Counterparty risk refers to the potential that a party involved in a financial transaction may fail to meet their obligations. In the realm of cryptocurrencies, this risk commonly arises in various scenarios, such as trading on exchanges, using lending platforms, or engaging in decentralized finance (DeFi).When trading on an exchange, users rely on the platform to securely handle their funds. If the exchange were to experience a hack, a technical failure, or insolvency, users may lose their assets.In lending scenarios, if a borrower fails to repay their loan, the lender faces the risk of loss. Even in smart contract transactions, there’s a possibility that the code may have vulnerabilities or that the other party may not fulfill their side of the deal.Mitigating counterparty risk often involves conducting thorough research, using reputable platforms, and employing strategies like diversification. Understanding these risks helps users make informed decisions and protect their investments.