USDC Institutional Traders

Crypto OTC Trading and Stablecoins: Why Institutional Market Participants Increasingly Choose USDC

Team Circle Team Circle January 19, 2021

In the crypto OTC market, professional market participants can execute large trades privately and with minimal price slippage, which is why institutional investors are flocking towards crypto OTC trading desks. 

Read on to learn more about the role of digital dollar stablecoins in the crypto OTC trading market. 

 

Crypto OTC Trading: Where Billions Exchange Hands

While there are no official figures due to the private nature of the over-the-counter market, anecdotal evidence suggests that the crypto OTC market sees 2x to 3x the amount of trading volumes that crypto exchanges process on a daily basis. 

The crypto asset market now boasts a total market capitalization of over $1 trillion, but large bitcoin trades can still move the needle quite significantly if executed on-exchange, where the entire market can view the order books. 

Institutional investors, therefore, prefer the discretion, professionalism, and best-price execution provided by OTC trading desks. Additionally, there are no exchange limits affecting order size when trading with professional counterparties over-the-counter. 

A few years ago, there were only a handful of OTC brokers offering digital asset trading services. Circle was one of them. 

Today, the picture looks very different. Now, there are dozens of brokers competing over the institutional money flowing into crypto while most established crypto exchanges have also set up OTC trading desks to meet market demand. 

According to a research report by Capco, North America and Asia have the most vibrant crypto OTC markets. Market participants include hedge funds, prop trading houses, family offices, crypto miners, broker-dealers, investment funds, private banks, and high-net-worth individuals. 

In the early days of crypto OTC trading, counterparties settled trades with wire transfers. Today, digital dollar stablecoins have largely taken up the role of settlement rail as more and more professional investors are becoming comfortable with using digital currency. 

 

The Role of USDC in the Crypto OTC Market

Digital dollar stablecoins, such as USD Coin (USDC), have three main functions in the crypto OTC market. 

USDC acts as:

  • Trading capital
  • A base currency for pricing
  • As a counterparty settlement instrument

First and foremost, professional market participants use USDC as trading capital to improve their trading operation. Unlike US dollar wire transfers, USDC transactions settle within minutes and can cost as little as a few cents. Moreover, on-chain transactions can be followed in real-time, so both counterparties know exactly when funds have settled. 

Storing funds overnight in USDC, therefore, makes more sense for active traders who want to move quickly in and out of risky digital assets instead of initiating bank transfers at the start and end of each trading day. 

Crypto OTC trading desks also use USDC as a quotation currency to price trades. Since transactions on OTC desks are typically settled in stablecoins, they are also utilized as pricing currencies. So, instead of quoting the price of bitcoin as BTC/USD, OTC desks will typically quote BTC/USDC to their customers. 

Additionally, USDC is deployed as a settlement instrument. On-chain USDC transactions can be viewed in real-time on its supporting public blockchains, while settlement typically occurs within minutes and at a fraction of the cost of an international wire transfer. Global counterparties can easily settle with each other in minutes or in seconds across countries. On Algorand, for example, transactions are near-instant and currently only cost approximately 1/20th of a cent. 

Crypto traders, therefore, prefer to settle their trades using digital dollars as opposed to traditional US dollar payment rails. 

 

What Are Professional Traders Choosing USDC? 

USDC is the fastest-growing fully reserve digital dollar stablecoin with a market capitalization of over $5 billion, making it one of the most liquid and secure stablecoins in the market. 

The market-leading stablecoin is regulated, highly-transparent, price-stable, and can be sent anywhere in the world at the speed of the internet. 

 

usdc-chart-011921-full

 

Each USDC is backed 1:1 by US dollar reserves held in regulated financial institutions. What’s more, every month, all dollar reserves are attested by leading international auditing firm Grant Thornton LLP. USDC holders can, therefore, rest assured that all their digital dollars are backed by US dollars held in a bank account. 

Additionally, USDC users benefit from a broad ecosystem of wallets, exchanges, DApps, and DeFi protocols that support the digital dollar stablecoin. For example, traders that want to earn yield on their digital dollars have the choice between deploying it in DeFi protocols or in Circle’s High Yield Accounts

What’s more, professional crypto market participants can integrate a Circle Account into their trading operations to fully utilize USDC’s features as programmable digital money. 

Circle Accounts enable professional traders to securely store and send and receive on-chain USDC to and from trading counterparties within minutes. Additionally, all digital dollars held in a Circle account are insured, and account holders can seamlessly convert fiat currency bank account balances into USDC and vice versa.

Learn more about the Circle USDC Institutional Trading Program.

 

 

Subscribe for updates

top 5 related articles

LIVE VIDEO SERIES

The Money Movement

Hosted by Circle co-founder and CEO, Jeremy Allaire, The Money Movement explores the issues and ideas driving this brave new world of digital money.
Watch or listen

Subscribe to our blog

Get Circle updates right in your inbox.