Cryptocurrency trading has surged, with ownership nearly doubling since 2021[1] . As the market expands, efficient trading methods become crucial.
Most traders use centralized exchanges like Binance or Coinbase, where public order books match buyers and sellers. However, large trades can trigger price swings, making high-value transactions challenging.
OTC (Over-the-Counter) desks come into play! Unlike exchanges, they offer deeper liquidity, minimize slippage, and ensure confidentiality.
What Are OTC Desks?
A crypto OTC desk facilitates large transactions outside exchange order books, ensuring privacy and minimizing market impact.
To understand the OTC desk better, let’s look at the table below that differentiates it from the traditional exchange.
| Feature | OTC desks | Traditional exchanges |
| Trading method | Direct, private negotiations | Order book matching system |
| Liquidity source | Private networks, liquidity providers | Public order books |
| Market Impact | Minimal price slippage | Large trades can cause price fluctuations |
| Trade Execution | Custom pricing and execution strategies | Trades executed at market prices |
| Transparency | Confidential, off-the-record transactions | Publicly visible trades and order books |
| User base | Institutions, hedge funds, high-net-worth individuals | Retail and institutional investors |
| Minimum Trade Size | Typically high (e.g., $100K+) | No minimum or low minimum trade sizes |
| Speed | Faster, flexible settlement options | Standardized settlement times |
Want to know who tends to use OTC desks?
Among them, there are institutional investors, hedge funds, and high-net-worth individuals.
How Do OTC Desks Work?
The OTC trading process consists of four steps:
Step 1. Contacting an OTC broker
A trader contacts an OTC desk with details about the trade, including asset type, volume, and preferred price.
Step 2. Price quotation and negotiation
The broker provides a quote and negotiates terms with potential counterparties.
Step 3. Trade execution
Once both sides agree, the broker facilitates the transaction.
Step 4. Settlement
Funds and assets are transferred securely through trusted payment channels or custody services.
In order for OTC desks to operate, liquidity providers are essential. Let’s define who they are and their role.
Liquidity providers supply the necessary digital assets for trades. They include:
- Institutional investors
- Crypto funds
- High-net-worth individuals
Their involvement helps maintain stable pricing and prevents market disruptions. With faster settlements and greater flexibility, OTC desks are the preferred choice for large-scale traders seeking privacy and efficiency.
Key Services Provided by OTC Desks
OTC desks provide services for large-scale crypto traders, offering better pricing, security, and efficiency compared to traditional exchanges. Let’s have a closer look at these services:
- Large-scale crypto transactions
OTC desks handle high-volume trades without impacting market prices, which serves to prevent slippage that often happens on public exchanges.
- Privacy and security
Trades are conducted privately, which guarantees confidentiality and reduces exposure to exchange-related risks like hacks and withdrawal issues.
- Customized pricing and execution
OTC desks offer negotiable rates and personalized execution strategies, helping traders achieve more suitable pricing.
- Liquidity provision
By working with liquidity providers, OTC desks ensure there is sufficient supply for large orders and help stabilize prices through market-making services.
- Fiat on-ramp and off-ramp services
OTC desks facilitate conversion between cryptocurrency and fiat and, therefore, offer direct access to liquidity without relying on exchanges.
Such services often require a payment gateway for cryptocurrency for secure transactions for both parties.
The Role of OTC Desks in the Evolving Crypto Market
OTC desks are becoming increasingly important as the crypto market evolves. It is driven by demand from institutional investors, regulatory changes, and emerging technologies.
- The demand for big-volume transfers grows. It makes institutional investors seek large-scale, private trading solutions. OTC desks provide deep liquidity and customized execution, enabling significant trades without affecting market prices.
- As crypto regulations vary across jurisdictions, OTC desks must navigate complex rules, ensuring compliance with anti-money laundering (AML) and know-your-customer (KYC) requirements. Adapting to global regulatory changes will be key.
- The future of OTC desks includes integration with decentralized finance (DeFi) and algorithmic trading. These developments will improve liquidity, speed, and pricing, further enhancing OTC trading solutions.
OTC desks play a crucial role in facilitating large-scale, private crypto transactions, offering liquidity, security, and customized solutions. Institutional adoption of crypto continues to rise, with the research revealing that 51% of institutional investors are considering direct investments, 33% are exploring staking, and 32% are looking into crypto derivatives. Additionally, 69% of institutional investors plan to increase their digital asset allocations in the next two to three years. As demand grows, OTC desks will remain integral to high-value trades.
