. The absence of traditional financial intermediaries in some crypto transactions can sometimes heighten this exposure.
Context ∞ The prevalence of counterparty failure discussions in crypto news often relates to the insolvency of centralized entities or the operational integrity of decentralized finance (DeFi) protocols. Market participants are increasingly concerned with evaluating the creditworthiness and operational resilience of service providers to mitigate this danger.