Systemic Risk (Contagion)
The risk that the failure of one crypto company or protocol triggers cascading losses across others it was financially connected to.
Systemic risk (or contagion) describes how the failure of one company or protocol can cascade into losses at other, seemingly unrelated companies that were financially exposed to it — through loans, deposits, shared collateral, or other interconnections that often aren't visible to outside observers until something goes wrong.
The clearest real-world example is 2022's chain of collapses: Terra/LUNA's failure triggered losses at lending firms and funds that held exposure to it, which in turn triggered further failures (including, eventually, FTX) at firms exposed to those. This is part of why regulators increasingly focus on stablecoins and large custodial platforms specifically — their failure has a higher chance of triggering this kind of chain reaction than a single small project failing on its own.
Related terms
Global Stablecoin (GSC)
A term used by international financial regulators for a stablecoin with a user base and transaction volume large enough to pose systemic risk.
Proof of Reserves
A cryptographic or audit-based demonstration that an exchange actually holds the customer funds it claims to, published to build trust after high-profile collapses.