Unveiling Counterparty Risk: A Multi-Dimensional Assessment of Governance, Regulation, and Compliance Exposure in Global Cryptocurrency Exchanges

Abstract

Cryptocurrency exchanges have become essential infrastructure in the global digital asset economy, but their continued expansion has exposed critical vulnerabilities stemming from opaque governance, fragmented regulatory environments, and risky operational practices. These vulnerabilities have important implications for market participants and regulators, given the reliance of both retail and institutional participants on exchanges for critical functions such as trading access, liquidity, and asset custody. Prevailing methods for evaluating exchange risk tend to emphasize surface-level indicators such as trading volume or user growth, offering little insight into the structural and legal dimensions that underpin systemic vulnerability. To address this gap, this study develops a structured dataset of over 250 active and defunct centralized cryptocurrency exchanges, systematically categorizing each based on governance models, regulatory exposure, product offerings, and geographic reach to produce detailed operational and legal profiles for comparative analysis. Our analysis identifies a clear relationship between jurisdictional permissiveness, limited ownership transparency, and elevated compliance risk. Notably, exchanges situated in jurisdictions lacking enforceable licensing frameworks and organizational transparency are disproportionately represented among platforms offering leveraged derivatives. Taken together, these findings highlight how structural factors such as regulatory permissiveness and clarity in ownership structures can serve as leading indicators of exchange-level risk. By centering structural and jurisdictional characteristics, this study advances a more robust foundation for evaluating exchange-level risk, enhancing the practical relevance of risk assessments for regulators and informing investment decision-making.