Launching a Crypto OTC Trading Platform
The crypto market is exploding right now. Institutional crypto trading has grown significantly, and the retail sector is booming. The demand for liquidity is at an all-time high. Donald Trump promises to make the US the crypto center of the world following the highly successful launch of crypto ETF trading through US exchanges.
The crypto market cycles through ups and downs, and now it’s at a high ebb. Starting a crypto exchange platform seems like a profitable business, but aspiring brokers need to act fast. We’ll tell you how to launch a crypto OTC trading platform quickly and capitalize on the current uptrend.
What is OTC trading?
OTC trading involves trading assets directly between two parties without a centralized, traditional exchange. In cryptocurrencies, OTC trading is popular among institutional investors and high-volume traders who need to buy or sell large amounts of cryptocurrency without causing significant price fluctuations.
How do I start a cryptocurrency trading platform?
Brokers who want to start a crypto trading platform need to address several issues ranging from researching regulatory standards to technical development and marketing. Here’s a brief overview of the process:
1. Market research and planning
Firstly, conduct a thorough market analysis that involves studying the current market, identifying your target audience, and analyzing your competitors.
Secondly, you’ll need to define your business model. In this article, we’ll talk about a crypto OTC trading platform, which is a service that facilitates the direct, private trading of cryptocurrency between buyers and sellers, bypassing public exchanges to minimize market impact and ensure discretion.
Lastly, you should clearly identify your unique selling proposition (USP), which involves pinpointing what will make your platform stand out, such as offering lower fees, better security, or a user-friendly interface on both web and mobile.
2. Regulatory compliance
ESMA always stays vigilant, so adhering to legal requirements and regulations in the jurisdictions where you plan to operate is essential.
OTC crypto trading is a stable solution for high-net-worth individuals due to its independence from the market. However, as an aspiring crypto OTC platform owner, you may need to license your company based on your project’s requirements.
Remember that in cryptocurrency trading, different countries have specific authorities responsible for issuing licenses or registrations. While not mandatory, obtaining a license can significantly increase your platform’s global visibility and credibility with valuable clients.
A consulting firm, LegalBison, which helps aspiring crypto businesses to stay within the legal framework of countries they operate in and traders they target, lists the following jurisdictions as the best for launching an OTC crypto trading platform:
| Poland The initial investment starts at 3.650 euros and is taxed at 9%. This license is one of the fastest to obtain and has one of the lowest prices for 2024. You’ll be ready to launch in two months. | Czech Republic The starting price for the Czech authorities’ license is 4.200 euros, but it comes with a high tax of 21%. At the same time, you don’t need to be a resident for this license; it has the lightest requirements. You’ll be able to launch in three months. | Lithuania The license from Lithuanian authorities seems like the most favorable one since its starting cost is just 2.190 euros, and you’ll be able to launch in just one month. The tax is somewhere in the middle, sitting at 15%. The license is claimed to be fast to set up and easy to obtain. |
Regardless of whether it has a license, if an OTC crypto exchange wants to be visible and trustworthy, it must create its anti-money laundering and countering the financing of terrorism (AML-CFT) compliance protocols, appoint an AML officer, and educate key members and shareholders about AML policies.
3. Technical development
Of course, you’ll need to get a crypto trading platform—a good one that will satisfy your clients.
Crypto traders are demanding in terms of usability and up-to-dateness of the technology they use, so here’s a quick recap of what you’ll need:
- A user-friendly front-end for clients
- A robust and scalable backend to handle trading operations
- APIs for algorithmic trading and third-party integrations
To ensure security, you’ll need to have
- Data encryption for secure transactions
- Two-factor authentication 2FA for user accounts
- Cold storage to store most funds in offline wallets to prevent hacking (pay special attention to this because lately, many crypto exchanges have been robbed in broad daylight! Here’s the latest example of WazirX).
You’ll also need a fast and reliable trading engine to match buy and sell orders and integrate with various blockchain networks to facilitate deposits and withdrawals.
4. Partnerships
Crypto businesses need to partner with liquidity providers to ensure deep liquidity on their platforms. They also need to establish relationships with banks to facilitate fiat deposits and withdrawals.
OTC crypto trading platform development against out-of-the-box solution
We’ve already drawn a comprehensive comparison of custom and turnkey trading platforms, so let’s just do a quick recap.
The pros and cons of a custom OTC crypto trading platform
Tailored to your unique needs against long-time-market
On the bright side, a company receives a customized software solution that addresses all of its requirements. This includes scalability, corporate branding and colors, adaptation to regional variations, and meeting UI/UX requirements. However, creating software from the ground up means that a company cannot launch quickly. In some cases, developing a solution might require up to a year of work by a dedicated team.
Independence against substantial investment
When you manage your development, you have the flexibility to launch new features and roll out updates whenever you want. However, this approach is expensive and time-consuming. The longer it takes to develop a solution, the more expensive it becomes.
Opportunity to buy source code against hard to choose the right vendor
If a company wants to go public, raise its valuation, or bring the development in-house, it can buy out the source code of its customized solution. Most software vendors offer this option, although it can be costly. The challenge lies in selecting the right software vendor that will not disappoint the company. With numerous vendors available in the market, finding the best one may prove to be a significant hurdle.
What are the pros and cons of an out-of-the-box OTC crypto trading platform?
Short time to market against lack of customization
The term “turnkey” implies that a solution that is not very complex can be integrated in just a day (as with our DXcharts widget). For larger systems like trading platforms, integration takes one to two weeks.
At the same time, off-the-shelf software is hardly customizable to fit specific workflows. If a business needs something different or new, it may not be able to obtain it, putting it at a disadvantage compared to firms that can develop their own software to keep up with new products and trends.
Cost-efficiency against costly extras
When considering a turnkey solution, it’s important to note that vendors price their products differently. While some offer attractive prices for bare products, they charge additional fees for integrations, hosting, technical support, and maintenance. This can lead to micro-billing as they try to compensate for low-yielding core products.
Tried and tested technology against vendor lock-in
Remember, turnkey solutions have a large client base that has already reported most major bugs and continues to do so with new releases. This helps vendors fix their solutions faster since bugs are inevitable. At the same time, a software vendor may not release enough updates or keep up with industry trends and regulations, leaving your software outdated and unfixable.
Your branding
Most turnkey solutions allow you to add your logo, and some offer the option to customize the UI in your corporate color scheme. This allows you to maintain your company’s identity while benefiting from all the advantages of the turnkey solution.
Bottomline
There is no need to seek tailored options for an OTC cryptocurrency trading platform. If you pursue this route, you may end up in a different crypto downturn and completely broke when it’s finished.
Is the crypto OTC trading platform legit?
Yes, OTC crypto trading platforms are legitimate and widely used in the cryptocurrency market. They allow traders to execute large trades directly with a counterparty without affecting the market price.
Legitimate OTC platforms comply with relevant regulatory requirements, including AML and KYC policies. They should also operate under licenses from financial regulatory authorities, which adds a layer of credibility and trust.
Examples of legitimate platforms that provide OTC crypto trading include Coinbase, Binance, and Kraken.
OTC crypto exchange features
A crypto exchange is a full-fledged marketplace where crypto assets and their derivatives are traded. It serves as a market-maker and platform that connects buyers and sellers, facilitating the exchange of fiat for crypto and crypto for crypto.
Key differences in functionality and services are that trading platforms offer various trading services, including but not limited to basic exchange functions, while exchanges primarily facilitate the exchange of cryptocurrencies and may offer fewer additional services compared to trading platforms.
Trading platforms provide advanced trading tools, customizable interfaces, and a broader range of financial products, while exchanges focus on maintaining a liquid and efficient marketplace for the exchange of assets.
If you decide to launch a crypto exchange, you’ll need to manage multiple software components to launch and run it.
Matching engine
An exchange needs a special engine to match buy and sell orders from market participants to make trades happen. When picking matching software, remember that cryptocurrency exchanges prioritize processing speed over delay. Cryptocurrency exchanges mainly serve everyday traders who don’t do high-frequency trading, so focusing on minimizing delay is unnecessary. But during turbulent times in the cryptocurrency market, everyday traders might quickly enter into trades, so processing speed is still important.
Admin panel
The trading and matching system needs to include an administrative panel to allow operational staff to monitor the system’s performance and make any required manual adjustments.
Our exchange solution, DXmatch, offers a matching engine, an admin panel, and the entire exchange infrastructure, so you might consider using it to launch your OTC crypto exchange.
Conclusion
Entering the crypto market with an OTC trading platform can be a lucrative venture given the current expansion of the industry. However, it’s crucial to conduct comprehensive market research, establish regulatory compliance, and prioritize the technical development of a secure and user-friendly platform. Partnering with liquidity providers and banks is also vital to ensure smooth fiat transactions. By addressing these key areas, aspiring brokers can position themselves to capitalize on the growing demand for crypto OTC trading services and make their mark in this dynamic and evolving market.