CDS stands for Credit Default Swap, which is a type of financial derivative that allows

investors to protect themselves against the risk of default on a bond or other type of
debt. A CDS contract involves two parties: the buyer of the CDS, who is typically looking
to protect themselves against default risk, and the seller of the CDS, who is typically
looking to earn a fee for taking on that risk.

In a CDS, the buyer pays a fee to the seller in exchange for the right to receive a
payment if a specific credit event occurs, such as a default on the underlying debt. If a
credit event occurs, the seller of the CDS is obligated to pay the buyer the face value of
the underlying debt, minus the recovery value. In other words, the CDS acts as a type of
insurance policy against the risk of default.

CDS contracts are widely used in the financial industry to manage credit risk exposure,
particularly in the market for corporate and sovereign bonds. However, they have been
criticized for their role in the 2008 financial crisis, as some market participants used
CDS to speculate on the risk of default without actually owning the underlying debt. This
led to a proliferation of CDS contracts that were not backed by actual debt, which
contributed to the instability of the financial system.