Today, over-the-counter (OTC) trading is one of the most popular types of crypto trading. Escrow is a popular trading mechanism. That implies OTC trading is done by using Escrow services. This article will take you through the differences between the both.
WHAT IS OVER THE COUNTER (OTC) TRADE?
Over the counter trade involves the trade of assets like cryptocurrencies. These trades take place between two parties without the supervision of an exchange. OTC trading is different from exchange trading.
WHAT IS ESCROW PAYMENT?
An escrow is a system where a third party stores a financial instrument or an asset rather than the two parties who are involved in the transaction. According to Escrow payment meaning, third parties like Tazapay play the role of the guarantor or the promisor. The assets or funds are managed by the Escrow agency. Along with that, they control all the trading processes and check that all the commitments are fulfilled in the transaction.
DIFFERENCE IN OTC AND ESCROW MECHANISM
OTC mechanism
The mechanism of OTC trade is quite simple. These trades take place outside the standard exchange, so they take place easily between two parties directly. The parties can find each other off-exchange even in non-conventional venues like online platforms in the chat groups directly. Mostly, they trade cryptocurrencies through an agreement.
Escrow mechanism
Escrow services work on blockchain technology where the users invite the parties ready for the transaction and make the contract and pay the charges.
What is an Escrow account, and how does it work?
An Escrow account is an account created for keeping money, securities, funds, or any other assets. The Escrow service provider, buyer, and seller make a shared wallet using their private key. This wallet allows the withdrawal of the balance only when at least two among three of the creators provide confirmation.
While creating the wallet, three signatures are made, and the trade fee is deposited in it. If the buyer and seller decide to transfer the balance to the seller account, then without an escrow system, the amount gets transferred.
The best thing about Escrow services is the level of security provided to both parties of the contract. Besides that, unlike OTC trade, it allows trading of all types of financial assets, including cryptocurrencies.
Therefore, OTC trades are completed using Escrow services. That implies the users can enjoy the benefits of over-the-counter trade with complete security from the Escrow payment services. The trades that take place with the Escrow services account to minimize the risks of both the trade parties. Thus, when over-the-counter trade occurs using escrow services, it takes the trading to the next level.
