In this article
You liquidate a large token position OTC by measuring it against what the market can absorb, then selling it away from the order book to buyers who take size in exchange for a discount: in one block, in dated tranches, or in a mix of the two. The discount is the price of not pushing the market down yourself, and its size depends on how many days of trading the position represents, on the restrictions attached to the tokens, and on what each buyer intends to do with them.
An over-the-counter (OTC) sale is a sale agreed directly between a seller and a buyer, or through a desk or broker that stands between them, instead of through orders posted on an exchange. This article is written for the holder of a position that is large for its token: a project treasury, an early investor, a fund. It is general information, not legal, tax or investment advice, and the rules on token sales and on inside information differ from one country to the next.
Illustrative figures from the worked example in this article: 40,000,000 tokens at a reference price of $0.50. They are not market data.
What does it mean to liquidate a large token position OTC?
Liquidating a large token position OTC means converting it into cash or stablecoins through privately negotiated sales, so that the selling does not pass through the public order book. The seller accepts a price below the market price, and in return the buyer takes a size the order book could not take without the price falling.
"Large" is relative to the token. A $20 million sale of one of the most traded crypto assets is an ordinary trade for a desk, which can hedge it within minutes and quotes it as a spread in basis points, hundredths of a percent. The same $20 million in a token that trades $2 million a day is a different problem: no one can hedge it quickly, so the buyer is taking over your liquidity problem and prices it as such. The discussion turns to a discount in whole percentage points, a lockup on the buyer and a schedule.
The seller has three routes, which can be combined: working the position on exchanges over weeks or months, selling it in one block, or selling it in tranches under one agreement. All three start with a measurement.
How do you size a position against the market's depth?
You size a token position with four ratios: its share of the circulating supply, the number of days of trading volume it represents, its multiple of the order book depth, and the number of days needed to sell it at a participation rate you choose. They are the first figures any buyer will compute about you.
Depth is the value of the buy orders resting close to the market price, usually measured within 1% or 2% of the mid, the midpoint between the best bid and the best offer. Average daily volume is what trades in a day across the venues where the token is listed. The participation rate is the share of that daily volume your own selling represents: at 10%, one trade in ten is yours.
Take a worked example that runs through the article. A project treasury holds 40,000,000 tokens. The reference price is $0.50, so the position is worth $20,000,000 on paper. The circulating supply is 500,000,000 tokens, average daily volume is 4,000,000 tokens ($2,000,000), and the bids resting within 2% of the mid add up to $160,000 across all venues.
| Measure | How it is computed | Worked example |
|---|---|---|
| Share of circulating supply | Position ÷ circulating supply | 8% |
| Days of volume | Position ÷ average daily volume | 10 days |
| Multiple of depth | Position ÷ bids within 2% of the mid | 125 times |
| Exit at 5% participation | Position ÷ (daily volume × 5%) | 200 days |
| Exit at 10% participation | Position ÷ (daily volume × 10%) | 100 days |
| Exit at 20% participation | Position ÷ (daily volume × 20%) | 50 days |
Two cautions apply. Reported volume is not always real volume on smaller tokens, so check the figure venue by venue and prefer the lower estimate. And depth is a snapshot: the bids you see can be withdrawn when a large seller appears.
Securities markets offer a point of comparison. In the United States, the Securities and Exchange Commission's Rule 144 limits what an affiliate of a company may sell in any three-month period to the greater of 1% of the outstanding shares of the class or, for an exchange-listed class, the average weekly trading volume of the preceding four weeks. The rule applies to securities, not to tokens as such, but it shows what a regulator regards as a quantity a market can absorb from an insider. By analogy, 1% of the example's circulating supply is 5,000,000 tokens per quarter, and the treasury's position would take eight quarters.
How much discount to market should a seller expect?
A seller of a large position in a less liquid token should expect a discount measured in percentage points, not basis points, and set by four things: the size against daily volume, the token's volatility, the restrictions the buyer accepts, and how many credible buyers compete. No reliable public statistic gives a "typical" discount, because these sales are private and each token is its own market; the sound method is to build your own estimate and test it against real bids.
The starting point is what the market itself would charge. Academic research on market impact, including a study published in the journal Physical Review X in 2011, describes a regularity known as the square-root law: the price move caused by an order grows roughly with the square root of its size relative to daily volume, scaled by the asset's daily volatility. The law was measured on equities and futures, so on a thin token it is a guide to orders of magnitude and nothing more. With an assumed daily volatility of 5%, it gives an impact of about 1.6% for an order of one tenth of a day's volume, 5% for a full day's volume, and about 15.8% for ten days of volume sold at once.
That last figure explains why a buyer asked to take the whole example position in one trade will think in terms of 15% to 20%: reselling would cost it about that much, and it carries the price risk meanwhile.
Three of these the seller can change:
- Size per buyer. Splitting a block between several buyers lowers the discount each one needs, because each carries fewer days of volume.
- Restrictions on the buyer. A lockup, a period during which the buyer agrees not to sell, raises the discount, because the buyer loses the option to exit.
- Competition. Two buyers who know the allocation is contested will price closer than a single buyer who knows it is the only one.
One percentage point of discount on the example position is $200,000.
What do lockups and vesting change?
Lockups and vesting decide two different things: whether you are able to sell the tokens at all, and what the buyer is allowed to do with them afterwards. The first is a constraint on the seller that comes from earlier agreements; the second is a term of the sale that the seller chooses and pays for.
Start with your own constraints. Vesting is the schedule by which tokens granted to a team member, an investor or a treasury become available over time; tokens that have not vested are usually held by a contract or a custodian and cannot be delivered. A lockup is a promise not to sell or transfer for a period, written into a purchase agreement, a listing agreement with an exchange, or a market-making agreement. Before any buyer is approached, read every document that governs the tokens and list what each one forbids: transfers, sales, pledges, hedges, or sales below a stated price. Selling tokens that are still locked is a separate transaction with its own pricing; here the tokens are deliverable.
On the buyer's side, a lockup is the main protection a seller can obtain for the market. A buyer who receives 40,000,000 freely transferable tokens at an 18% discount has an immediate incentive to sell them on the market at a smaller discount, and the price falls as if you had sold them yourself. A lockup of three, six or twelve months removes that incentive. Three points decide whether it is worth what you pay for it:
- How it is enforced. A contractual promise depends on the buyer's good faith and on your ability to sue. A lockup enforced by a vesting contract, or by a custodian that releases the tokens on schedule, does not.
- Whether hedging is covered. A buyer who sells the token short through a derivative or a borrowed position on the day of purchase has no price risk and has put the selling pressure on the market anyway. A no-hedging clause addresses this, at a price.
- How the release is shaped. A single release date for several buyers creates a new overhang on that date; staggered releases do not.
One block, tranches or a programme on the market: what does each route cost?
Each route trades cost against exposure: working the position on the market has the lowest visible cost and leaves you exposed to the price for the longest, a single block has the highest cost and removes the exposure at once, and tranches sit between the two. The comparison below prices the three routes on the example position, first with the token price unchanged and then with a fall.
The assumptions are illustrative. On the market, the treasury sells at 10% of daily volume for 100 days, at an average cost of 2.6% (2.5% of slippage, the price giving way under its own orders, and 0.1% of trading fees). As a block, it sells all 40,000,000 tokens today at an 18% discount to buyers who accept a six-month lockup. In tranches, it signs one agreement for four tranches of 10,000,000 tokens, on day 0, day 30, day 60 and day 90, each priced at the reference price of its date less 10%, with a three-month lockup on each tranche.
| Route | Cost at an unchanged price | Proceeds | Price exposure |
|---|---|---|---|
| Worked on the market | 2.6%, or $520,000 | $19,480,000 | 100 days, declining as tokens are sold |
| Single block | 18%, or $3,600,000 | $16,400,000 | None after signing |
| Four tranches | 10%, or $2,000,000 | $18,000,000 | 90 days, on the tranches not yet priced |
At an unchanged price the block costs $3,080,000 more than the market route. That difference is what the treasury pays to be certain. Now assume the price falls by 40% in a straight line over 100 days, to $0.30. The market route sells at an average price 20% lower and returns $15,584,000. The tranches are priced at $0.50, $0.44, $0.38 and $0.32 before discount and return $14,760,000. The block was signed on day 0 and still returns $16,400,000.
Costs and discounts as assumed in the text. A rise in the price would favour the market route and the tranches by the same mechanism. No market data.
The break-even points say how much of a fall each discount insures. The block gives the same proceeds as the market route if the price falls 31.6% over the 100 days, and the same as the tranches if it falls about 19.8% over the same period. A treasury that needs a known amount by a known date is buying that insurance; a holder with no deadline is not obliged to.
The comparison has a limit: a treasury's wallets are usually public, and 100 days of visible transfers to exchanges is information the market may reprice the token on. The slippage figure does not capture that.
How do you design a sale in tranches?
A sale in tranches is designed around three terms: how each tranche is priced, what happens if the price falls below a floor, and who may pause or cancel. Tranches suit a position too large for buyers to take at once at an acceptable discount.
Pricing each tranche. A fixed price for all tranches is a single block paid in instalments: the buyer carries the price risk and charges for it. A price reset at each date leaves the risk with the seller. The reset is normally an average, such as the volume-weighted average price over the seven days before the tranche date, taken from named venues, because an average is harder for either side to influence on the day.
The floor. A floor is a reference price below which a tranche does not take place, or is postponed. It protects the seller from delivering 10,000,000 tokens at $0.288 when it had planned on $0.45, as the fourth tranche of the falling scenario would. The buyer may ask for a ceiling in return.
Rights to pause. Each side will want a way out: the buyer if the token is delisted from a main venue or the project suffers a serious incident, the seller if it comes into possession of inside information. Write these events as a closed list: an open right to cancel turns a programme into a series of free options.
Many sellers end with a combination. In the example, the treasury could sell 20,000,000 tokens as a block to two long-term buyers at a 15% discount, five days of volume instead of ten, for $8,500,000; place 12,000,000 in four tranches of 3,000,000 at 10%, for $5,400,000 at an unchanged price; and work the last 8,000,000 on the market at 5% of daily volume over 40 days at a cost of 2%, for $3,920,000. The total is $17,820,000, a blended cost of $2,180,000 or 10.9%, with more than half of the position sold on the first day.
Who buys a large block of a less liquid token?
Five kinds of buyer take large blocks of a less liquid token: trading desks and market makers, liquid funds, long-term or venture funds, strategic buyers with a use for the token, and the issuer or its foundation. They differ in what they do with the tokens afterwards, which is the point that matters most to the seller.
| Buyer | What it does with the tokens | Lockup | What it asks for |
|---|---|---|---|
| OTC desk or market maker | Resells over time, or places the block with its own clients | Rarely accepts one on its own book | A discount covering its resale cost and risk; a size it can manage |
| Liquid fund | Holds as a position, may hedge | Short, if any | A discount to market and freedom to hedge |
| Long-term or venture fund | Holds for the project's development | Accepts six to twelve months or more | A deeper discount, information rights, sometimes governance terms |
| Strategic buyer | Uses the token: staking, governance, a commercial integration | Often accepts one | A commercial relationship alongside the price |
| Issuer or foundation | Retires the tokens or returns them to its treasury | Not applicable | Approval through its own governance, and a public announcement |
A desk or a broker is often the way to reach the other four. It can approach funds without naming the seller and assemble several buyers into one transaction on identical terms. It is paid by a fee or by a margin between what the buyers pay and what the seller receives; ask which, and have it written.
Selling to several buyers on the same terms also means the price rests on more than one independent decision, which helps a treasury that must justify it to holders or to a board.
What must you disclose, and what if you hold inside information?
A seller who holds information that is not public and would move the price should not sell until the information is public or no longer relevant, and a seller who is the issuer may be required to publish it. Large holders are often insiders, so the question comes before any buyer is contacted.
In the European Union, the Markets in Crypto-Assets Regulation of 2023, known as MiCA, contains rules on market abuse for crypto-assets. It defines inside information as information of a precise nature that has not been made public, relating directly or indirectly to an issuer, an offeror or a crypto-asset, which would likely have a significant effect on the price if it were made public. It prohibits using such information to acquire or dispose of the crypto-asset, recommending that another person do so, and disclosing it unlawfully. It also requires issuers, offerors and persons seeking admission to trading to publish, as soon as possible, inside information that directly concerns them; publication may be delayed only where immediate disclosure would harm their legitimate interests, the delay would not mislead the public and the information can be kept confidential.
In the United States, where a token is a security, federal securities law governs trading on material non-public information and the resale of restricted securities. Whether a given token is a security, a financial instrument or neither is a legal question to settle with counsel before the sale, country by country, because it decides which regime applies.
Three practical consequences follow for the seller, whatever the jurisdiction.
First, the planned sale is itself sensitive: a treasury's decision to sell 8% of the circulating supply is something a reasonable holder would want to know. Approach buyers in stages, usually through a desk or broker that describes the token and an approximate size without naming the seller, and have each interested buyer sign a confidentiality agreement, with an undertaking not to trade the token during discussions, before it learns the seller's identity, the exact size and the terms. Keep the list short, record who was told what and when, and do not sell on the market while buyers are pricing the block.
Second, time the sale away from unpublished events: a listing or delisting, a partnership, a change to the token's supply, a security incident. A written trading policy with closed periods around such events serves this purpose.
Third, decide in advance what will be announced and when. A project treasury that discloses the size of the sale, the buyers' lockup and the use of the proceeds once the sale is signed avoids the suspicion created when a sale is discovered from wallet movements.
What should the sale file contain?
The file of a large OTC sale contains proof of the seller's authority, proof that the tokens are free to be sold, the purchase agreement with its pricing and lockup terms, the record of the process, and the settlement record. It is what the seller relies on when an auditor, a tax authority, a board or the token's holders ask how the price was reached.
- Authority to sellThe board resolution, investment committee approval or governance vote that authorises the sale, with its limits: maximum size, minimum price, permitted buyers, and the people entitled to sign and to move the tokens.
- Title and restrictionsProof of control of the wallets, the history of how the tokens were acquired, and a written review of every lockup, vesting schedule, pledge or listing undertaking that applies to them.
- Sizing memoThe four ratios, the sources of the volume and depth figures, the routes considered and the reason for the one chosen.
- Process recordThe buyers approached, the date each signed a confidentiality agreement, the bids received and the reasons for the allocation.
- Counterparty verificationFor each buyer: the legal entity, its authorised signatories, the checks carried out on its identity and the origin of its funds, and the wallets it will use.
- Purchase agreementQuantity, price or pricing formula with its named sources, tranche dates, floor, pause events, the buyer's lockup and how it is enforced, the no-hedging clause, each side's statements on inside information, fees, governing law and the consequences of a failure to perform.
- Settlement recordThe instructions as confirmed, the transaction identifiers of each delivery and each payment, and the confirmations exchanged.
- Disclosure and accountingThe announcement, if one is made, and the entries that record the sale: proceeds, cost basis, fees, and the result for tax purposes.
Settlement itself follows the usual methods for a large OTC trade: delivery against payment in tranches, through a custodian or escrow agent, or by a mechanism that exchanges both legs at once, so that neither side is exposed for the whole amount.
On tax, the sale of tokens is a taxable event in most countries, and the result depends on the seller's cost basis and legal form. Take advice in the seller's own jurisdiction before the schedule is fixed.
When is an OTC sale the wrong route?
An OTC sale is the wrong route when the position is small against the market's volume, when the tokens are still under a restriction, or when no buyer exists at a discount the seller can justify. In those cases the discount buys nothing, or the sale cannot close; a restriction is first discussed with the party that holds it, not with a buyer.
If the position is two or three days of volume and the seller has a few months, a patient programme on exchanges at a low participation rate, run by a desk or an execution agent, will usually cost less than any block discount.
If the bids come back at a discount far beyond your estimate, read them as information. Buyers may see a risk you have not priced, or the market for the token may be thinner than its reported volume suggests. A seller in that position can reduce the size, lengthen the timetable, offer a longer buyer lockup for a better price, or wait.
