How OTC Desks Stabilized Markets?

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 trading SaaS provider ranked among the top 30 digital asset firms globally.

On Friday, bitcoin BTC$112,443.30, the leading cryptocurrency by market value, plunged from around $122,000 to $103,000, with most of the losses occurring in the late hours. The broader market wilted, marked 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 held steady on other, more liquid avenues like Curve, Fluid, and Bybit.

According to Finery Markets, the localized crisis could have spread had it not been for OTC desks acting as shock absorbers.

“The crisis underscored the value of secondary trading conducted through OTC private rooms. This infrastructure acts as a firewall against systemic contagion due to the fundamental difference in order book structure,” the firm said in a report shared with CoinDesk.

The firm 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 firm 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, trading happens privately between buyers and sellers or through private liquidity pools. Institutions and large traders typically transact over OTC desks to avoid impacting the going market rate of the asset.

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.

Volume Surge on Finery

The institutional flight to stability during the major liquidation event from October 10-12 is evident in the surge of trading volume within Finery Markets’ private trading rooms.

Week-on-week, volume in BTC/USDT and ETH/USDT pairs on these private rooms increased by 107%, significantly outpacing the 48% growth seen on centralized platforms. Simultaneously, bid-ask spreads, a key indicator of liquidity, narrowed sharply on Finery’s OTC venues, 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 avenues.