Over-the-counter (OTC) desks played a crucial role in stabilizing trading during the recent crypto market crash by acting as shock absorbers that contained volatility and limited broader systemic risks, according to a note from Finery Markets, a leading crypto ECN and SaaS trading provider ranked among the top 30 asset firms digital in the world.
Friday, Bitcoin the leading cryptocurrency by market value, plunged from around $122,000 to $103,000, with most of the losses occurring late at night. The broader market has withered, marked by massive losses in alternative cryptocurrencies and volatility in otherwise stable cryptocurrencies such as Ethena’s synthetic dollar USDe, Wrapped Beacon Ether (wBETH), and Binance Staked SOL (BNSOL).
USDe briefly crashed as low as 65 cents on Binance, largely due to the exchange’s own inefficiencies, while it remained stable on other, more liquid avenues like Curve, Fluid and Bybit.
According to Finery Markets, the localized crisis could have spread without OTC desks acting as shock absorbers.
“The crisis has highlighted the value of secondary trading conducted through private OTC rooms. This infrastructure acts as a firewall against systemic contagion due to the fundamental difference in order book structure,” the company said in a report shared with CoinDesk.
The company explained that unlike centralized avenues like Binance, which rely on central, visible liquidity, OTC desks offer a unique private environment with off-screen liquidity tailored to each participant.
“[This] Dark liquidity significantly reduces the spread of systemic risk,” the company said, adding that private rooms can help avoid bank run-like dynamics caused by visible panic in public order books.
OTC desks and centralized exchanges differ in how they provide liquidity and execute trades. On OTC desks, transactions take place privately between buyers and sellers or through private liquidity pools. Institutions and large traders typically conduct their trades through OTC desks to avoid impacting the asset’s prevailing market rate.
Centralized exchanges operate with transparent order books where all participants can see available buy and sell orders, creating visible liquidity but also exposing the market to rapid panic-driven volatility.
Increase in volume of adornments
The institutional flight toward stability during the October 10-12 major liquidation event is evident in the increased trading volume within Finery Markets’ private trading floors.
Week-over-week, the volume of BTC/USDT and ETH/USDT pairs on these private rooms increased by 107%, far outpacing the 48% growth seen on centralized platforms. Simultaneously, bid-ask spreads, a key indicator of liquidity, narrowed significantly on Finery’s OTC platforms, reflecting improved market depth and stability.
The chart shows that bid-ask spreads for 0.01 BTC on Finery were significantly narrower than those on major centralized exchanges like Coinbase, Bitstamp, Kraken, and Binance.
In other words, executing large trades was easier on Finery than on other lanes.
