Over-the-counter (OTC) desks performed a vital position in stabilizing buying and selling throughout the latest crypto market crash by performing as shock absorbers that contained volatility and restricted broader systemic dangers, in response to a word from Finery Markets, a number one crypto ECN and buying and selling SaaS supplier ranked among the many prime 30 digital asset companies globally.
On Friday, bitcoin BTC$112,461.31, the main cryptocurrency by market worth, plunged from round $122,000 to $103,000, with many of the losses occurring within the late hours. The broader market wilted, marked huge losses in various cryptocurrencies and volatility in in any other case secure cryptocurrencies similar to Ethena’s artificial greenback USDe, Wrapped Beacon Ether (wBETH) and Binance Staked SOL (BNSOL).
USDe briefly crashed as little as 65 cents on Binance, largely because of the alternate’s personal inefficiencies, whereas it held regular on different, extra liquid avenues like Curve, Fluid, and Bybit.
In keeping with Finery Markets, the localized disaster may have unfold had it not been for OTC desks performing as shock absorbers.
“The disaster underscored the worth of secondary buying and selling performed via OTC personal rooms. This infrastructure acts as a firewall towards systemic contagion because of the elementary distinction so as e book construction,” the agency mentioned in a report shared with CoinDesk.
The agency defined that, in contrast to centralized avenues like Binance, which depend on central, seen liquidity, OTC desks provide a novel personal atmosphere with off-screen liquidity tailor-made to every participant.
“[This] darkish liquidity considerably reduces the unfold of systemic threat,” the agency mentioned, including that non-public rooms will help keep away from bank-run-like dynamics attributable to seen panic in public order books.
OTC desks and centralized exchanges differ in how they supply liquidity and execute trades. On OTC desks, buying and selling occurs privately between patrons and sellers or via personal liquidity swimming pools. Establishments and enormous merchants sometimes transact over OTC desks to keep away from impacting the going market fee of the asset.
Centralized exchanges function with clear order books the place all members can see accessible purchase and promote orders, creating seen liquidity but in addition exposing the market to speedy, panic-driven volatility.
Quantity Surge on Finery
The institutional flight to stability throughout the main liquidation occasion from October 10-12 is obvious within the surge of buying and selling quantity inside Finery Markets’ personal buying and selling rooms.
Week-on-week, quantity in BTC/USDT and ETH/USDT pairs on these personal rooms elevated by 107%, considerably outpacing the 48% progress seen on centralized platforms. Concurrently, bid-ask spreads, a key indicator of liquidity, narrowed sharply on Finery’s OTC venues, reflecting improved market depth and stability.
Bid-ask spreads on Finery vs centralized exchanges. (Finery)
The chart reveals that bid-ask spreads for 0.01 BTC on Finery have been considerably narrower than these on main centralized exchanges like Coinbase, Bitstamp, Kraken, and Binance.
In different phrases, executing giant trades was simpler on Finery than on different avenues.
