The night before the ORDI launch, the wealth stories of OTC traders

Written by: Jaleel, BlockBeats
Edited by: Jack, BlockBeats

Over-the-counter (OTC) trading is not unfamiliar in the crypto industry, especially in the Bitcoin inscription market. In the early days of the inscription market, the speed of capital entering far exceeded the speed of information flow. Taking advantage of the information gap created by various barriers, the OTC business became the "most profitable business" in this field.

During the phase of rampant growth, some people became rich overnight, while others lost money and fled. Regardless of the praise or criticism, OTC traders are undoubtedly a key component in the rise of this emerging market. In the phase where public trading infrastructure was still blank, they supported the capital flow and public interest in the inscription market. As the Bitcoin ecosystem's infrastructure gradually becomes richer and more complete, where will these OTC traders go?

Some abscond with funds, while others achieve fame with a single document

In the early days of Bitcoin inscription trading, the infrastructure was lagging behind. Apart from the earlier Unisat, the community could only find OTC traders to trade inscriptions. However, OTC trading is ultimately about trust, and in the early market, everyone seemed to be "taking chances." Some bought ORDI at low prices and enjoyed a thousandfold increase, while others returned empty-handed due to their counterpart fleeing.

The former "OTC number one" absconded with $6 million worth of ORDI

On the eve of ORDI's impending "breakout," the first BRC-20 scam case involving over a million dollars occurred.

Bzz.eth, once referred to as the OTC number one by some veteran ORDI players, managed multiple BRC-20 OTC groups as a group leader but fled with 100,000 ORDI from victims. At the current price of $60 per ORDI, this "robbery" amounts to $6 million. The community discovered that Bzz.eth used a secondary account to claim high prices for ORDI, but suddenly canceled the transaction after the seller transferred the funds, while also shirking responsibility by claiming "invalid Transfer inscription," refusing to return the currency and thus acquiring the 100,000 ORDI.

The process of swallowing coins and the subsequent discovery that both were the same person

Moreover, many community members accused him of charging excessively high guarantee fees and relaying different price information between buyers and sellers to profit from the price differences. In March, BlockBeats had contacted Bzz.eth to understand the emerging Bitcoin inscription market. At that time, the Bitcoin ecosystem was not very prosperous. According to Bzz.eth himself, the average transaction amount for each trade was $300, with about 20 transactions per day. At that time, this transaction amount was not considered large, but he was already the first OTC trader most community members interacted with.

As the situation developed, Bzz.eth's WeChat and Twitter accounts, "Wealth Research Institute," were both canceled. Due to the difficulty of investigation, victims did not seek trouble with Bzz.eth when ORDI's price was low. However, as ORDI was listed on Gate on May 8, its price quickly soared to $17.04. With ORDI's value rising in the market, the amount of losses increased significantly, and the severity of the incident changed. BlockBeats learned that victims have only recovered 10,000 ORDI from Bzz.eth, while Bzz.eth himself has not yet been criminally detained.

A single quote sheet leads to fame and success

Before Cai Bai (pseudonym), there was no quote sheet model in the Bitcoin ecosystem OTC. At that time, the operational model of the Bitcoin inscription market was also vague: there was no fixed quote sheet, and when buyers wanted to purchase a certain asset, they needed to inform the group leader or administrator, who would then announce a buying price in the group. Transactions relied entirely on negotiations between buyers and sellers.

At that time, Cai Bai was just a minor player in the inscription OTC circle. Seeing the gap in the market, he proposed his idea to Bzz.eth, hoping that Bzz.eth and other OTC traders would adopt this quote sheet model. However, Bzz.eth was not interested in this matter, so Cai Bai designed a quote sheet from buy one to buy five and sell one to sell five, and began his own OTC business.

Quote sheet template

It turned out that the market had a strong demand for open and transparent information. After Cai Bai established his own group, it quickly attracted a lot of attention. Within a week, the group was full, and it rapidly expanded into three or four groups. The quote sheet established great credibility for Cai Bai's work in Bitcoin ecosystem OTC, and he quickly grew, hiring several assistants. Later, when working on Atomicals, Cai Bai was also recognized by the market as the best OTC trader in depth.

For traders, this quote sheet is an extremely important reference, as the OTC market itself does not have a clear market pricing mechanism, and traders often lack clear expectations for prices. Therefore, providing accurate quote information is particularly crucial and enhances market transparency.

After a month of doing OTC, Cai Bai briefly reviewed his experience, "Starting from scratch to become the largest OTC at that time, with a daily transaction volume of up to 10 BTC, I am really grateful for the trust and support of many friends."

Profit from price differences, set prices, and seize business orders in the inscription OTC market

In reality, most inscription OTC traders are unwilling to publicly disclose their so-called quote sheets. After all, in such an early market, leveraging information asymmetry is the way to achieve high returns; any additional transparency means less profit for themselves.

Black Box

In the early days of the inscription market, businesses providing inscription OTC were referred to as "guarantors." Buyers and sellers would send funds and assets to an intermediary guarantor, who would transfer the assets to both parties after confirming everything was correct.

As facilitators of transactions, OTC traders play an incredibly important role. Their task is to find a price point acceptable to both parties. For example, if the buyer's quote is $100 and the seller's asking price is $300, the OTC trader needs to negotiate a compromise between both parties to reach a transaction at $200.

However, the early inscription OTC market was not transparent, and guarantors did not even need to create a negotiation group for both parties. In this case, guarantors had the opportunity to "profit from the price difference." They often routed transactions through their own receiving addresses, secretly pocketing the difference, while buyers and sellers remained unaware. For instance, if the seller lists at $100 and the buyer quotes $120, the $20 price difference becomes the profit for the OTC trader.

Outwardly, guarantors generate revenue by charging around 4% in OTC transaction fees from both parties, but in reality, the profits gained from price differences are the main source of income for most guarantors. Insiders told BlockBeats that in opaque situations, they could even pocket around 50% of the transaction amount as profit.

In addition to profiting from price differences, "posting fake orders" is also a common tactic used by many OTC traders.

Guarantors would post large amounts of fake sell orders at extremely low prices, triggering panic in the market, causing other sellers to sell assets at lower prices, while the guarantors themselves seized the opportunity to accumulate at low prices. If other buyers wanting to enter at low prices approached, the guarantors would use the excuse of already completed transactions or canceled orders to mislead.

"In short, OTC traders have the final say," said an inscription OTC trader. "The greatest power of OTC is actually influencing market trends. Due to information asymmetry, they can easily manipulate the market."

It can be OTC, but also a "market maker"

Unlike other OTC traders, some inscription OTC traders also play the role of "market makers" in the market.

Unlike pure OTC, market makers sometimes need to use their own funds to actively accumulate to maintain market price and liquidity stability while sustaining market confidence.

Before engaging in Bitcoin inscription OTC, Cai Bai had previously acted as a market maker for a small altcoin during 2018. "For small altcoins, around $200,000 is enough to maintain market prices. In comparison, supporting the inscription market is actually quite easy, especially for some well-capitalized coins with relatively few sell orders." When the price of Atomicals' ATOM dropped to $50 per unit, Cai Bai stabilized the market price by trading hundreds of ATOMs in bulk, but according to the prices at that time, his market-making cost was only around $20,000 to $30,000.

Compared to OTC, where profits mainly come from transaction fees, market makers' profits are more influenced by external factors, and most of the earnings come from market volatility. In the early liquidity-deficient market of Bitcoin inscriptions, the so-called market-making costs are very low, and the corresponding profit methods are also quite diverse. A typical case is COOK.

In December last year, Rune alpha protocol's COOK began minting. Due to the lack of trading platforms and transfer functions, OTC traders mostly adopted a double pledge model, thus initiating a new model for Bitcoin ecosystem OTC.

The specific double pledge model is that both the buyer and seller pledge the agreed price amount with the OTC trader. For example, if the buyer offers $80 and the seller agrees, the seller will also pledge $80. Once transfers can be made, the seller delivers to the buyer, and the OTC trader releases USDT to complete the transaction. If one party defaults before the transfer can be made, the deposit will belong to the other party.

At that time, the situation in the COOK market was that despite the high cost of default, the transaction default rate remained very high. This was mainly because COOK's price rose too quickly; shortly after the seller reached a transaction price of $50, COOK's price exceeded $200, making the profit from default far exceed the profit from not defaulting.

Insiders told BlockBeats that during COOK's rapid price rise, a large portion of quotes were inflated. "Many traders would use their secondary accounts to impersonate buyers. When sellers default, they could receive default penalties, and the profits from collecting default penalties far exceed the 4% transaction fee."

Image 1: An OTC trader confirming double pledge rules; Image 2: An OTC trader canceling all double pledge transactions; Images 3/4: Community discussions on COOK's default situation

Because COOK could not be transferred, the higher the price rose, the more likely it was to attract others to buy, and the number of defaulters would also increase. The role of OTC traders in this process is to hype COOK's popularity, attracting more people to trade. In addition to posting fake orders, many traders would also shout about the mapping relationship between the Rune alpha protocol and the Runes protocol to create positive news, and there were even many OTC traders openly calling "those who want to default should hurry."

On December 14, a certain OTC trader claimed that the cumulative default refunds reached $200,000 that day

Indeed profitable, but also truly exhausting

Compared to the daily trading volume of several thousand dollars for early Bzz.eth, Cai Bai's daily transaction volume during the peak of the inscription craze in May could reach around ten Bitcoins. Based on the price of Bitcoin at that time, daily transaction fee income was nearly $10,000, equivalent to half a year's salary for most ordinary white-collar workers in China.

An OTC trader focused on Lightning Network assets told BlockBeats that during the project's hot phase, a minimum of $50,000 in trading volume could be achieved in a day. "When charging a 2% fee from both sides, earning $1,000 a day is not a problem." Another OTC trader, Water (pseudonym), who started with the Tap protocol, stated that in the first two weeks after the Tap protocol was launched, weekly trading volume could reach around $100,000.

However, by around November last year, the Bitcoin inscription OTC market gradually became a red ocean. Competition among OTC traders increased, and some new traders reduced their fees from 4% to 2% to attract more users. Although everyone is envious of the OTC market, not everyone has the opportunity to fill the gap like Cai Bai; most traders need to use various means to compete for the existing market.

For Water, this "means" is to establish trust through active participation in the community. In the Trac protocol's Discord community, Water is very active, and the Trac official Discord even granted him an official certified OTC role. Additionally, based on the quote sheet, Water registered a domain website for quote sheets, allowing anyone to view all current orders in real-time. "Reputation is crucial for this type of trading. Even with advanced technical means, building trust remains an indispensable foundation," Water told BlockBeats.

In addition to the initial difficulties, OTC traders often find themselves frequently entangled in "intrigues" with peers. "It's profitable, but it's also truly exhausting." This is the genuine sentiment of most OTC traders. WeChat accounts being banned, groups being shut down, Binance accounts being frozen, and receiving dirty USDT are all troubles they have experienced.

Insiders told BlockBeats that the inscription OTC market often sees "peer reporting" situations. When Cai Bai was an ORDI OTC trader, his WeChat account was banned multiple times, making communication difficult. "I changed my WeChat account three times, and in the end, I couldn't add anyone, turning it into a single line of contact."

In Water's view, doing OTC is quite hard for those engaged in regular work, but for early coin hoarders, the profits are not that substantial. After all, engaging in OTC trading might yield tens of thousands to hundreds of thousands of dollars a month, while those who hoarded coins early could potentially earn hundreds of thousands to millions in profit. Even in a bullish market, hoarding coins could lead to profits of tens of millions of dollars in a short time.

After the capacity shrinks, where will OTC traders go?

"This pond can only be stirred so much; beyond that, there won't be much left for OTC."

In Water's view, the scale of the Bitcoin ecosystem's OTC market is relatively small, with trading volume and liquidity not as high as centralized trading platforms. He believes that the true liquidity of the Bitcoin ecosystem may only improve once projects are launched on centralized trading platforms, which is closely related to the overall market capacity.

He told BlockBeats that before projects like ORDI are launched on centralized trading platforms, daily trading balances may only be a few million dollars, which is relatively small. However, once projects are launched on centralized trading platforms, trading volume will increase significantly. After ORDI and SATS were launched, the daily trading volume on trading platforms could reach over $100 million.

In mid-November, multiple "zero-dollar purchase" incidents occurred on Atomicals Market. Statistics showed that all 33,000 Atoms lost in the previous two "zero-dollar purchase" incidents. Despite numerous facts and evidence pointing to security issues with AM, and many community users calling for AM officials to step in, AM initially seemed unwilling to take responsibility or even consider ceasing operations.

To manage public relations for this incident and reduce negative impacts on the Atomicals community, some core community members, OTC traders, and wallet developers of the Atomicals protocol negotiated with Atomicals Market as representatives. Fortunately, after these community members facilitated negotiations, the original founder of Atomicals Market stepped down, and the team underwent a handover and replacement, with the new team completing full compensation after the transition.

This also shows that OTC traders have made significant contributions to promoting the development of the Bitcoin ecosystem and various protocols.

Meanwhile, various Bitcoin ecosystem protocols have established their own dedicated trading market platforms, including the improvement of the Unisat market and the ongoing follow-up of the OKX Web3 wallet, gradually shrinking the market capacity for OTC traders. So where have OTC traders gone after the market capacity shrinks?

To this day, very few people are engaged in OTC trading in the Bitcoin ecosystem, and most have ceased this activity. The market has become more mature and no longer requires OTC trading.

Cai Bai also admitted that when an OTC operation becomes too large, there are certain risks in terms of policy, especially in the domestic environment. Therefore, as Atomicals Market gradually matured and directed real users to Atomicals Market, he stopped continuing his operations.

Now, only sporadic OTC trades mainly occur between large transactions or major holders because the market's liquidity may not be very good. When someone wants to purchase a large number of inscriptions, they may seek the OTC market to connect with sellers and attempt to buy a large number of inscriptions in one go. Ordinary small transactions are now rarely conducted through OTC, and are basically completed through centralized markets.

"After ceasing OTC trading, I returned to my previous state, researching new projects and making some investments," Water said.