Counterparty risk: "not your keys, not your coins"

A crypto exchange is a company that lets you buy, sell and trade crypto. When you deposit money or coins, the exchange usually keeps them in its own wallets. Your account shows a balance, but the exchange holds the private keys.

Counterparty risk is the risk that the other side of an arrangement fails to keep its promise. With an exchange, your balance is a promise: "you may withdraw these coins whenever you ask." If the company cannot or will not keep that promise, your balance may be worth little.