🔵The Counterparty Paradox

How come we don't have more OTC desks in DeFi?

As mentioned in our previous OTC Trading Education Article, NYSE and Institutional Crypto desks for large tokens can fulfill your trade at anytime.

They will either take the risk associated with buying your tokens just to provide you with your trade or they will find a taker of your trade, all within 5 seconds of you requesting the order.

How do they do this?

These institutional counterparties can take in your trade at any time because they are equipped with proper hedging facilities to do so.

What are hedging facilities?

Hedging facilities include financial instruments such as options, futures, derivatives, or a network of traders at their fingertips to be able to take the risk of your trade.

These OTC desks will act as the principle (taking trade risk) or an agency (passing the risk off) in order to make a spread (profit) for fulfilling your order.

Why not Defi?

Due to issues with low liquidity, lack of financial derivatives for small caps and hedging facilities -- many desks cannot provide immediate execution of your trade. This is because the risk of holding the sub 5M MC asset without any financial hedges will prove to be too risky for any principle desk to execute on.

What we can hope for is the creation of these hedges through other DeFi protocols and DEXs. This is something that Hikari Labs is actively researching. For the time being, we're solving this issue with the creation of B/A bands through executional algorithms.

Changing the Paradigm

By allowing you to push trades over time or over volume across DeFi, we're creating streams of liquidity on both the buy and sell side, allowing the execution of trades as close to the spot price as possible despite smaller liquidity pools and lack of counterparties.

Eventually, the liquidity streams will be thick enough that that you should be able to get the spot price on your tokens no matter the size - as long as the token you are looking to trade has enough of a community. HikariSwap will solve this equation without the use of larger counterparties - but we will not restrict these larger counterparties from participation.