Why OTC isn't working right now and how we fix it.
Traditional OTC platforms thrive because of two reasons:
They Execute Orders
They Execute Orders for the Best Price
1. They Execute Orders
Traditional OTC brokers have deep networks of counterparties to push orders to so that their clients will actually get to trade their order. They usually allow their clients to request for a quote (RFQ) and get a competitive quote in return for them to execute.
This works because these OTC brokers can either find the taker, or they are able to take the order themselves and hedge the risk of taking in inventory in exchange for a small portion of the spread/commission.
In the digital asset markets, you can see this happening as well. There are a proliferation of OTC brokers that allow you to execute large orders in a similar fashion (eg: Aquanow, B2C2, Wintermute, Jump Trading, Galaxy Digital to name a few).
They are able to hedge the risk of the OTC trade or sell the order to another broker, and in the end they provide you with your desired trade. The inventory they get will get TWAP/VWAP'ed onto the markets very similar to HikariSwap (this is whether the broker is an agency desk or a principal desk).
For Small Cap Defi Tokens
In DeFi, this is relatively harder to do for small caps. Dedicated counterparties aren't able to hedge the order with the lack of derivative instruments on various coins. In addition to this, there has been a proliferation of DeFi OTC platforms, so the orders are now scattered across various platforms with no form of aggregation. This means that the orders remain stale for days (if not months) at a time.
2. For the Best Price
There are laws in place in TradFi known as National Best Bid and Offer or NBBO. Brokers are required by law to provide clients with the best price at any time from a look at multiple venues at any point in time.
For traditional markets you can easily check the spot price of any security and be able to make a decision. For digital asset markets, its a tad harder with the proliferation of CEX's.
Its even harder for DeFi tokens.
The issue is that we do not have dedicated market makers but what we have is an AMM that algorithmically decides the spot price of a token without the b/a support of market makers. One large sell can change the spot price of a token for early stage premature markets.
We can get as close to the best price as possible with constant streams of orders to create more liquid markets and a maker taker spread from actively running trading algorithms.
Fortunately we're the first platform to have solved this problem. We've developed an API to allow the aggregation of DeFi OTC brokerages and to allow prospective protocols to develop their own OTC pools.
All of our orderflow will be aggregated amongst other HikariSwap partners to ensure that we mitigate stale orders as much as possible.
This means we will have deeper market penetration for the Defi OTC space, as well as be able to connect existing providers into our broker network. In the future, we will also look at creating derivative solutions for these tokens to allow brokers to be able to take hedged risk on tokens.
Lastly, our Execution Algorithms encourage the execution of these stale orders. For whales and early token holders - we understand its a bit discouraging to have your order up for days and if not months at a time. By using HikariSwap's algorithms, you will be able to slowly offload a portion of your OTC order while the rest of it remains in the pools to encourage the success of your trade.