Crypto OTC desk or P2P trade: which suits a large trade?

A crypto OTC desk suits a large trade when you need a firm price today from a firm that has checked you and that you have checked; a peer-to-peer trade suits it when the two holders already know each other, when no desk quotes the asset, or when the block is negotiated on terms a desk would not offer. The one criterion that separates them is who stands on the other side: with a desk, a professional firm prices and takes or arranges the trade; in a peer-to-peer trade, the other holder is your counterparty and everything the desk would have done falls to the two of you.

Neither route is the safer or the cheaper one by nature. A desk charges for immediacy and for carrying the price risk. A direct trade removes the dealing spread and replaces it with work: finding the other side, verifying it, agreeing a price, writing the terms and arranging a settlement neither side has to trust blindly.

Rules on who may deal in crypto assets, and on what checks apply, vary by country; this article is general information, not legal advice.

What is the difference between a crypto OTC desk and a P2P trade?

A crypto OTC desk is a firm that quotes a price for a trade away from the public order book and then either trades with you itself or arranges the trade for you; a peer-to-peer (P2P) trade is agreed directly between two holders, with or without a platform that matches them.

A desk works in one of two capacities, and the difference matters more than any other fact about it. Acting as principal, the desk is your counterparty: it buys your asset onto its own book, or sells you an asset from its book, and makes its money on the spread between the price it gives you and the price at which it covers itself. Acting as agent, the desk finds the other side or works your order in the market, the trade is done for your account, and it charges a commission or a disclosed markup. The International Organization of Securities Commissions, in its 2023 policy recommendations for crypto and digital asset markets, says regulators should require a crypto-asset service provider to disclose the role and capacity in which it acts, including whether it handles a client's order as principal or as agent. Ask the question before the first quote.

A P2P trade also comes in more than one form: two parties who know each other, such as a fund and one of its investors; a negotiated block between two institutions that found each other through their own networks; or a trade through a matching platform, a venue that lists offers and puts buyers and sellers in contact but is not itself the buyer or the seller. In all three, the price is agreed between the two holders and each one's counterparty is the other.

How do a desk and a P2P trade compare before the trade is agreed?

Before the trade is agreed, a desk gives you a known and already verified counterparty and a price within minutes, while a P2P trade asks you to find the other side, verify it yourself and negotiate the price.

On identity, the position of a regulated desk is set by law rather than by preference. The Financial Action Task Force's standards put customer due diligence on virtual asset service providers, and its travel rule asks those providers to pass originator and beneficiary information with transfers above a threshold of USD/EUR 1,000. The same body's updated guidance of 2021 notes that transfers made peer to peer, without a service provider in the middle, are not covered by those obligations in the same way and may carry higher risk for that reason. A desk therefore has no choice about checking you, while in a direct trade nobody checks anybody unless the two parties decide to.

On price discovery, a desk gives an indicative quote, roughly where it would deal, and then a firm quote, a price it will honour for a stated size during a short window. In a direct trade there is no quote: both sides agree a reference, such as a named benchmark at a named time, and negotiate the distance from it.

How do a desk and a P2P trade compare from settlement onward?

From settlement onward, a desk brings a standard process, a trade confirmation and a firm you can pursue under a signed agreement, while a P2P trade has only the process, the record and the recourse that the two parties wrote for themselves.

In every exchange of two assets that cannot move in one step, somebody is exposed between the first leg and the second. A desk usually resolves the question through its terms and its credit lines; two holders dealing directly have to resolve it by agreement, most often through a neutral holder, a tranche schedule or an onchain mechanism that releases both legs together.

On recourse, a claim is worth what the party behind it is worth and what the paper says. A desk's terms were written by the desk, including on when a quote binds and when a trade may be cancelled, so they deserve a reading before the first trade. A bilateral contract can be as protective as the two parties make it, and is only as enforceable as the other party is identifiable, solvent and within reach of a court.

What does a crypto OTC desk do well, and where does it stop?

A crypto OTC desk does three things well: it gives a firm price for size within minutes, it carries the market risk from the moment you accept, and it brings an onboarding, confirmation and settlement process that already exists. It stops where its balance sheet, its list of quoted assets or its risk appetite stop.

Immediacy comes first. Once you are onboarded, a request for a price on a liquid asset is answered within seconds or minutes, and acceptance ends your market risk.

Risk transfer is the second service. A principal desk that buys your block owns the problem of selling it: it may hedge on venues, match against another client or hold the position, and the price you accepted does not change. The spread pays for that, which is why it widens with size, with volatility and with how thin the asset's market is.

The limits are just as concrete. A desk quotes the assets it can hedge or place, in most cases the largest assets and stablecoins, and rarely a thinly traded token or a locked allocation. A desk has a minimum ticket and, less visibly, a maximum it will take at one price. When the desk is principal, its interest in the price is opposite to yours, which is ordinary dealing and the reason for comparing quotes from more than one desk. And during settlement you are exposed to the desk as it is to you, so the checks you would run on any counterparty apply to it.

What does a P2P trade do well, and where does it stop?

A P2P trade does well what a dealer's book cannot: it lets two holders with opposite needs meet at a price between the bid and the offer, on any asset and on terms written for that one trade. It stops where the two parties' ability to find, verify and trust each other stops.

On price, a seller who would get the desk's bid and a buyer who would pay the desk's offer can meet in between, and both do better than the quote they would have received, before their costs.

On scope, two parties can trade an asset no desk quotes, such as a token with little turnover or a locked or vesting allocation, and can write terms a standard dealing agreement does not carry: delivery in tranches, a price fixed by formula, a lock-up accepted by the buyer.

The limits follow from the absence of a dealer. Somebody has to find the other side, and a search conducted too widely gives away the information the seller wanted to protect. Nobody has verified anybody. There is no firm quote, so the market moves while the lawyers draft, and the question of who delivers first has no default answer. Each item is a task that the desk route prices into the spread and that the direct route leaves to you.

What does the same trade cost through a desk and peer to peer?

On an illustrative block of 200 BTC, the seller receives $11,958,000 through a desk within about four hours and $11,970,009 on a direct trade about six business days after the handshake; the direct route pays $12,009 more and leaves the seller exposed to the price and to the other party for the whole of those six days. Every price and cost below is illustrative, not taken from a market survey.

A fund wants to sell 200 BTC and the reference price is $60,000, so the block is worth $12,000,000 at the reference. A principal desk quotes 35 basis points either side: it bids $59,790 and offers $60,210. On the direct route, the fund has found another institution that wants to buy the same size, and they agree a price 10 basis points under the reference, $59,940. They use a neutral escrow agent that charges 0.15% of the trade value, split equally. Each side spends $6,000 on legal review of the bilateral agreement and $3,000 on verifying the other party.

Through the desk, the buyer pays the offer of $60,210, or $12,042,000. On the direct trade it pays $11,988,000 plus $8,991 of escrow and $9,000 of its own costs, $12,005,991 in all, which is $36,009 less than the desk route and only $5,991 above the reference. Taken together, the two parties would have left $84,000 with the desk, $42,000 each; on the direct route their combined costs are $35,982, made of the $17,982 escrow fee and $18,000 of legal and verification work. The 10 basis point concession of $12,000 is not a cost of the route: it passes from the seller to the buyer.

Two things in the table decide whether the $12,009 is real. The first is time. The seller's advantage is 0.10% of the block. If the price is fixed at the handshake, a market move of 2% over the six days is worth $240,000 on the block, and one of the two parties now has a reason that size to find fault with the paperwork. If the price is fixed at settlement instead, nobody has a reason to walk away, and the seller carries six days of market risk for a 0.10% gain. The second is exposure: without the escrow agent, the direct route would expose whichever side delivers first to the full $11,988,000.

The size of the trade changes the answer, because the direct route carries fixed costs and the dealing spread does not.

On these assumptions the two routes cost the seller the same at about $5.14 million. Below it, the $9,000 of fixed costs outweighs the spread saved; above it, the direct route's cost falls toward 17.5 basis points while the desk's stays at the quoted spread.

When does a P2P trade make sense, and what controls does it need?

A P2P trade makes sense in three situations: the two parties already know and have verified each other, no desk quotes the asset, or the block is large enough and specific enough to be worth negotiating. In each one it needs the controls a desk would otherwise have supplied, written down and applied before any asset moves.

With a known counterparty, such as two entities with a common owner or two firms that have traded before, the verification already exists and the cost of dealing directly is mostly drafting. With an asset no desk will bid for, the work is to find a buyer and structure the trade. With a negotiated block, the worked example applies: the saving on the spread is large in dollars and the terms may need to differ from a dealer's standard.

Institutions that trade directly more than once usually turn it into a standing procedure and a master agreement with each regular counterparty.

When does a crypto OTC desk make sense?

A crypto OTC desk makes sense when the trade has to happen today, when you have no natural counterparty, when your own rules require a regulated counterparty and a standard confirmation, or when the trade is too small to carry the fixed costs of a direct trade.

Time is the most common reason. A direct trade has no firm price until both sides sign, and signing takes days. If a deadline or a risk limit means you cannot hold the asset for those days, the cheaper route of the worked example is not available.

The second reason is that most holders with a block to sell do not know a buyer for exactly that size at that moment. A desk does, or will hold the position until it finds one.

The third is mandate. Many funds and treasuries may trade only with counterparties that hold a licence or registration in a named jurisdiction and that issue confirmations in a format the administrator accepts. A direct counterparty has to be approved case by case.

The fourth is size at the lower end. On the illustrative assumptions used here, a trade of $1 million costs the seller 107.5 basis points directly against 35 through the desk.

Is there a middle path between a desk and a direct trade?

There is a middle path: a broker or a neutral third party arranges a direct trade, so the two holders deal with each other at a negotiated price while a professional handles the introduction, the process or the holding of the legs.

A broker, or a desk acting as agent, finds the other side, keeps each party's identity confidential until both are serious, carries the negotiation and often supplies the paper. It does not take the position onto its own book, so the price is the one the two principals agree, and the broker is paid a fee or commission that both sides can see. The questions to settle with a broker are whom it acts for, who pays it, and whether its fee is fixed before the price is.

A neutral third party deals with the settlement problem and nothing else. An escrow agent, a custodian holding both parties' accounts, or a law firm acting on joint instructions receives one or both legs and releases them when the agreed conditions are met. The checks to run on it are its licence, the wording of its mandate and how it segregates the assets it holds.

The two combine, and a combined trade often ends with one more practical question: a fee that has to reach several people. A brokered block may involve the broker, an introducer on the seller's side and another on the buyer's, each due a share of one fee paid by one party. A payment router is one way to handle that single payment. Shaka is such a router: each recipient's share is set as a percentage and can be signed before the payer pays, the payer pays once, and every recipient is paid at the same moment in one onchain transaction, with a limit of 20 recipients. It routes the payment and never holds the funds. It divides one payment among several parties; it does not exchange two assets, and it is not a settlement, escrow or custody service for the trade itself.

How do you choose between them for a given trade?

Choose by answering five questions in order: is there a counterparty, is there a quote, how much time is there, what does each route cost at this size, and what does your mandate allow.

• Is there a natural counterparty? If you already know a verified party that wants the other side of your trade, the direct route starts with its hardest step done.
• Does a desk quote the asset in your size? If none does, the trade is direct or brokered by necessity.
• How long can you carry the position? Hours point to a desk. Days or weeks leave room for a negotiated trade, provided the price mechanism deals with the market moving in between.
• What does each route cost at this size? Put the desk's quoted spread next to the direct route's price concession, escrow or custody fee and fixed costs, and add a value for the market risk of the longer timetable.
• What do your own rules allow? A counterparty policy, an investment mandate or an administrator's requirements may decide the question before price does.

The answers can differ from one trade to the next for the same institution: a treasury may sell its routine conversions through a desk every month and negotiate one large block directly in the same year.