Crypto OTC is the Trader’s Solution to Settlement Delays and Liquidity Gaps

Any reasonably informed trader is aware that settlement delays and insufficient liquidity carry risk, including credit risk. Settlement risk is the risk of losing payments made or securities delivered to the defaulting party before the default was detected. In some cases, both the seller and the buyer face losing the full principal value of any transferred funds. They also face liquidity risk on the settlement date, including the possibility that the seller will have to liquidate or borrow assets to make other payments if he doesn’t receive what’s due.

The risk of price divergence and arbitrage gaps is directly proportional to the length of settlement latency on blockchain-based assets, such as cryptocurrency. Shorter settlement cycles reduce financing costs and liquidity risk and encourage clearing and settlement efficiency, according to the US SEC.

OTC desks enable direct negotiations and streamline settlement

Over-the-counter (OTC) trading desks and brokers have become prominent in the dynamic digital asset market, addressing challenges such as clearing, custody, and settlement processes that centralized exchanges continue to face. The emergence of OTC desks has shifted the market toward a model of cooperation among custodians, clearing houses, and other specialized market participants, whereas CEXs have grown by centralizing services and any related risks.

The OTC model is similar to the conventional model that inspires confidence among institutional investors. Parties negotiate OTC trades directly, streamlining the settlement process and finalizing transactions more quickly.

Fiat leg settlement, or settlement of a transaction between an exchange and a bank, can take from two to five business days, depending on the type of withdrawal and bank infrastructure. An OTC desk that features same-day settlement offers a significantly compressed end-to-end timeline compared to many standard workflows, which may involve waiting a few days before you can use your funds. The participation of institutional custodians ensures secure asset storage and low counterparty risks, further mitigated through trilateral agreements.

OTC crypto trading desk On-Demand Trading (ODT), a prominent player in this market, achieves swift settlement of high-volume trades, aligned with its principle of “secure, seamless, same-day crypto settlements.” Clients benefit from increased liquidity and quick reinvestment opportunities, as ODT maintains ample liquidity through partnerships with multiple providers.

The platform has closed trades ranging from $500 to over $10 million in a single day and surpassed $240,000,000 in trading volume in July 2025, a notable milestone despite its relatively brief history. It caters to high-net-worth individuals as well as everyday traders who seek quick, secure, and private transactions. ODT’s US-based account managers guide clients with registration, onboarding, and KYC processes, and their personalized, white-glove services stand in stark contrast to the self-serve experience typical of other platforms. Strict KYC, AML, and counterparty vetting processes back each trade.

Why same-day settlement is indispensable for high-net-worth or institutional clients

OTC trading desks set a firm bid or ask price and lock it in for a set period, protecting the client from market fluctuations. The trade is executed once the quote is accepted, and settlement follows. If a large investor or fund executes a large trade but cannot access fiat until the following day or later, they may miss liquidity windows. On the other hand, shortening the clearance and settlement cycle frees up liquidity for institutional players and reduces exposure to counterparty and market risk. Institutional clients may require same-day liquidity to respond to market shifts, manage FX exposure, or redeploy capital, but sluggish settlement processes can freeze capital. In OTC crypto markets, market makers play a critical role in maintaining adequate liquidity levels, and smart contracts streamline liquidity pool operation, enabling efficient and effective provision.

Operational infrastructure is vital to quick settlement

The lack of DvP (delivery vs payment) settlement through regulated infrastructure exposes parties to systemic, liquidity, and counterparty risks. Two notable transaction failures, which occurred five decades apart with differences in technology and assets, illustrate the importance of operational infrastructure. Seattle First National Bank delivered today’s equivalent of $145 million to the German Bankhaus Herstatt in 1974, but just hours later, regulators uncovered incurable losses from excessive FX risk exposure (equivalent to $987 million).

Seattle First National did not receive the money it was owed, and neither did many other US banks. The settlement risk of one party delivering obligations while the other’s payment is still pending in another time zone is now known as Herstatt risk, and it’s typical of FoP (free-of-payment) settlement. In 2022, $325 million worth of ether was stolen from Wormhole, a leading blockchain bridging protocol, mirroring the Herstatt loss. Both failures demonstrate the risk of delivering assets on trust rather than certainty.

The advantages of tandem and off-chain settlement

Crypto and fiat legs settle in tandem when blockchain settlement rails are used for the crypto leg, fiat rails are in place for bank wires, and a DvP model is established. The risk increases upon a mismatch. Benefits of off-chain settlement include integration with existing financial infrastructure, more efficient liquidity management through margin trading, instant balance updates, and avoiding network congestion and erratic gas fees.