How market fragmentation impacts OTC trading: Report
The crypto market is highly fragmented, with over 700 exchanges globally, complicating price discovery and execution quality for institutional players. Fragmentation creates both opportunities and challenges, leading to inefficiencies in market liquidity and transaction costs. Centralized and decentralized exchanges utilize order-driven models, while OTC markets rely on quote-driven systems, complicating liquidity aggregation. Hybrid execution models are emerging to enhance transparency and efficiency. Post-trade settlements in OTC markets face delays and increased counterparty risk due to a lack of standardized mechanisms. Regulatory divergence across jurisdictions raises operational costs, prompting firms to seek additional licenses. Major firms are entering the crypto space, indicating a shift towards compliance and institutional maturity, necessitating improved market infrastructure to address inefficiencies.
