Moving core exchange matching engines to the cloud is a critical mistake. Cloud environments lack the determinism of on-premise hardware, meaning the sequence of order execution becomes unpredictable. This randomness is highly disruptive for liquidity providers and will ultimately degrade market quality.
A liquid futures market for GPU compute would create price transparency, threatening the business models of hyperscale cloud providers. These giants benefit from opaque, bundled pricing and controlling supply. They will naturally resist the standardization and transparency that an open futures market would bring.
The future of AI in finance is not just about suggesting trades, but creating interacting systems of specialized agents. For instance, multiple AI "analyst" agents could research a stock, while separate "risk-taking" agents would interact with them to formulate and execute a cohesive trading strategy.
A complete shift of financial assets to blockchain is imminent. This won't happen on transparent chains like Ethereum, but on purpose-built networks like Canton. The key enabler is configurable privacy, a feature that allows financial institutions to transact without broadcasting their proprietary positions to the entire world.
The massive global investment required for AI will drive demand for GPUs so high that the annual market spend will exceed that of crude oil. This scale necessitates a dedicated futures market to allow participants, especially new cloud providers, to hedge price risk and lower their cost of capital.
Previous attempts at tech futures like DRAM failed because prices only moved in one predictable direction: down. In contrast, the market for GPU compute will experience cycles of high demand and excess supply. This two-way volatility creates genuine hedging needs, making a futures market viable and necessary.
After facing losses from a specific shift in options skew, DRW's quants quantified this risk and created a new Greek letter, "psi," to represent it. By building a proprietary language around this previously unmeasured risk, their traders could manage it better than anyone else and quickly gain a significant competitive edge.