Settlement risk is the risk that settlement does not occur as expected, exposing a party to loss after it has already performed or become obligated to perform its side of a transaction.
Settlement risk can arise from counterparty default, operational failure, timing mismatches, asset-price movements, or the failure of a payment or securities transfer to become final. In stablecoin arrangements, additional dependencies can include blockchain consensus, custodians, bridges, payment processors, reserve redemption, and fiat payout systems. The relevant exposure depends on when each leg of the transaction becomes final.
Settlement risk concerns failure or delay in completing the exchange of value. Counterparty risk is the broader risk that another party fails to meet an obligation.
Settlement design determines how long parties remain exposed and whether one side can deliver value before receiving the corresponding asset or payment.
A merchant that releases goods after seeing an unfinalized stablecoin transaction remains exposed if the transfer is later reversed or fails to settle.