Exploring Instant Payment Settlements: Revolutionizing OTC Trades with Blockchain Technology

September 12, 2023
4 min

Blockchain technology has transformed various industries, offering secure, transparent, and efficient ways to transfer and store information. In the fintech world, blockchain is the driving force behind the surge in digital assets over-the-counter (OTC) trading, which has become increasingly popular among investors. OTC trading provides institutional investors with a direct way to trade large volumes of cryptocurrencies, bypassing traditional exchanges by working with a single intermediary.

Understanding OTC Trading

OTC trades typically involve three parties: a buyer, a seller, and an intermediary who facilitates the trade. This intermediary could be a broker, a trading desk, or an OTC trading platform. Until now, the OTC trade process required a standard series of steps:

1- Negotiation: The buyer and seller negotiate the trade’s terms, such as the price and quantity of the cryptocurrency.

2- Agreement: Once both parties agree on the terms, they enter into a formal agreement.

3- Escrow: The intermediary holds the cryptocurrency in escrow until the trade is completed, ensuring security.

4- Settlement: The buyer sends the payment to the seller, while the seller sends the cryptocurrency to the buyer.

5- Release: Once the payment and cryptocurrency have been received, the intermediary releases them to their respective recipients.

Challenges with the current OTC Trustless Trade Settlement process

OTC trading offers certain advantages, including security and the ability to trade large volumes without impacting market prices. In theory, trustless trade settlement allows for secure and transparent trading where players don’t need to rely on trust in the other party or intermediary. However, this kind of trade settlement presents its own challenges.

1- Fraud Risk: OTC trading occurs directly between parties, making it challenging to verify the identity and legitimacy of the other party. This increases the risk of fraudulent activities, such as one party sending payment without receiving the agreed-upon cryptocurrency, or vice versa. In an OTC transaction for rare collectible items, the absence of intermediaries and direct dealing between parties raises the risk of fraud, where one party might send payment but never receive the promised collectible, or the other way around.

2- Price Volatility: Unlike trades using traditional crypto exchanges, OTC trades lack a central price discovery mechanism. Consequently, the price agreed upon during OTC settlements may not align with the current market price, leading to potential disputes between buyers and sellers. For instance, in OTC Bitcoin trades where a discovery mechanism is absent, parties can negotiate a price significantly deviating from the prevailing market price during settlement, giving rise to possible disagreements and conflicts.

3- Lack of Standardized Settlement Processes: Each intermediary in OTC trading may have its own settlement process. The absence of standardized procedures adds a logistical challenge for traders and makes it difficult to ensure a secure and transparent trade settlement. For instance, in the OTC gold trading market, different bullion banks and dealers have varying settlement processes, posing logistical hurdles for traders and hindering efforts to achieve a secure and transparent trade settlement.

A new solution on the horizon: Instant Payment Settlements

Different innovative solutions have emerged in this challenging landscape to address these challenges. io.finnet has leveraged blockchain technology to power instant payment settlements, enabling near-instantaneous payments between buyers and sellers in OTC trades and eliminating traditionally expected long waiting periods . This advancement provides participants with unparalleled improvements in liquidity and operational flexibility.

As the digital assets industry continues to evolve, technological innovation will be vital in improving ease, accessibility, and security of trading and payment solutions.

io.finnet stands out as a trailblazer in this space facilitating OTC trades and restoring the “trust” in trustless trade settlements. iofinnet’s novel instant payment settlement solutions and self-custody services solve challenges often faced by digital asset users and regulators, notably fraud, price manipulation, and lack of standardized settlement processes. As regulatory frameworks adapt to the ever-evolving landscape, collaborations between fintech companies and regulators will be crucial to strike the right balance between innovation and compliance, further fostering the growth of trustless OTC trading settlements in the digital asset ecosystem.

To learn more about Instant Payment Settlements, visit io.finnet.com. io.finnet is a cutting-edge software company that specializes in blockchain-based solutions for digital asset custody and instant settlement.