In an important milestone in our decentralised journey, blockchain enforced OTC (Over the Counter) trading is now available on Ethfinex Trustless!
What does this mean for traders? Lets first take a look at a brief history of OTC trading.
Over the Counter (OTC) trading desks are widespread in both cryptocurrency markets and the traditional financial world. The concept is simple - if you want to make large trades, it is better when possible to find a counterpart 'off-market' to directly trade with. In fact, it is sometimes a necessity as failure to do so would cause price fluctuations in the wider market.
In the early stages of the cryptocurrencies industry, before any major exchanges were established, the only way to do this was to rely on trust in the counterparty. In a nerve-wracking process, you had to send your coins first and wait and hope for the other person to send theirs in good faith.
Large institutions soon picked up on this problem and offered a valid, albeit expensive solution: an escrow agent. This is a person who makes sure both trade partners fulfil their obligations, before releasing the funds to the rightful owners. This solution offered a certain degree of security compared to the direct approach but came with its own set of issues. As already mentioned, it is very expensive, with the average fee in the range of 1-5%. It usually takes a lot of time to process the whole trade, sometimes up to a couple of days. And finally, it is manually processed, so the system is prone to human error and potentially even corruption.
Enter Ethfinex Trustless OTC
Luckily, we live in the Ethereum Blockchain era and through smart contracts are able to eliminate the middleman from the equation. This makes the whole process faster, cheaper and more reliable. Exactly what we had in mind at Ethfinex when designing the Trustless OTC feature.
In a nutshell, Ethfinex Trustless OTC is a blockchain enforced OTC service, removing the need for placing trust in escrow or counterparties.
Trading with Ethfinex Trustless OTC is a simple, four-step process:
Step 1: You select which token and how much you want to pay.
Step 2: You select which token and how much you want to get.
Step 3: Generate a unique trade URL to share with your trade partner.
Step 4: Your trade partner completes the order
There is no minimum or maximum order size, and our 0.02% fee is up to 250x smaller than current escrow solutions which are usually around 2-5%.
It also solves the issue of trust. When using a non-custodial smart contract of Trustless OTC, both parties are required to fulfil their obligations before the trade gets settled. This means that both parties have locked full collateral in before the trade gets settled and everyone receives their tokens.
Additionally, as Trustless OTC is only used for settlement of trades once you have already found your trading partner and pre-negotiated a deal, there are no restrictions on what is traded on Trustless OTC (provided the products are not financial instruments). Customers can trade any ERC20 token, and even specify custom Ethereum addresses for tokens which are not currently listed on any exchanges.
How to get started
With no sign-up process or KYC, traders* can get started by connecting their wallet at trustless.ethfinex.com/otc today. The possibilities are endless!
*U.S. persons and persons from other restricted jurisdictions are not permitted to participate in Ethfinex Trustless OTC.
**In case the token you would like to trade doesn’t have a standard ERC20 format, get in touch with our team on the Ethfinex Telegram.
Trading is now live on Ethfinex — get started here.
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