How to Make Money with DeFi OTC

Handy Tips / 23.03.2020

There has been a recent surge in products as well as platforms providing DeFi services. Decentralized Finance, commonly referred to as DeFi, denotes any kind of financial service that is offered on a blockchain, usually Ethereum smart contracts. An example of DeFi services and solutions is Over-the-Counter (OTC) cryptocurrency, which in the past three years has witnessed enormous growth marked by a substantial increase in volume and clients across the globe. A recent report by Bloomberg established that OTC turnover in 2018 amounted to more than 5.47 trillion USD equivalent.

What is OTC Trading?

OTC trading is a form of crypto trading where the actual trade occurs “Over-the-counter” instead of a regular cryptocurrency exchange such as Binance and Bitfinex. OTC trading is usually done by large-scale cryptocurrency traders and is often placed by hedge funds, private wealth managers, or individuals with a high crypto net worth.

In the crypto space, OTC trading occurs in different ways, such as:

  • OTC brokers- There are OTC trade brokers who specialize in handling large transactions. Usually, they are in the form of platforms where traders sign up to get access to services that will enable them to execute large trade blocks, access funds through liquidity providers to avert problems with slippage. Notable OTC brokers include itBit and hiveex.
  • Cryptocurrency ATMs- Crypto ATMs, usually Bitcoin ATMs, assist traders in converting their fiat currency into digital coins without needing to go through an online exchange.
  • Via chat rooms- Several chat rooms offer OTC trading. Bitcoin-otc is an IRC chatroom that accomplishes bitcoin trading. It is hosted on various IRC channels, which allows peer-to-peer transactions between traders.

How to Make Money Via OTC Trading

Before finding out how to make money with OTC trading, it’s essential to know how OTC transactions work. The first step in any OTC transaction is finding a counterparty for the trade. This is usually accomplished via a chatroom such as #bitcoin-otc or an OTC brokering platform.

After finding a counterparty for the trade, the next step is to negotiate the terms of the deal. For instance, if you’re looking to buy BTC, you are required to specify the following conditions:

  • The amount of BTC you wish to buy
  • The price of BTC you want to buy at
  • When you want the trade to take place

Following the specification of the above terms, a seller will then respond with their offer price for the transaction. The price is usually expressed as a percentage above a leading exchange’s best available rate. For instance, Exchange ABC + 1%. The negotiation process often varies depending on whether you’re a buyer or a seller, the medium you’re using to arrange the trade, as well as the amount of transaction in question plus whether you have any leverage.

Once a price has been agreed upon, the buyer then sends a bank transfer to the seller to cover the purchase price, and the seller also sends the agreed amount of crypto coins or tokens to the buyer. Sometimes, the traders may be required to complete KYC (Know Your Customer), usually depending on the country or state both parties reside in to satisfy the legal requirements.

How Does an OTC Trader Make Money?

OTC trading provides an easy way to get your hands on some crypto. Making money via OTC trading is primarily accomplished through arbitrage- the process of buying/selling a product or service in one location and then selling/repurchasing it in another area at a better price to secure a profit. Usually, arbitrage occurs virtually in the crypto space.

To start the arbitrage process, you should first establish how the market price is performing by monitoring exchange feeds. Next, buy up some crypto cheaply from an exchange or from the various methods of purchasing crypto listed above. The final step is to sell via AirSwap or LocalBitcoins at a better price. Arbitrage is quite advanced, especially in the crypto space, and you should know what you’re doing.

Top OTC Brokers & Platforms

As mentioned above, OTC trading can be accomplished via OTC Brokers or directly on an OTC dark pool. There are several OTC brokers in the crypto space, and therefore it’s essential to choose the best broker for enhanced profits. Below are some of the best OTC brokers.

1. Sibex

SIBEX is an OTC dark pool that assists users in trading Bitcoin, Ethereum and ERC 20 Tokens using hashed time-locked contracts (HTLCs). The platform assists you to discover peers, communicate with them, create unique Bitcoin and Ethereum transactions, and validate incoming transactions. Sibex comes with powerful trading features such as the SIBEX GUI, which assists you in broadcasting conditional offers to the SIBEX P2P network, which are unique to P2P trading systems. For instance, with this system, if you’re buying a large amount of Bitcoin and you don’t want to move the price, you can choose not to report the completed trade price to the network.

The other perk of trading on Sibex is that you enjoy real-time mutual settlement as well as lowest fees in the industry (2BPS). With every trade being settled in real-time, on-chain, you’ll also have to  pay miner fees in each SIBEX transaction. With SIBEX, you run your own server meaning that you’re in complete control of your money away from the prying eyes of hackers.You’re also connected to a global trading network and taking full advantage of different liquidity clusters around the world.

2. Kraken

Kraken is based in San Francisco and was founded in 2011. It is one of the largest Bitcoin exchanges in terms of Euro volume and liquidity. The platform offers Over The Counter brokerage services for high volume trades-over $100k. Additionally, frequent high volume traders are provided with a dedicated account manager to attend to their trading needs. Users can also engage in OTC trading using FIAT currencies Canadian dollars, US dollars, Euros, and Japanese yen.

3. Circle

Circle is a platform for bitcoin trading that made its entry early in the game. Circle sold bitcoins directly to individuals and made it to be a great competitor to Coinbase. In the recent past, Circle has rebranded itself to offer a variety of new products in a bid to stay relevant in the bitcoin market. Circle trades over $2b each month having desks in several time zones. This company’s OTC service sells and buys orders starting from $100k.

4. ItBit

ItBit is a bitcoin exchange that started in 2013. ItBit supplies Bitcoin trading services in the US for small and institutional investors under its regulated exchange. ItBit for institutions is a financial service dealing with institutions trading in Bitcoin. Service and support are provided to active traders and institutions by The Institutional Client Group (ICG). ItBit’s OTC trading offers personalized service for orders over $100k that has a quick settlement and low fees. ItBit’s OTC market has competitive pricing, and being a regulated exchange, it attracts more clients.

Conclusion

It’s possible to make money via OTC trading primarily through the process of arbitrage. OTC trading can occur on several platforms, including OTC brokers, dark pools,Chatrooms, and Crypto ATMs. A large volume of OTC trade occurs on broker platforms that have been discussed above. The primary advantage of trading via an  OTC dark pool is that you will enjoy more decentralization, fewer trading fees, and also create fewer price movements for enhanced profits and reduced risks. Sibex is the leading OTC dark pool, thanks to advanced features, cross-chain atomic swap technology, low fees, and real-time settlement.

Featured image courtesy of Shutterstock.

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Wayne is a Blockchain enthusiast and expert in crypto trading. Currently, he covers trendy issues on digital currencies.