@paddybru
If custodians or clearinghouses face credit crises, liquidity risk escalates. Portfolios may lose access to collateral, while withdrawal queues extend. A defensive hedge involves shifting part of reserves into on-chain stablecoins or multi-custodian arrangements. Credit default swaps (if available) or proxy shorts on exposed tokens provide additional coverage. Backtests simulate sudden freezes by locking assets and measuring impact on liquidity-adjusted returns. Portfolios with built-in redundancy and credit hedges demonstrate superior resilience. This approach protects against counterparty defaults cascading into broader market instability.
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