Over-the-counter (OTC) desks played a key role in stabilizing trading during the recent crypto market crash, acting as a shock absorber to contain volatility and limit broader systemic risks, according to a note from Finaly Markets, a leading crypto ECN and trading SaaS provider ranked among the top 30 digital asset companies in the world.
Bitcoin on Friday The top cryptocurrency by market capitalization plummeted from about $122,000 to $103,000, with most of the losses occurring late at night. Entire markets have shrunk, leading to massive losses in alternative cryptocurrencies and significant volatility in otherwise stable cryptocurrencies such as Ethena’s synthetic dollar USDe, Wrapped Beacon Ether (wBETH), and Binance Staked SOL (BNSOL).
USDe crashed to 65 cents on Binance at one point, largely due to inefficiencies on the exchange itself, but remained stable on other more liquid instruments such as Curve, Fluid, and Bybit.
According to Finery Markets, without the OTC desk acting as a shock absorber, the local crisis could have escalated.
“This crisis has highlighted the value of secondary trading conducted through OTC private rooms. This infrastructure acts as a firewall against system infections due to fundamental differences in order book structure,” the company said in a report shared with CoinDesk.
The company explained that unlike centralized instruments like Binance that rely on central visible liquidity, the OTC desk provides 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 the private room helps avoid run-and-gun moves caused by visible panic in the public order book.
OTC desks and centralized exchanges differ in how they provide liquidity and execute trades. At an OTC desk, trades occur privately between buyers and sellers or through private liquidity pools. Institutional investors and large traders typically trade on OTC desks to avoid exposure to the market price of their assets.
Centralized exchanges operate with transparent order books where all participants can see available buy and sell orders, creating visible liquidity, but at the same time exposing the market to rapid volatility due to panics.
Finery trading volume skyrockets
The flight of institutional investors to stability during the massive liquidation event from October 10th to 12th was evident in the sharp increase in trading volume within Finaly Markets’ private trading rooms.
Trading volumes for the BTC/USDT and ETH/USDT pairs in these private rooms increased by 107% week-on-week, significantly higher than the 48% increase seen on the centralized platform. At the same time, bid-price spreads, a key indicator of liquidity, narrowed sharply on Finaly’s OTC exchanges, reflecting increased market depth and stability.
This graph shows that the 0.01 BTC buy-to-ask spread on Finery was significantly narrower than the spreads on major centralized exchanges such as Coinbase, Bitstamp, Kraken, and Binance.
In other words, it was easier to execute large trades with finalies than with other methods.