Pertains to the process of executing large-volume transactions involving cryptocurrency derivatives, such as options or futures, outside of a public order book. These trades are negotiated directly between institutional parties, aiming to minimize market impact and price slippage often associated with on-exchange execution of significant orders. Its purpose is to facilitate efficient, discreet settlement for substantial positions.
Mechanism
The operation typically commences with an institutional trader or liquidity provider requesting a quote for a large derivative position from a counterparty. Once an agreement on price and terms is reached, the trade is executed off-chain or through a specialized smart contract that records the agreed-upon parameters. The trade details are then often reported to a central clearing house or recorded on a DLT for post-trade processing and risk management.
Methodology
The strategic approach involves leveraging Request for Quote (RFQ) systems or bilateral agreements to source liquidity for derivatives block trades. It emphasizes pre-trade price discovery and post-trade settlement efficiency, often relying on decentralized protocols or secure messaging systems for negotiation. This method seeks to mitigate information leakage and adverse selection by keeping large orders off public venues until execution is complete.
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