We argue, both theoretically and empirically, that the networked nature of decentralized over-the-counter (OTC) markets generates an excess of notional obligations that can be eliminated while preserving both individual net positions and pre-existing counterparty relationships. We refer to this operation as market ​compression and study its feasibility conditions and efficiency. We highlight the key role of intermediaries in generating excess and show that a trade-off exists between the amount of notional that can be removed from the system and the conservation of trading relationships. We further discuss operational and regulatory aspects of implementing compression operation in markets.​ Empirically, we apply our theoretical framework to a unique and comprehensive transaction-level dataset on OTC derivatives. First, we document large levels of excess across all underlying references and time. Second, we show that compression when applied at the global level reduces a large fraction of total notional even under conservative scenarios.