# Counterparty risk (digital assets)

Counterparty risk is the exposure that the other side of a trade, or the venue holding your assets, fails before settlement completes. In digital assets it concentrates in pre-funded exchange balances and bearer-style transfers, which is why institutional market structure moves settlement back into custody.

## Designing counterparty risk out of digital asset trading

The mitigations are structural, not contractual: keep assets in your own custody until finality, pledge instead of transfer, settle simultaneously or through a mechanism that never lets one party hold both legs, and diversify venues to eliminate concentration.

Taurus-NETWORK implements this structure between institutions: collateral pledged in Taurus-PROTECT, trading without pre-funding, settlement at finality on-chain or in fiat.

FAQ:

- Did custody failures or trading failures drive institutional caution? Trading structure failures: assets pre-funded on venues that collapsed. The lesson institutions drew is that assets should stay in their own custody until settlement, exactly what off-exchange settlement provides.

Related: https://www.taurushq.com/glossary/off-exchange-settlement/ https://www.taurushq.com/network/

Learn more: https://www.taurushq.com/glossary/counterparty-risk/