The process of obtaining execution and pricing for large cryptocurrency trade orders from venues or counterparties that operate outside the public, on-chain execution layer of a blockchain, such as Request for Quote (RFQ) platforms, dark pools, or bilateral over-the-counter (OTC) desks. This strategic activity is essential for institutional trading, enabling the movement of large volumes without creating detectable market impact or risking front-running on public exchanges.
Mechanism
The operational mechanism relies on a direct, low-latency communication interface between the institutional trading system and the chosen off-chain liquidity provider, typically using protocols like FIX or proprietary APIs. The process involves sending an RFQ message to a select group of counterparties, receiving competitive quotes, and executing the trade bilaterally. The subsequent settlement may occur on-chain, but the price discovery and execution are completed off-chain, preserving trade data confidentiality.
Methodology
The strategic goal is to minimize the implicit cost of trading, specifically market impact and information leakage, by executing trades in venues where order book data is not publicly disseminated prior to execution. This methodology prioritizes finding optimal execution price for large blocks by systematically vetting liquidity providers based on historical pricing quality, reliability, and speed of response, ensuring a high fill rate for significant order volume.
