Crypto's OTC desks report growing volumes for DeFi tokens. But they're eschewing YAM and SUSHI

Growing interest in the decentralized finance market has translated into a surge in trading volumes for certain DeFi tokens, over-the-counter trading executives tell The Block. 

During the last three months, the use of non-custodial lending, investing, and trading protocols have increased. At the same time, trading volumes in the tokens connected to those protocols have seen a similar surge on centralized exchanges and centralized trading desks, according to executives at two large crypto-focused trading shop.

An executive at one desk, who spoke on the condition of anonymity, said they've seen a two-times increase in the trading of DeFi tokens between July and August. The majority of those flows are in SNX, COMP, and YFI. The same desk saw an eight-times increase in trading volumes for those tokens between the second quarter and third quarter of 2020.

"Definitely a lot more interest in trading those names," the person said. Still, their desk has yet to venture into the trading of more thinly traded names that have yet to list on centralized venues, such as many of the food-inspired coins like YAM and SUSHI. 

"We don't trade everything that's created overnight," the executive said, adding: "I’m sure there are some desks out there taking those risks, we’re just not going to be one of them."

Indeed, the open-source nature of these DeFi protocols allows them to be forked, enabling developers to quickly launch new coins. A recent derivative of Uniswap, Sushiswap, has quickly grown to make up the lion share of value locked up on the parent protocol.

At another OTC desk in the market, an executive similarly said that the firm is seeing "a lot of inbound requests to buy and sell the tokens."

"I'd say names like YFI, COMP, LEND are getting a little more play," the executive remarked. "It all depends on the float."

"The smaller the float, the more retail-oriented," they added, referring to food-themed tokens. "We mostly deal with institutions so it's really only the more 'mature' DeFi assets."

The action isn't isolated to desks. With the attention of traders focused on DeFi projects, many exchanges have ramped up their efforts to list the tokens associated with these projects in an attempt to capture trading volume and revenue. Since the beginning of 2020, DeFi coins have grown from roughly 2% of exchange trading volumes to 14%, as my colleague Steven Zheng recently noted. 

As for trading on decentralized venues themselves, few desks have taken the leap, according to these two insiders.

But that could change with the recent news that high-speed trading pioneer Jump Capital would serve as a primary liquidity provider for FTX's upcoming DEX Serum.

Here's one executive: 

"The Jump Trading news [yesterday] makes it interesting... I’m wondering how they are getting comfortable trading on DEXs w/o ALM/KYC. Unless there’s some whitelisting feature on FTX’s DEX platform that only allows them to pair off against known entities? Idk. Maybe you have some color there."