Most of the assets we trade were negotiated bilaterally long before they were quoted on a screen. This is a note on what has to exist first.

Equities, oil and freight all traded by negotiation before they had exchanges. The sequence was the same in each case: bilateral deals, then conventions, then a market. The exchange arrived after participants had already agreed how the asset should change hands.

We work on the stage before that. Crypto is the recent example. Over roughly fifteen years it went from bilateral trades to deep electronic markets, and it is now a full asset class. The same sequence is running in compute capacity, spectrum rights and satellite bandwidth. All three are scarce, in growing demand, and priced by negotiation.

What has to exist first

A venue does not create a market. Three things have to be in place before one, and each is built one bilateral trade at a time.

A price someone will trade on. Not a survey or an index, but a number a counterparty will quote in size knowing it may be wrong. Reference prices follow that willingness rather than precede it.

A contract both sides can sign. Delivery terms, settlement, and what happens on default. The first forward in any market is negotiated line by line. The tenth is a template. The hundredth is a standard.

Repeat flow, and a firm holding inventory between the two sides of it. A market is the same trade repeatedly, with someone in the middle managing the gap between a buyer today and a seller next month.

The common structure is real scarcity, growing demand, and no market convention yet.

Why it takes time

The hard risk in a forming market is structural rather than directional. Settlement on a compute forward is unclear when the underlying is a reservation on another firm's cluster. Optionality is difficult to price on an asset that cannot be stored. Default terms have to be written before anyone has defaulted.

These get resolved by trading in modest size and paying attention to what breaks. We run a systematic book for markets that already work, and discretionary traders for the first trades in markets that do not. Frontier assets need both.

We do not keep a fixed list of what comes next. When something scarce starts trading by negotiation and demand keeps growing, we start the pricing work.

Hidden Lattice Capital · Field Notes