What goes in a term sheet for a crypto OTC trade?

A term sheet for a crypto OTC trade fixes, before any money or asset moves, who the parties are, which asset and how much of it is traded, the price and how that price is determined, how and where each side settles, the timetable, the fees and who bears them, and what happens if something fails. Everything else in the document, from the representations on ownership to the governing law, exists to make those seven points enforceable and impossible to read two ways.

An over-the-counter trade, or OTC trade, is a trade negotiated directly between two parties, or through a desk or a broker, instead of being matched on an exchange order book. No exchange rulebook stands behind it. The terms are whatever the two sides wrote down, which is why the document deserves more care than the negotiation that produced it.

The rules on contract formation, signatures and regulated activity differ from one country to the next, so this article describes the general practice and says where it varies. It is general information, not legal advice, and the sample further down is an illustration to adapt with a lawyer who knows your jurisdiction and your counterparty's.

What is a term sheet in a crypto OTC trade, and when is it written?

A term sheet in a crypto OTC trade is a short document, usually one to three pages, that states the commercial terms both parties have agreed and that both sign before settlement starts. It is written after the price conversation and before the first transfer.

The price is usually agreed in a chat or on a call. The term sheet takes what was said there and restates it in complete sentences, with the details a chat leaves out: the legal names, the network, the exact time of the price reference, the addresses. Running the settlement and keeping matching proof afterwards are separate subjects; the term sheet only has to say which settlement method applies and what each side must deliver.

Which fields does a crypto OTC term sheet need?

A complete crypto OTC term sheet has sixteen fields: parties and signatories, asset and network, quantity, price, notional, settlement details, delivery order, timetable, fees, introducer's fee, representations, conditions, failure and partial settlement, confidentiality, governing law and dispute resolution, and expiry. Each field exists because leaving it out has a specific and predictable cost.

How should the price be written when it is set by a formula?

A formula price must name five things: the reference source, the exact date, the exact time with its time zone, the adjustment applied to the reference, and the fallback if the reference is not published. A formula that names fewer than five leaves each party free to fill the gap in its own favour.

A fixed price, a number per unit and a currency, suits a trade agreed and settled within hours. A formula price is used when the parties agree the terms on one day and want the price to follow the market until a fixing moment. The discount or premium to the reference is the commercial result of the negotiation; the reference is the part people forget to finish.

A reference source is either a published benchmark, meaning an index calculated by a benchmark administrator from trades on several venues, or the price on one named venue. For a benchmark, the term sheet names the administrator, the index and the fixing. A single-venue price needs more words: the venue, the trading pair, and whether the figure is the last trade, the mid-price or an average over a window.

What does a missing field cost? A worked example

A term sheet that states a pricing formula without naming the reference source can produce two prices that both parties defend in good faith, and on a 400-bitcoin trade a gap of half a percent between them is worth more than $127,000. The example below is illustrative and uses invented prices.

A family office agrees to sell 400 bitcoin to a fund. The chat says: "400 BTC at reference less 0.40%, fixing tomorrow." The term sheet copies that sentence. On the fixing day, the seller applies the 16:00 London fixing of a published benchmark, which prints $62,500. The buyer applies the volume-weighted average price over the full trading day on its own venue, which comes to $62,180. Neither reading contradicts the document, because the document names no source.

The two references differ by $320, or 0.512%, an ordinary distance between a point-in-time fixing and a daily average on a moving day. After the discount the difference is $318.72 per bitcoin, and $127,488 across the trade. The negotiated discount was 0.40%, so an unnamed source put more money in play than the term the two sides spent the negotiation on.

Naming the benchmark and its fixing time in the price field would have left one price. The same test applies to every field: ask what two honest people could each believe the field says, and write the sentence that leaves only one answer.

How are settlement details written and verified?

Settlement details are written in full inside the term sheet, never by reference to "the usual address", and each one is verified through a second channel before the document is signed. A term sheet that carries the destination of every leg turns any later change of address into a change of contract, which needs the same signatures as the original.

The asset leg needs the receiving address in full and the network; a cash leg by bank transfer needs the account name, which should match the party's legal name, the bank, the account number and the bank identifier. Verification belongs in the document too. One line records how each destination was confirmed: read back on a recorded call to a number already on file, confirmed by a small test transfer that the receiver acknowledged, or taken from the counterparty's signed onboarding form. The line names the person who confirmed and the date.

The delivery order sits next to the settlement details. The term sheet says which party delivers first, or names the neutral mechanism: an escrow agent who holds both legs, a custodian who holds both parties' accounts, or a technical exchange in which both legs move together or not at all. It also says what counts as receipt of each leg.

What does a sample term sheet look like?

A sample term sheet for a 400-bitcoin sale runs to sixteen short entries, one for each field, and fits on two pages. The example below is an illustration to adapt with a lawyer; it is not a template to sign, the parties and prices are invented, and bracketed items stand for details the parties fill in.

• Parties. Seller: [full legal name], a company registered in [jurisdiction] under number [number], acting by [name, title]. Buyer: [full legal name], a fund registered in [jurisdiction] under number [number], acting by its manager [name], represented by [name, title].
• Asset and network. Bitcoin (BTC), delivered on the Bitcoin network. No wrapped, bridged or synthetic version is good delivery.
• Quantity. 400 BTC exactly, received net: the seller bears the network fee of its own transfer.
• Price. The 16:00 London fixing of [named benchmark, named administrator] on the trade date, less 0.40%, rounded to two decimal places. If the fixing is not published that day, the next published fixing applies. At a fixing of $62,500.00 the price is $62,250.00 per BTC.
• Notional. Quantity multiplied by price, payable in a US dollar stablecoin, [named token], on [named network], one token counted as one US dollar. At $62,250.00 the notional is 24,900,000 tokens.
• Settlement details. Seller's receiving address for the payment: [address]. Buyer's receiving address for the bitcoin: [address]. Both addresses were read back on a recorded call on [date] between [name] and [name], and confirmed by test transfers acknowledged in writing.
• Delivery order. The buyer deposits the notional with [named escrow agent] under the escrow instructions attached. The seller then delivers the 400 BTC to the buyer's address. On three network confirmations the escrow agent releases the payment as set out under the introducer's fee.
• Timetable. Trade date: [date]. Buyer's deposit: by 12:00 London on the business day after the trade date. Seller's delivery: within four hours of the escrow agent's written notice that the deposit is received. All times are London time.
• Fees and network costs. Each party bears the network fees of its own transfers and its own legal costs. The escrow agent's fee is shared equally and invoiced separately.
• Introducer's fee. [Full legal name of introducer] introduced the parties and receives 0.20% of the notional, borne by the seller and paid out of the payment leg at release: 49,800 tokens to the introducer at [address], 24,850,200 tokens to the seller. No other fee or commission is owed to any person in connection with this trade.
• Representations. The seller is the sole legal and beneficial owner of the bitcoin, free of any pledge, lien or third-party claim. Each party's assets come from lawful sources. No party is subject to sanctions or acting for a person who is. Each party acts as principal and has taken its own advice.
• Conditions. Neither party is bound to settle until each has confirmed in writing that its onboarding and compliance checks on the other are complete.
• Failure and partial settlement. A party that misses a deadline has two hours to cure after written notice. If the seller delivers fewer than 400 BTC, the buyer may accept the quantity delivered at the same price or reject it and have it returned. If a leg is not delivered after the cure period, the other party may cancel, the escrow agent returns what it holds, and the defaulting party bears the documented costs of the cancellation.
• Confidentiality. The existence and terms of this trade are confidential for two years, except for disclosure to advisers, auditors, the escrow agent and any authority entitled to ask.
• Governing law and disputes. This term sheet is governed by the law of [jurisdiction]. Disputes go to [named courts, or arbitration under named rules seated in a named city].
• Expiry and binding effect. This term sheet lapses if not signed by both parties by 18:00 London on [date]. Once signed it is binding in full.

On the payment leg of 24,900,000, the introducer receives 0.20% and the seller 99.80%, and the two amounts sum to the leg with nothing left over. The partial-settlement entry is just as mechanical: if the seller delivers 250 of the 400 bitcoin and the buyer accepts, the payment due is 250 times $62,250.00, or $15,562,500, of which $31,125 goes to the introducer and $15,531,375 to the seller. The 150 bitcoin not delivered, worth $9,337,500 at the agreed price, fall under the failure clause.

Is a term sheet binding?

A term sheet is binding when the parties intended it to be and it contains the essential terms, whatever its title says; the words "term sheet" do not make a document non-binding. The safe practice is to state, clause by clause, which terms bind on signature and which wait for a later agreement.

A spot crypto OTC trade rarely has a later contract: the term sheet is the contract, which is why the sample says it is binding in full. A document silent on the point leaves a court or an arbitrator to infer intention from the wording and the parties' conduct, under rules that differ between legal systems. Where a trade is staged, with a term sheet first and a full purchase agreement later, the term sheet should say so in plain words: which clauses bind now, and that the commercial terms bind only when the long-form agreement is signed.

How does a deal memo differ from the term sheet?

A deal memo is an internal record written for your own files and approvers, while a term sheet is the document exchanged with and signed by the counterparty. The term sheet states what was agreed; the deal memo states why your side agreed to it, who approved it and how the risk was assessed.

The deal memo never leaves your organisation: it is what an investment committee, an auditor or a successor in your seat reads to reconstruct the decision.

A useful deal memo holds eight things: the purpose of the trade and the mandate it falls under; the counterparty and the due diligence file reference; the quotes obtained and from how many sources; the terms, with the term sheet attached; the exposure analysis for the chosen settlement method; the approvals with names and times; the accounting treatment and cost basis inputs; and, added afterwards, the transaction identifiers, bank references and any variance between what was agreed and what was received. Write everything except the last item before signing the term sheet, so that the approval is given on the reasoning and not after the fact.

Do repeat counterparties need a master agreement?

Two parties that trade with each other regularly usually sign a master agreement once, so that each later trade needs only a short confirmation of the variable terms. The master agreement carries the terms that do not change: representations, settlement mechanics, default and termination, confidentiality, governing law and disputes.

Derivatives markets show the model in its most developed form. Privately negotiated derivatives are commonly documented under the Master Agreement published by the International Swaps and Derivatives Association, known as ISDA, with a schedule negotiated between the two parties and a confirmation for each transaction. In 2023 ISDA published its Digital Asset Derivatives Definitions, which cover non-deliverable forwards and options on bitcoin and ether and are designed for confirmations under an ISDA Master Agreement. Those definitions address derivatives that settle in cash.

For spot trades in the assets themselves, practice is less uniform. Desks generally trade under their own master trading or master purchase agreement, drafted by their counsel, and a client signs it during onboarding. For the client, the term-sheet fields are simply spread across two documents. Read the master agreement for the standing fields, and check that each confirmation states the ones that vary: asset and network, quantity, price, notional, timetable and settlement details. Pay particular attention to the clause that says which document prevails if a confirmation and the master agreement conflict, and to the default clause, which decides whether one failed trade lets a party close out all the others.

How are an introducer's fee and other shared payments written?

An introducer's fee is written with five elements: the payee's legal name, the rate, the base the rate applies to, the party that bears the fee, and the moment and method of payment. A rate of 0.20% can mean 0.20% of the notional, of the quantity or of one party's net proceeds, and a fee borne by the seller is a different payment from a fee paid by the buyer on top, so the clause names both the base and the payer, and confirms that no other fee is owed.

A fee defined as a share of one leg can be paid out of that leg at the moment it is released. Where an escrow agent releases the leg, the escrow instructions carry the split. Where the paying party sends the leg directly, a payment router can divide that single payment. Shaka is one such router: each party's share is set as a percentage of the payment and can be signed by each recipient before the payer pays, the payer pays once, and every party is paid at the same moment in one transaction. In the sample trade that would mean 99.80% to the seller and 0.20% to the introducer. A router divides one payment among its recipients; it does not exchange the two assets and holds nothing, so the delivery order between buyer and seller still has to be settled by the term sheet.

How should a term sheet be signed and kept under version control?

A term sheet is signed by an authorised person on each side, on one final version that both can identify, and every earlier draft is marked as superseded. Version control exists so that, a year later, both parties open the same file and can prove it is the one that was signed.

On signatures, the rules depend on the governing law. In the United States, the federal Electronic Signatures in Global and National Commerce Act provides that a signature or contract may not be denied legal effect solely because it is in electronic form. Other jurisdictions have their own rules and exceptions, so confirm what the governing law of your term sheet requires. Whatever the form, keep proof of the signatory's authority with the file: a board resolution, a signatory list or a power of attorney.