# How do you start a crypto OTC desk? To start a crypto OTC desk, pick principal or agency, then secure the licence, a bank, capital, liquidity, a compliance programme and custody, in that order. --- You start a crypto OTC desk by choosing whether it will trade as principal or as agent, then building, in this order, a licensed entity, a banking relationship, capital, liquidity lines, a compliance programme, custody and operations, and a small team. The trading itself is the last piece to arrive, and the piece that takes the least time to set up. This article is written for the trader, broker, fund or treasury team that is thinking of opening a desk, and for the investor asked to finance one. It covers the business side: the model, the outline of the licence, the bank, the capital, the liquidity, the controls, the people and an illustrative first-year budget. It is general information, not legal, regulatory or tax advice. Licensing rules differ from one country to the next, and a desk's own counsel decides which ones apply to it. One term first. An over-the-counter (OTC) desk trades digital assets directly with a counterparty at a negotiated price, away from an exchange order book. Its clients come to it for size, for a single price on the whole amount and for discretion. Everything a founder builds exists to deliver those three things without the desk carrying a risk it has not chosen.
$1,390,000first-year cash cost of the illustrative five-person desk, setup included
$60 millionmonthly volume that covers its running costs at a net margin of 15 basis points
$805,000deepest cumulative loss before the principal version of that desk turns up

Illustrative budget computed further down. The costs, the margin and the volume ramp are assumptions chosen for readable arithmetic, not market data.

## Which business model do you choose first: principal or agency? The first decision in starting a crypto OTC desk is the capacity in which it trades: as principal, buying and selling from its own balance sheet, or as agent, arranging a trade between two other parties for a fee. That choice sets the licence the desk applies for, the capital it has to raise, the risk it carries and the people it hires, so it is made before anything else is built. A principal desk quotes the client a price and takes the other side. It owns the asset between the moment it buys and the moment it sells or hedges, so it needs trading capital and it carries price risk for as long as the position is open. An agency desk never owns the asset. It finds the other side, passes the terms, and is paid a fee by one party or both. A third model sits between the two: matched principal, in which the desk becomes the buyer to one client and the seller to another only when both sides are already agreed, so that it stands in the middle of the trade for minutes and carries almost no price risk. | Point | Principal | Matched principal | Agency | | --- | --- | --- | --- | | Who the client faces | The desk | The desk | Another client, named or not | | Price risk on the desk | Yes, until hedged | Minutes, if one side fails | None | | Trading capital | Largest need | Enough to settle one side first | None for trading | | What the desk earns | The gap between its two prices | The gap between its two prices | A fee on the notional | A principal desk can answer a request for a price in seconds, because it does not have to find the other side first, and that speed is what many clients pay for. It also has to be right about its hedge every time. An agency desk can be started with far less money and a narrower licence in many countries, but it can only close a trade when it has both sides, and its clients carry each other's settlement risk unless the desk arranges otherwise. Many founders begin as agent or matched principal and add principal trading once the capital and the hedging lines are in place. What does not work is leaving the capacity vague: the client agreement, the confirmation and the books all have to say the same thing about who owned the asset and when. ## Which entity and licence does a crypto OTC desk need? A crypto OTC desk needs a legal entity in a country that licenses or registers its activity, and the licence it needs depends on the services it provides rather than on the name it gives itself. The international baseline comes from the Financial Action Task Force (FATF), whose interpretive note to Recommendation 15 says virtual asset service providers should, at a minimum, be licensed or registered in the jurisdiction where they are created. Each country builds on that baseline in its own way, and a separate question is whether the desk also needs permission in every country where its clients sit. Two regimes show how differently the same activity is treated. | Regime | What the desk becomes | Main entry requirement | Capital rule in the text | | --- | --- | --- | --- | | United States, federal level | A money services business, when it exchanges virtual currency as a business for others | Registration with FinCEN within 180 days of being established, renewed every 24 months | None at federal level | | European Union | A crypto-asset service provider under the Markets in Crypto-Assets Regulation | Authorisation before providing the service | EUR 50,000 or EUR 125,000 minimum, by class of service | In the United States, guidance from the Financial Crimes Enforcement Network (FinCEN) defines an exchanger as a person engaged as a business in the exchange of virtual currency for real currency, funds or other virtual currency, and treats an exchanger as a money transmitter unless an exemption applies. The same guidance separates that activity from a person who simply invests for its own account. FinCEN's registration rules set the 180-day deadline and the 24-month renewal. State money transmitter licensing sits on top of the federal registration and differs from state to state, and other federal regulators come in if the assets traded are securities or the contracts are derivatives. In the European Union, the service determines the class. Annex IV of the Markets in Crypto-Assets Regulation, as published by the European Securities and Markets Authority, puts execution of orders and the reception and transmission of orders on behalf of clients in class 1, with a permanent minimum capital of EUR 50,000. Exchanging crypto-assets for funds or for other crypto-assets, and custody on behalf of clients, are in class 2, at EUR 125,000. Article 67 then requires the provider to hold the higher of that minimum and one quarter of its fixed overheads of the preceding year, and a firm in its first year uses the projected fixed overheads from its application. In plain terms, an agency desk and a principal desk do not apply for the same permissions, and the capital floor is usually set by the cost base, not by the headline minimum. ## Why does the banking relationship come before everything else? The banking relationship comes first because a desk that cannot receive and send fiat currency in its own name cannot settle the cash leg of a single trade. A licence without a bank account is a document; a bank account is what turns it into a business. Banks assess a digital asset business as a higher-risk client, and their onboarding reflects it. Expect to be asked for the licence or the registration, the ownership chart down to each individual, the source of the founders' capital, the written compliance programme, the expected monthly flows by currency and by country, and a description of the first clients. Three practices reduce the dependence on any single bank. Open the conversation with the bank before the licence is granted, with the application in hand, so the two reviews run in parallel. Seek a second banking relationship as soon as the first is live, because an account under review for a week stops the desk for a week. Keep client money, where the licence allows the desk to hold any, in accounts separate from the desk's own. ## How much capital and inventory does a desk need? A desk needs capital for three purposes: to pass the prudential test of its licence, to fund its losses until revenue covers costs, and, if it trades as principal, to finance the positions it holds between buying and selling. The first two apply to every model; the third is what separates a principal desk from an agency desk, and it is usually the largest. Trading capital is sized from the exposure the desk is willing to have open at one time, not from its monthly volume. Suppose a principal desk's typical trade is $2,000,000 and its risk policy allows three trades to be open and unsettled at once. Its trading capital is 3 × $2,000,000 = $6,000,000. That money is not consumed. It is recycled as each trade settles: at $60,000,000 of monthly volume, the same $6,000,000 is turned over ten times a month. A desk whose settlement takes two days instead of two hours needs more capital for the same volume, which is why settlement speed is a commercial matter as much as an operational one. Inventory is a separate choice. A desk can hold a standing stock of the assets its clients ask for, so that it can deliver at once, or it can hold cash and buy only against a client order. Standing inventory makes the desk faster and exposes it to the market every hour it is held, unless it is hedged. A new desk can start with little or none and let the flow show which assets are asked for every week. The prudential test is checked against the desk's own funds rather than kept as a separate pot. In the illustrative budget further down, the desk's projected fixed overheads are $1,080,000 a year. One quarter of that is $270,000. If the same figures were in euros under the European Union rule described above, 270,000 would be the binding floor, more than twice the 125,000 minimum of class 2. The capital plan therefore has to leave own funds above that level at the lowest point of the first year, after the losses. ## Where does a new desk get its liquidity? A new desk gets its liquidity from three sources: other desks and market makers that will quote it a price, trading venues where it can buy or hedge in the order book, and its own clients, whose opposite interests it can match. A desk with only one of the three can quote only what that one source allows. Each relationship is a counterparty relationship and is opened like one. A market maker or a larger desk will onboard the new desk as a client, with its own due diligence, and will set a limit: the amount it accepts to have unsettled with you at one time. At the start that limit is often zero, meaning you send your leg first and receive theirs afterwards. It grows with settled trades and audited accounts. A new desk's quoting capacity is therefore the sum of the limits it has been granted and the capital it can pre-fund, not the size of the market. Venues work differently. The desk funds an account in advance and trades up to that balance, so the amount kept at each venue is treated as an exposure in its risk policy. A sound opening position is modest: two or three liquidity providers that will quote the main assets in the desk's time zone, one or two venue accounts for hedging and for assets the providers do not quote, and a written rule on how much may sit unsettled with each. ## What does the compliance programme have to contain? A compliance programme for a crypto OTC desk contains written policies and controls, a named person responsible for them, training for staff, and an independent review, all built on a risk assessment of the desk's own clients, assets and countries. Those four elements are the minimum that FinCEN's rules require of a money services business in the United States, and most other regimes ask for the same structure under different names. The FinCEN rule is specific on two points worth knowing whatever the country. The programme has to be in place within 90 days of the business being established, earlier than the 180-day registration deadline. And the independent review may be carried out by an employee, but not by the person designated to run the programme. In a five-person desk that second point means the review is done by an outside firm or by a director who is not the compliance officer. For an OTC desk the policies cover, at a minimum: - client onboarding: identity, ownership and control, source of funds and source of wealth, with enhanced checks for higher-risk clients; - sanctions screening of every client, beneficial owner and wallet address, at onboarding and again before each trade; - transaction monitoring, including tracing the onchain history of the assets a client delivers; - the transmission of originator and beneficiary information with transfers between service providers, known as the travel rule, which the FATF's interpretive note to Recommendation 15 extends to virtual asset transfers; - suspicious activity reporting, record keeping and responses to requests from authorities; - a market conduct policy: handling of confidential client orders, personal trading by staff, and recording of quotes and acceptances. The FATF note also sets the level above which a service provider conducts customer due diligence on an occasional transaction at USD or EUR 1,000. For a desk whose smallest trade is a hundred times that, the point is simple: no trade is too small or too rushed to skip onboarding. ## How should custody and operations be set up? Custody and operations are set up so that no single person can move assets or money alone, and so that every movement is tied to a trade record the same day. The choice of tools comes second to those two rules. On custody, a desk decides between holding keys itself, using a qualified or licensed custodian, or combining the two, and it decides whether it will ever hold assets for clients or only its own. Holding client assets is a regulated service of its own in many regimes, with its own capital class in the European Union, and a desk that does not need it is simpler to license and to run. Whatever the arrangement, the minimum controls are the same: approvals by more than one person, an allow-list of destination addresses that takes a delay and a second approval to change, a small operational balance for the day's settlements and the rest kept in slower storage, and a tested procedure for the day a key holder is unavailable. On operations, four routines carry the desk. Every trade is captured at the moment of agreement, with its time, price, quantity, counterparty and capacity. Every confirmation goes to the client in writing and comes back accepted. Every settlement instruction is verified through a second channel before the first payment to a new account or address. And every evening the trade records, the bank statements, the custodian balances and the wallets are reconciled against each other, with breaks investigated before the next day's trading. Settlement itself follows whatever sequence the two parties have agreed in writing, and the desk's risk policy states when it is prepared to send first and up to what amount. ## Who do you hire first? The first hires of a crypto OTC desk are a head of trading, a compliance officer and an operations lead, because those three functions have to be separate from the first trade. Sales and finance can be shared, part-time or outsourced at the start; trading, compliance and settlement cannot be done by the same person without breaking the controls the licence rests on. The head of trading sets prices, manages the hedge and owns the relationships with liquidity providers. In a principal desk this person carries the risk limits and should come from a firm where limits were enforced. The compliance officer is named in the licence application in most regimes and is assessed personally by the regulator, so this hire is made before the application is filed, not after. The operations lead runs settlements, reconciliations and custody approvals, and is the person who says no when an instruction does not match the record. Two more roles complete a first team. A sales trader brings and looks after clients, relays quotes and frees the head of trading to manage risk. A finance lead, often part-time or an outside accountant at first, keeps the books, the regulatory returns and the capital calculation. The illustrative budget below uses exactly these five roles. ## What does the first year cost, and when does a desk break even? In the illustrative budget below, a five-person desk spends $310,000 to set up and $90,000 a month to run, and it covers its running costs when it trades $60,000,000 a month at a net margin of 15 basis points. A basis point is one hundredth of one percent. Every figure in this section is an assumption for a worked example: real costs vary widely with the country, the licence and the seniority of the team. | Cost line | Setup, one-off | Per month | First year | | --- | --- | --- | --- | | Legal, entity and licence application | $180,000 | | $180,000 | | Compliance programme build | $60,000 | | $60,000 | | Technology and custody onboarding | $70,000 | | $70,000 | | Staff, five roles | | $48,000 | $576,000 | | Compliance tools | | $9,000 | $108,000 | | Custody and banking fees | | $6,000 | $72,000 | | Technology and market data | | $7,000 | $84,000 | | Legal, audit and insurance | | $10,000 | $120,000 | | Office and other | | $10,000 | $120,000 | | **Total** | **$310,000** | **$90,000** | **$1,390,000** | The staff line is the head of trading at $15,000 a month, the compliance officer at $11,000, the sales trader at $10,000, the operations lead at $8,000 and part-time finance at $4,000. Break-even volume is the monthly cost divided by the net margin. For the principal version of the desk, assume a gross margin of 25 basis points between its two prices and 10 basis points lost to hedging costs and slippage, which leaves 15. Then $90,000 ÷ 0.0015 = $60,000,000 a month, or thirty trades of $2,000,000, each earning $3,000. For the agency version, assume a fee of 10 basis points with nothing to hedge: $90,000 ÷ 0.0010 = $90,000,000 a month. The chart shows how sharply the required volume moves with the margin.
Monthly volume needed to cover $90,000 of running costsBy net margin in basis points, illustrative desk
5 basis points $180M 10 basis points $90M 15 basis points $60M 25 basis points $36M

Break-even volume = monthly running costs ÷ net margin. Setup costs and the cost of trading capital are not included.

A desk does not start at its break-even volume, so the plan needs a ramp. Assume three months with no trading while the licence and the bank account are obtained, then $10,000,000 in month four, rising by $10,000,000 each month to $90,000,000 in month twelve. The year's volume is $450,000,000. The principal version earns 15 basis points on that, or $675,000, against $1,390,000 of cash costs: a first-year loss of $715,000. Its monthly result reaches zero in month nine, when $60,000,000 of volume produces $90,000. The cumulative position is at its lowest at the end of month eight, at $805,000 below the start, and that figure, not the year-end loss, is the runway the founders have to fund. Add the $6,000,000 of trading capital from the earlier section and the principal plan comes to $6,805,000. The agency version earns 10 basis points, or $450,000, and loses $940,000 in the year. Its monthly result only reaches zero in month twelve, so its deepest point is the year-end itself, at $940,000. With no trading capital to raise, its plan is that runway plus own funds that stay above the $270,000 prudential floor: $1,210,000. The agency desk needs less than a fifth of the principal desk's capital and takes three months longer to cover its costs on the same volume. Two tests are worth running on any version of this budget. Delay the first trade by three months and see what the runway becomes, because licensing and banking timelines are not in the founders' hands. Then halve the margin on the largest client and check the month in which the desk breaks even, because a new desk's first large client usually negotiates. ## In what order should the launch be run? The launch of a crypto OTC desk runs in an order set by dependencies: the model decides the licence, the licence and the compliance programme open the bank, the bank and the capital open the liquidity lines, and only then does the desk trade. Running the steps out of order does not save time; it moves cost ahead of revenue.
Launch sequence for a new deskEach step depends on the one before it
  1. Fix the model and the scopeWrite down the capacity (principal, matched principal or agency), the assets, the client types, the countries, and whether the desk will ever hold client assets.
  2. Map the licence with counselIdentify the regime for the entity and for each client country, the capital rule and the people the regulator will assess.
  3. Appoint the compliance officer and write the programmeRisk assessment, policies, tools and the independent review arrangement, ready to be sent to a regulator and a bank.
  4. File the application and open the bank conversationRun the two reviews in parallel, with the same file.
  5. Raise and place the capitalRunway to the lowest point of the plan, own funds above the prudential floor, and trading capital if the desk is principal.
  6. Set up custody, records and reconciliationMulti-person approvals, address allow-lists, trade capture and a daily reconciliation tested with small internal transfers.
  7. Onboard with liquidity providers and venuesAgreements, limits and settlement instructions verified through a second channel.
  8. Trade small, then widenRun the first trades at a fraction of the planned size with known counterparties, review every break, then raise the limits.
The last step deserves its place. The first weeks of trading test the desk's own process more than the market: whether a confirmation matches the recorded quote, whether the evening reconciliation closes, whether the second approver was reachable when a settlement was due. A desk that finds those gaps on a small trade pays almost nothing for the lesson.