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  1. Home
  2. /Glossary
  3. /Credit Default Swap (CDS)
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traditional-finance

Credit Default Swap (CDS)

A financial contract that acts like insurance against a borrower defaulting on their debt.

Definition

A financial contract that acts like insurance against a borrower defaulting on their debt. The buyer pays regular premiums, and if the borrower defaults, the seller pays out. CDS played a major role in the 2008 financial crisis, and similar instruments are now emerging in DeFi.

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Related Terms

Derivatives

Financial contracts whose value is based on an underlying asset.

Bonds

Debt securities where you lend money to a government or corporation in exchange for regular interest payments and your principal back at maturity.

Risk Management

Strategies for limiting potential losses in your investments.

Accredited Investor

Someone who meets specific income or net worth thresholds set by regulators, qualifying them for investments not available to the general public.

Anti-Money Laundering (AML)

Laws and procedures designed to prevent criminals from disguising illegal funds as legitimate income.

Asset Allocation

How you divide your investments across different asset classes like stocks, bonds, crypto, and cash.

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