OTC Instead of Exchanges
Binance has announced a $3 Million investment in Over-the-Counter (OTC) trading platform Koi – seemingly turning its attention to crypto OTC transactions through Koi.
Binance Labs’ boss Ella Zhang speaking about his company’s move to invest in Koi pointed out the similarity in their visions stating that, “Koi Trading’s mission is to bridge fiat and cryptocurrencies in a compliant manner. This aligns with our broader vision at Binance to build the infrastructure which provides the freedom of value exchange globally. It is worth noting that Chinese cryptocurrency traders have always relied on OTCs to settle their cryptocurrency payments especially with the current ban on cryptos and ICOs in the country. Traders reportedly coordinate using China’s largest social media platform WeChat.
However, with limited OTC operators, Chinese users risk settling their payments with not-so-popular platforms. The partnership between binance and the US-based Koi will help solve this challenge. Users will now have access to a notable platform they can trust backed by an even larger native exchange operator.
“With Koi’s robust AML program, extensive banking relations in the US, investment from Binance Labs, and strong trust amongst counterparties in the Greater China, we aim to be the market nexus that reduces trust and information asymmetry and improves cryptocurrency OTC deal close rate,” Hao Chei, Koi’s CEO and founder.
OTC transactions are gaining prevalence over exchange trading especially with the rising cases of high profile hackings. According to Reuters, OTC cryptocurrency trading is booming. The space is attracting large trading firms, notable investors, crypto miners, and hedge funds. Speaking about crypto OTC demand, Kevin Zhou, founder of Galois Capita, noted that, “Generally, you would go trade through an OTC desk when you have a large block trade you want to do without moving the market too much or incurring too much slippage.”
One attribute of OTC trades is that they are silent. Transactions are not reported publicly like in the case of conventional exchange trades. The trades are subject to independent auditing the reason not much data is available about them. However, individual operators confess to facilitating up to a tune of $100 million daily trades in digital assets.
OTC trades tend to spike particularly when conventional crypto exchanges succumb to hacking. Dealers in OTC trading wire clients’ settlement money to their respective bank accounts and cryptos transferred to digital wallets.
In as much as OTC trading sounds efficient, the whole thing has some inherent risks. First, establishing the ideal price for assets is a little tricky. Also clients are entirely dependent on operators to conduct due diligence on all parties involved in the trade to stamp out money launders. Lastly, payment settlement in OTC trading is risky as well.