A blockchain market infrastructure specialist is lining up solutions to address liquidity concerns for institutional investors looking to trade cryptocurrency markets.
Perhaps one of the best corporate taglines to have in the cryptocurrency world right now is claiming you can solve the infrastructure problems in the market. Any analysis of institutional investors participating in crypto is prefixed with an outline of issues delaying their entry – including market infrastructure, custody, liquidity, volatility, counterparty and settlement risk.
Those who can provide a demonstrated solution to these problems may find themselves in the upper echelons of a burgeoning new asset class.
Speaking with The TRADE Crypto, OTCXN founder and chief executive, Rosario Ingargiola, says this is exactly what the blockchain and capital markets trading infrastructure company is trying to achieve.
“Right now the market is very immature and there is a complete lack of true institutional-grade trading markets infrastructure in the crypto space,” he says. “We will be running four different types of marketplace solutions that organise global liquidity and which are all interconnected on our network.”
OTCXN announced in June that it had completed its first live test trades, which it believed to be the world’s first exchange of tokenised US Dollars and tokenised Bitcoin between two separate trading accounts over an electronic trading platform, with assets held in safekeeping at a neutral custodian and digitised on blockchain.
Ingargiola said he believes the fragmentation of liquidity across different pools is a major issue for institutional investors, something the exchange is hoping to address with an aggregation solution.
He added that the aggregation of all liquidity will be made actionable from a single collateral account at a custodian on the network, and is looking to work with more custodians moving forward.
“Once a trading entity has assets digitised on ledger, these digital assets can be freely traded with any other trading entity on the network. This means all the liquidity across all of our solutions is accessible with your assets held in one account at your preferred custodian, not at the underlying exchanges.
“Today, because of poor liquidity on exchanges, institutions primarily trade over-the-counter (OTC). One side of the trade always has to go first, wiring funds or sending coin and waiting for the other side to do their part with absolutely no guarantee of settlement.”
A recent report from research firm Aite Group hightlighted the importance and increasing popularity of the OTC cryptocurrencies market. Aite Group estimates that around $100 billion of cryptocurrencies have been traded in the OTC market in the first four months of 2018 and expects to see an increasing market share of OTC trades moving forward.
The report found that institutional market participants are routing their orders to OTC desks for immediate access to block-sized liquidity, minimised market impact of trade orders, and security concerns over exchange venues.
OTCXN has focused on this with the beta production of its OTC block trading platform with an institutional request for quote workflow. The company is also aiming to launch a central limit order book (CLOB) style exchange, as well as a dark pool.
The firm also acquired Ogg Trading in June, a platform with institutional clients run by FX industry veteran, David Ogg.
“The trading technology in the crypto space is largely unfit for purpose, so yes, real institutional trading technology is required to help mature the market, and our recent acquisition gave us proven real-world technology and talent that has been used by some of the largest Tier-1 banks and investment funds.”