In recent months, we have been receiving an increasing number of inbound messages on LinkedIn from institutional counterparties - market makers, liquidity providers, and trading firms. Much of this outreach is clearly systematized, likely supported by AI-driven prospecting tools targeting participants active in crypto derivatives.
While most of these conversations remain exploratory, some provide useful insight into how more sophisticated market participants operate.
One such interaction introduced us to a concept we had not previously engaged with directly: RFQ (Request for Quote).
The Context
Terramatris currently operates as a smaller, actively managed crypto/options portfolio, with a focus on systematic strategies rather than large block trades. Execution is primarily conducted on listed venues, particularly ByBit, with hedging implemented via spot or perpetual futures for capital efficiency.
Within this setup, the standard workflow has been straightforward:
- analyze opportunity
- execute via order book
- manage risk dynamically
This approach has proven sufficient given our typical trade sizes and the generally strong liquidity available on major crypto options venues.
What Is RFQ?
RFQ (Request for Quote) is an alternative execution mechanism where, instead of trading against the public order book, a trader requests a price directly from one or more market makers.
The process is simple in structure:
- a trader specifies the instrument and size
- market makers respond with firm bid/ask quotes
- the trader can accept or reject the quote
In crypto options, RFQs are typically facilitated through platforms such as Paradigm, or via built-in functionality on exchanges like Deribit.
Why RFQ Exists
The existence of RFQ reflects limitations of order book-based execution:
- Visible liquidity is not always representative of true capacity
- Larger trades can move the market
- Spreads may widen during periods of volatility
Market makers, operating off-screen, can:
- internalize risk
- price more precisely
- offer tighter or more size-adjusted quotes
In theory, this creates the possibility of improved execution.
When RFQ Works
Based on our analysis, RFQ tends to provide value under specific conditions:
1. Larger Trade Sizes
When trade size becomes meaningful relative to order book depth, RFQ can reduce market impact and slippage.
2. Less Liquid Instruments
Far out-of-the-money options, longer-dated expiries, or altcoin derivatives often benefit from off-screen pricing.
3. Volatile Market Conditions
During periods of stress, order book spreads may widen significantly, while market makers may still quote competitively.
When RFQ Does Not Add Value
For smaller, systematic trading strategies, RFQ may offer limited benefit:
- Order books on venues like Deribit are already highly efficient for liquid instruments
- Additional workflow complexity may outweigh marginal price improvements
- At smaller sizes, quotes often converge with visible market pricing
In such cases, direct order book execution remains practical and sufficient.
Does RFQ Apply to Terramatris?
At the current stage, RFQ is not a core requirement for Terramatris.
Our typical trade sizes, combined with a focus on liquid instruments, mean that execution quality on the order book is generally adequate.
However, the concept becomes increasingly relevant as:
- position sizes scale
- strategies evolve toward more complex structures
- execution cost becomes a larger component of overall performance
A Practical Approach
Rather than adopting RFQ as a default execution method, the more rational approach is incremental:
- selectively test RFQ on comparable trades
- measure execution quality versus order book benchmarks
- evaluate whether consistent improvement exists
This allows for data-driven integration, rather than assumption-based adoption.
Broader Takeaway
This interaction highlights a broader point:
Even unsolicited outreach - often dismissed as noise - can occasionally surface meaningful insights into market structure.
For smaller managers, there is a natural gap between retail-oriented workflows and institutional infrastructure. Bridging that gap requires selective engagement, critical evaluation, and practical experimentation.
RFQ is one such example:
- not immediately necessary
- but potentially relevant as scale and complexity increase
Conclusion
RFQ represents a different layer of market interaction—one that becomes increasingly important as trading activity grows beyond the limits of visible liquidity.
For now, it remains a tool to understand and selectively test, rather than fully integrate.
But as with many aspects of market structure, familiarity before necessity is often an advantage.