# Counterparty Risk

## Universal Margin

Every financial contract on World has a counterparty. Every account uses universal margining. If the per-asset risk consumption is improperly set on World, or assets are listed which are liable to go to 0, the risk of not getting paid increases for all users. Importantly, all users are able to view the portfolios of their counterparties and take personalized views on this counterparty risk.

World does **not** have ADLs. You are in control, read [Liquidation & No ADLs](/essentials/liquidation-and-no-adls.md).

### Paying Creditors in Case of Default

For example, if WCM listed Terra Luna on the exchange, portfolios holding large quantities of UST could lose value so quickly, the liquidation process may be unable to reclaim sufficient USDT to pay the creditors of this portfolio. A user who had lent money to this portfolio may not be paid. In this scenario, the portfolio in question is considered "bankrupt" and a special process kicks in.

This defaulted account is processed in the following way:

1. Outstanding contracts are converted into borrowed USDT loans with counterparties to the portfolio.
2. The credits and debts are summed and the loss measured as a percentage of the whole portfolio.
3. Loans are repaid up to the loss ratio. In effect, the loss is amortized across all creditors.

To prevent abuse of this function, WCM has 24 hours to block payment to the liquidator and return the assets to the liquidated account. Under normal operation, the liquidator would be paid. The assets would only ever be returned in the case of abuse. WCM is only able to block payment to the liquidator, it is unable to control assets in any other way.

## Security

See [Security](/venue/security.md).

## Venue Operation

WCM is fully onchain. It is not controlled or operated by the WCM team. The WCM team is able to adjust per-asset risk consumption, listings, and fees.

## MegaETH Risk

MegaETH is an Ethereum L2 blockchain. It has been audited.


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