Establishing a digital assets trading desk: New building blocks for a new asset class

Digital asset markets are different. They operate 24/7, necessitate capital upfront (pre-funding of assets to exchanges prior to trading), involve a wide range of liquidity access options including request-for­ quote (RFQ), both centralized and decentralized exchanges, and the use of WebSocket APls instead of FIX protocol.

Moreover, digital asset markets are a mix of regulated markets (e.g., futures), semi-regulated markets (e.g., spot), and un­-regulated markets (e.g., decentralized finance or DeFi). Additionally, most spot trades settle in stablecoins such as USD Coin (USDC) or Tether (USDT), echoing features of FX, equity and fixed income markets.

While some elements of digital asset market structure mirror traditional financial markets (e.g., the use of central counterparties and bilateral agreements), digital assets often diverge in significant ways. Institutions should therefore carefully consider their approach to establishing a digital asset trading desk.

Operational considerations

Setting up a digital asset trading desk is a complex undertaking. Institutions must choose the right legal entity, assemble a team of skilled traders, build or buy technology, establish efficient operational workflows, identify the right counterparties, and stand up risk management and compliance functions. 

None of these tasks are trivial. Some may require the assistance of new yet specialized technology partners. The firms who have the foundational knowledge of digital assets that’s needed to be successful are more likely to be pioneering crypto-native firms. Meanwhile, traditional prime brokers, who often provide and influence the trading technology used by hedge funds, do not currently support the full range of digital assets.

The building blocks of a digital assets trading desk

In order to achieve or demonstrate best execution across digital asset markets, institutions will need to build their own crypto trading ecosystem, which requires crypto-specific market structure and engineering expertise. The core building blocks of a digital asset trading desk span the full trading lifecycle, namely custody, trading technology, and liquidity access. 


  • Digital assets are bearer assets, requiring secure management of private keys which control the movement of the assets
  • There are a variety of approaches from both a hardware and software perspective to achieve security. Technology providers offer measures to verify ownership, and to authenticate users and their intentions, in addition to securing private keys
  • Institutional-grade custody involves  secure custody of a wide range of assets, including the “long-tail” of cryptoassets
  • The most established crypto custodians will be licensed and regulated, with well­ designed Know Your Customer and Anti-Money Laundering (KYC/AML) processes in place, as well as insurance measures to safeguard customer funds

Trading technology

  • The best trading platforms will support portfolio management and accounting in addition to execution and order management
  • A comprehensive trading solution should include algorithmic strategies like Time-Weighted Average Price (TWAP) and Percent of Volume (POV), liquidity aggregation, smart order routing (SOR), and transaction cost analysis (TCA)
  • Reporting capabilities should be robust, enabling comprehensive audit trails and compliance reporting

Liquidity access

  • A capable partner should provide access to real-time and RFQ pricing across multiple types of liquidity venues
  • Liquidity aggregation should be available for spot, derivatives and FX liquidity
  • The nature of centralized, decentralized and hybrid exchanges complicates the landscape and elevates the importance of market structure expertise as well as the role of execution consulting. Partners should have a deep understanding of the market microstructure at different venues as well as counterparty risk
  • Some partners may support direct trading from institutional custody accounts or other forms of credit intermediation to eliminate the need for pre-funded capital at an exchange

Other building blocks

Other building blocks include access to yield products, lending and borrowing platforms, and fiat banking connections for on-ramps to digital assets.

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