Counterparty Concentration

Counterparty concentration measures how much of a wallet's transaction volume flows to or from a small number of other addresses, rather than being spread across many independent counterparties. High concentration with a risky counterparty amplifies that counterparty's risk contribution to the wallet's overall score.

What it means

A wallet that has transacted with a hundred different addresses, each representing a small fraction of total volume, presents a very different risk profile than one where 90% of all activity flows to or from a single other address, even if that single counterparty is only moderately risky, the concentration means the wallet's fortunes are closely tied to that one relationship.

This measure is particularly important for weighting indirect exposure correctly. A wallet with one hop of separation from a sanctioned address, but where that connection represents 95% of its total volume, deserves materially more scrutiny than a wallet with the same one-hop connection representing 0.1% of a much more diversified transaction history.

Real-world example

A wallet where nearly all outgoing volume over six months went to a single high-risk exchange deposit address shows high counterparty concentration, meaningfully different in risk terms from a wallet that sent a comparable total volume spread across dozens of unrelated destinations.

Related terms

• Fan-In Fan-Out
• Source of Funds
• Risk Score

In FreezeRadar

FreezeRadar's risk scoring weights indirect exposure by counterparty concentration, so a wallet heavily dependent on one risky counterparty scores differently than one with the same exposure diluted across many relationships.

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