OTC Crypto Exchange – How it works?

OTC Crypto Exchange; How it works?

Over the Counter Trading (OTC) crypto currency exchanges are financial firms designed to facilitate converting cryptocurrencies to fiat currencies and other crypto assets. In OTC exchanges the traders trade their assets with the exchange and there is no direct interaction between buyers and sellers in contrast with exchanges such as Binance. While trading policies and strategies differ among different organizations there are common requirements and practices that will benefit the security and profitability of an OTC exchange.


One of the challenges that an OTC face is how to set their prices in the competitive and dynamic market of cryptocurrencies. It is all about how you set the spread from the market rates and when you pick the market price to settle the trade.  Using right tools and policies can give an upper hand and guarantee your profit. Here are a few recommendations.

Never close the deal while a transaction is unconfirmed. Rather than closing the price; agree on the method of price calculations. For instance the trade price for buying 1.0 unit BTC can be 1% below a reputable exchange price when the moment the transaction your customer sent to you receives 2 confirmations. By doing so you have covered the risk of price change while you don’t actually have access to the funds being sent and it is verifiable for you, your customer and any third party. Another benefit of this trade strategy is that you can convert the receiving fund to stable coins to secure your profit. Another risk that this strategy covers is low fee transaction. If your client sends you a transaction with fee lower than the market norm it may take long for the transaction to be mined.

The tools you will need to implement this strategy are a payment gateway to receive crypto fund, a notification service to announce the number of confirmations and potentially an automated TX service to forward the receiving funds to an exchange to be converted to stable coin or be sent to a cold wallet for enhanced security. Lincoin will provide you the right tools to achieve this strategy.

Users and Exchange Privacy

You should always care about privacy while using public blockchains such as Bitcoin. Not only to protect yourself but also to protect the privacy of your clients. As an OTC operator you should have clear strategy on how often you use an address for sending or receiving payments. An HD wallet and a well-managed payment gateway is a must in designing your strategy. By utilizing an HD wallet you can manage addresses and generate an unlimited number of addresses for one single wallet. As a result none of your clients can monitor other activities you might have on the blockchain.  Also you may want to employ a (Zero-Knowledge + Zero-Trust) platform. So that in case your wallet or your service provider server information are breached  you assets and your clients are safe.

Lincoin would be more than happy to provide you the right tools you will need to design your privacy-oriented strategy for your OTC exchange.

Managing Theft Risk and Cold Storage

Cold storage is a strategy that will significantly enhance the security of your service. Read more about cold storage in this article. Major crypto exchanges have always been prone to hacks and thefts. Thefts happen to major companies such as Binance and MT.GOX and it can be said sometimes it is hard to prevent it. However your safety arrangements and strategy can prevent or minimize the consequences and improve your reputation among your users and community.

Keeping your assets in the hot wallet you use for everyday trade or on another exchange wallet is the worst idea. Always set a risk tolerance threshold and limit your assets in a how wallet to that. For instance if your risk tolerance is 10.0 BTC always send any amount more than that to a Cold storage wallet that will keep your private keys and your asset secure.  In addition to that always secure an emergency fund as big as your tolerance in an isolated cold wallet. By doing so if your hot wallet is compromised and the funds in it are stolen you can use the emergency wallet to pay off your liabilities.

Lincoin automated transaction service will help you manage the risk tolerance and thresholds effectively.

Managing market fluctuations

A strategy was introduced in the pricing section to manage the market fluctuations. In addition to that there are cases that your transactions get stuck in the network due to a congestion. In this case there are solutions to speed up the transactions and avid potential loss. No matter if you the sending or receiving party you can use a CPFP or Opt-in RBF method. Read more about these methods here.

Lincoin will provide you the right tools to speed up transactions and manage loss.

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