The Pricing Challenge for Crypto OTC Desks

A case study exploring how Kaiko’s Aggregated Quotes enable fair and transparent pricing for Over-the-Counter dealers, market makers and traders

Written by Mouheb Khanchouch


It is no secret that cryptocurrency markets are highly volatile and fragmented. Trading activity is spread across dozens of mutually independent exchanges comprising thousands of unique spot and derivatives markets. To give an idea of the degree of market fragmentation, there are currently 196 active BTC spot markets across 46 centralized exchanges.

It is the job of an OTC desk to provide the best quote for their clients, but how does one determine the price of a crypto asset that trades on 196 markets? This is one of the most important challenges that an OTC desk must solve in order to ensure fair and transparent pricing for their institutional clients.

In this case study, we will explore how OTC markets work and their regulatory obligations, and demonstrate how Kaiko’s Aggregated Quotes solves the crypto pricing challenge.

How an OTC Desk Works

OTC or Over-The-Counter trading is a process of trading instruments directly between two parties without a broker or an exchange. In the crypto world, OTC markets enable market participants to trade large quantities of an asset without materially impacting the market or putting themselves at risk of manipulation strategies. Due to the low liquidity of many crypto assets, OTC enables a trader to avoid the effects of price slippage that they would almost certainly incur on a centralized market. 

OTC desks are divided into 2 categories:

  • Principal or “Principal Risk”: In this case, the desk will assume risk by trading against its own funds, therefore taking on risk of price evolution for the asset. They will hedge this risk by trading on a centralized exchange. 
  • Agent: The agency desk will not assume market risk as the principal one does. In this case, traders will not trade against their own funds but just act as an intermediary between client and exchanges (or MM).

The OTC Price Quoting Process
OTC markets are quote-driven meaning that only bids and asks of designated market makers and specialists are displayed. This contrasts with order-driven markets, where all bids and asks are displayed.

An OTC dealer will either quote an indicative price as an estimate of the current market price (but with no obligation to honor it) or a firm price, which is guaranteed by the dealer for certain periods of time.

The quoting process is generally done through a custom pricing engine that will apply a pricing model to multiple sources of data, typically pulled from exchanges, data aggregators, or other OTC platforms. The price is published either to sales traders through an internal platform or directly to clients/brokers through an electronic trading one. 

How the price is quoted can differ from one OTC platform to another, mainly across two verticals:

(Request For Quote) : the clients will request prices on an order at a certain size.

- RFS(Request For Stream): dealers will continuously quote firm prices and clients can trade using a Click To Trade System.

Today, RFQ is the most common way to quote a price for an asset. The general workflow is as follows:

1. The client selects Market Makers based on a pre-selected list of participants willing to provide quotes for an asset.
2. Client asks for a quote through an RFQ. ie : Quote for 1000 BTC.
3. Market Makers send back two-way quotes as a response.
4. Client will benchmark offers and select the more suitable one.

The Problem: Regulatory-Compliant Prices

In traditional finance, OTC desks have the regulatory obligation to provide the best price for their clients according to MiFID II and FINRA regulation. A desk must prove that the price they are offering for a trade is fair and reflects the current state of markets. 

In crypto markets this type of regulation is not yet enforced, but as more institutional traders enter and regulatory oversight increases, OTC desks will need to guarantee a “best price” and OTC traders will need to feel confident that the prices they are being quoted are fair. 

Having access to a crypto price quote that is both transparent and regulatory-compliant is thus one of the principal challenges of crypto OTC trading today.

Kaiko’s Aggregated Quotes

To solve this challenge we built Aggregated Quotes. This data product provides the Best Bid and Best Ask for a crypto asset aggregated across a reliable selection of markets. We built this by:

- Sourcing data from vetted liquidity pools (subject to a quarterly review).
- Applying a dedicated algorithm to blend the data input to form a unique Bid and Ask, which contains both a price and size. 
- Distributing the output near Real Time.

The aggregated Best Bid, Best Ask (Aggregated Quote) is calculated by taking a volume-weighted average price of the Best Bid and Best Ask from only the most reliable sources. These aggregated prices are derived from Kaiko’s Top of Book data, which are collected at an exchange and pair level.

The below example shows Kaiko’s Aggregated Quotes for 10 assets displayed on Bloomberg Terminal [<KKGT>]. Each quote contains the bid, ask, bid size, ask size, last trade and timestamp.

We built our Quotes to be regulatory compliant within the Dodd-Frank Act and EU AIFMD Securities Pricing Service frameworks. Although crypto markets do not yet fall under these frameworks, market participants have increasingly stringent requirements for multiple pricing sources that respect fair pricing principles.

How to Use Aggregated Quotes

Kaiko’s Aggregated Quotes provide unambiguous and independent quotes that allow OTC dealers, market makers, and liquidity takers to assess whether they submit or get a fair price. 

Liquidity Provider Use Case

For an OTC Desk/MM, Aggregated Quotes can feed into the pricing engine as one of the data sources used in the platform and as a basis price for quoting.

As a liquidity provider, you want to define your price based on trusted sources and when there are competing ones, quality and coverage has greater value. Kaiko Aggregated Quotes fit with those needs as they are based on a public and transparent methodology and a pre-selected list of quarterly reviewed trusted exchanges. 

Kaiko Aggregated Quotes provide clients with quality information essential to competitive price determination and give an accurate idea of the available liquidity on exchanges. 

OTC Liquidity Taker Use Case
For an OTC desk client, it is difficult to check the accuracy of prices displayed by a market maker for several reasons:

- There is a lack of transparency in pricing, with no information on the source of the data.
- The Price Discrimination Principle: In general, market makers apply a tiering method to their clients that varies the pricing based on a client profile.

Kaiko’s Aggregated Quotes can be used as a benchmark for clients to compare with prices provided by Market Makers.

In traditional finance, it is already considered best practices from a regulatory standpoint to always have a secondary pricing source for valuation and trading. Our Aggregated Quotes solve for this challenge. 


Kaiko’s Aggregated Quotes enable OTC dealers, market makers, and traders to have a better understanding of a crypto asset’s price in real time. We offer quotes for the top 50 crypto assets with data sourced from the top 10 exchanges, as determined by our Cryptocurrency Exchange Ranking. More details on our calculation methodology can be found below and on our informational page here.

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