Markets Beyond Platforms

Free trade enables the efficient transmission of the energy, food, and raw materials that underpin global prosperity. Throughout history, this process has relied on a subtle interplay between human judgment, trust, reputation, and commercial intuition.

Trading physical commodities involves extracting resources from the ground, transporting them across the globe, and transforming them into essential economic inputs. Unlike financial securities, physical commodities are inseparable from logistics, operational constraints, geography, and human coordination.

Successful transactions therefore involve more than price discovery. They require a counterparty search process in which market participants evaluate counterparties, assess operational risks, coordinate logistics, and cooperate under uncertain conditions.

The vast majority of physical transactions involving oil, metals, grains, and fuels occur over the counter (OTC). These markets operate through dense networks of traders, brokers, shipowners, charterers, inspectors, financiers, suppliers, and logistics operators. Counterparty discovery is primarily a relationship-driven process built upon reputation, experience, and accumulated trust.

Information concerning cargo availability, freight capacity, refinery outages, port congestion, financing constraints, or regulatory developments continuously propagates through these networks. Price discovery emerges from this flow of communication, but the market's function extends beyond pricing alone. Equally important is the ability of participants to identify reliable counterparties and coordinate complex commercial activities.

Physical commodity markets should therefore be understood not merely as allocation mechanisms but as decentralized communication systems through which economic agents exchange signals, discover opportunities, and coordinate projects that ultimately materialize in the real world.

Where information is dispersed among market participants and propagates through professional networks rather than centralized exchanges, arbitrage opportunities emerge from temporary knowledge asymmetries. Prices gradually communicate this information to the wider market, reducing but never entirely eliminating informational differences.

The challenge for market design is therefore not to eliminate information asymmetry entirely, but to ensure that information can circulate efficiently and be verified effectively.

1.1 Hayek and the Coordination of Dispersed Knowledge

One of the most influential articulations of this idea appears in Friedrich Hayek's seminal essay The Use of Knowledge in Society (1945).¹

Hayek argued that the central economic problem is not merely the allocation of resources but the coordination of dispersed knowledge. Information regarding local conditions, logistical constraints, scarcity, operational realities, and commercial opportunities is fragmented across countless individuals. No central planner can possess this knowledge simultaneously.

This perspective suggests that OTC markets should be viewed less as places and more as search and communication processes.

Traditional economic thinking often associates markets with physical or digital venues where buyers and sellers meet. But in reality, many modern commodity markets have never truly been a "place." Unlike stock exchanges, OTC markets lack a central trading floor or unified marketplace.

Instead, they function as ecosystems made of decentralized networks of nodes like buyers, sellers, brokers and traders who cooperate, compete, negotiate, and exchange information through the evolving communication technologies: from fax and telephone to email and instant messaging - all horizontal technologies that preserve and scale the decentralized nature of these markets.

The collective coordination achieved through these interactions occurs without a central organizer. The market itself emerges from communication.

1.2 The Commodity Trading Network

The evolution of oil markets illustrates this phenomenon particularly well.

The gradual vertical disintegration of downstream oil activities beginning in the 1970s reduced concentration and facilitated the growth of spot trading. Independent traders, brokers, suppliers, and specialized intermediaries entered the market, creating a decentralized ecosystem in which counterparty search and price discovery increasingly depended upon communication rather than hierarchy.

Marine fuel procurement provides a useful example.

Bunker transactions often make use of reverse auctions - an iterative process that is part negotiation and part auction - in which buyers solicit quotations from pre-qualified suppliers who compete for a business through iterative negotiations.

These negotiations are bilateral, private, time-sensitive and relationship-dependent.

Participants frequently engage in multiple negotiations simultaneously while adjusting commercial positions in response to market circumstances and the negotiation itself becomes part of the price-discovery mechanism.

This observation aligns with the findings of Galtier et al., who argue that market performance depends heavily on how information circulates through communication networks.²

If communication becomes centralized, intermediaries may accumulate structural power, participation may become restricted and information flows may become more dependent upon gatekeepers.

On the contrary, if communication remains distributed, barriers to participation can decline, information spreads organically and market efficiency emerges through interaction rather than administrative design.

Physical commodity markets, as distributed communication networks, overwhelmingly exhibit the latter structure.

The promise of digital marketplaces has long been attractive. In theory, centralized platforms reduce search costs, increase transparency, improve transactional efficiency by aggregating information potentially leading to deflationary outcomes.

While this thesis remains debated, the transition from network trading to platform trading has proven far more difficult than many expected.

Commodity transactions involve unstructured and highly granular workflows.

Every transaction contains unique operational, commercial, logistical, legal, and credit-related considerations. The negotiation itself is often inseparable from the transaction because it involves multiple iterations, varying levels of trust, different cultural approaches and operational constraints.

Static marketplace interfaces struggle to capture this complexity without imposing significant friction upon users.

This helps explain why market participants continue to rely heavily upon communication tools such as email, telephone calls, and instant messaging despite decades of digitization efforts: these technologies enhance information circulation without forcing interactions into a centralized structure.

If OTC trading is fundamentally a communication process, two concepts become particularly important:

• →Information asymmetry.
• →Signalling.

3.1 Information Asymmetry

Information asymmetry is an unavoidable feature of human interaction.

When arbitrage opportunities drive behaviour, everyone has his "secret sauce" - a legitimate information edge arising from superior effort, expertise or deeper involvement in the transaction's underlying processes.

From an Austrian economics perspective, this asymmetry is not necessarily undesirable in that it is the source of entrepreneurial opportunity which makes a deal possible in the first place.

This may be described as good asymmetry.

Eliminating such asymmetries entirely wouldn't create a fairer system; it would just flatten the playing field and remove the entrepreneurial incentive to take risks to meet demand.

This is a clear example of when transparency backfires and it is the main reason why, in a B2B environment, digital marketplaces often struggle to gain traction on the supply side.

The existence of asymmetric information also provides evidence of the limitations of the Efficient Markets Hypothesis, which rests on the assumption of rational, well-informed agents and implies the absence of opportunities for systematic superior gains, therefore implying a limited trading activity – clearly contradicted by the reality.

At the same time, harmful forms of asymmetry exist.

When market participants intentionally exploit verification costs to mislead counterparties, asymmetry becomes a source of market failure rather than market discovery.

The challenge is therefore not to eliminate asymmetry but to distinguish good asymmetry from destructive opacity.

3.2 Signalling

Because verification is costly, market participants rely heavily upon signals.

In this sense, markets operate as communication systems through which signals continuously circulate and are interpreted by participants.

Bad actors could indeed exploit the existence of verification costs that give the possibility to one party to leverage the counterpart's limited ability to cross-reference claims, allowing the former to omit, misinform, or defraud counterparties, leading to market failures.

This is true about the quality of the goods as well as certain key aspects of the workflow like payments. The Authorized Push Payment (APP) Fraud, for example, is a form of social engineering, accounting for ~50% of fraud losses in the UK and US (2023–2024). These include invoice fraud and impersonation scams. The cost is not just financial; it includes brand reputation damage.

Account Verification Services and Confirmation of Payee (CoP) are early initiatives to combat this—now a hot topic in the trade finance industry.

Reputation and third-party validation all function as signals that reduce uncertainty. For these and other reasons, the digital marketplace model struggles to adapt to the granular, logistics-heavy workflow of commodity markets.

Calls for greater transparency are common across commodity markets.

However, complete transparency is neither achievable nor necessarily desirable.

Markets perform an important function precisely because information is imperfectly distributed. The objective should therefore be to reduce harmful opacity while preserving incentives for discovery and entrepreneurship.

Communication systems such as emails and instant messaging, broker networks, market information systems, price reporting agencies and trading platforms all contribute to this process. They do not eliminate asymmetry. They transform extreme opacity into manageable informational gradients. The goal is not perfect transparency. The goal is effective communication and propagation of information.

If commodity markets function as decentralized knowledge systems, the infrastructure supporting them should reflect that reality.

Many attempts to modernize trading have focused on building centralized platforms that replicate financial exchange models.

Yet commodity markets depend upon heterogeneous contracts, flexible negotiations, distributed expertise, relationship-based coordination.

Decentralized communication protocols offer an alternative architecture.

Rather than forcing participants into a single platform, they provide an open communication layer through which information, negotiations, and trading signals can circulate freely.

Such a system could represent the next evolutionary stage of market information systems, extending their role from information dissemination to full network coordination.

The blockchain enthusiasm of the late 2010s generated significant expectations.

Yet several flagship initiatives—including TradeLens, Marco Polo, and We.Trade—ultimately failed to achieve widespread adoption.

While many delivered valuable technological innovations like, for example, digitizing bills of lading, most remained vertically focused and insufficiently interoperable.

The persistence of fragmented digital islands demonstrates that technology alone cannot overcome misaligned incentives, privacy concerns, or network effects.

As we advance into the digital era, resilient information systems are critical for commodity markets professionals to collaborate online around complex services and build enduring relationships in an environment that is increasingly subjected to growing pressures from three directions:

Political

For decades, the decentralized nature of OTC markets has been framed as a "challenge" due to inherent characteristics, sometimes leveraged by bad actors. Yet, institutional attempts to centralize OTC trading, like France's 1979 oil bourse proposal, have historically struggled partly because existing decentralized communication technologies – telex, fax and phone – have contributed to preserve the decentralized essence of oil spot trading.

Technological

The concentration of digital communication tools within a handful of technology providers creates data silos and potential single points of failure undermining the privacy and resilience of the information systems.

Legal

Commodity trading remains deeply dependent upon legal concepts such as possession, title, delivery, and documentary control, which evolved around paper-based systems and change only gradually. The underlying legal framework evolves slowly for a good reason, as the industry operates across diverse commercial, political and economic environments. Hence legal and regulatory frameworks often lag technological advancements.

Decentralization should not be understood as synonymous with blockchain.

Rather, it refers more broadly to resilience, redundancy, data sovereignty, and the absence of central points of failure.

A decentralized communication infrastructure would not eliminate information asymmetry. Instead, it would: accelerate information diffusion, reduce structural opacity, preserve participants privacy and competitive edge.

In practical terms good asymmetry (local knowledge, trading insight) remains while bad asymmetry (structural opacity) declines.

This outcome aligns closely with Hayek's conception of markets as decentralized systems for coordinating dispersed knowledge.

The principal implication is straightforward.

Good market infrastructure should facilitate information circulation, reduce structural opacity, preserve decentralized discovery and strengthen verification mechanisms.

A decentralized communication network appears better suited to these objectives than a centralized platforms because it enhances signal propagation without imposing informational uniformity.

The digital transformation of physical commodity markets has often been approached through the lens of "platformization": the assumption was that market efficiency improves when participants are gathered into centralized digital marketplaces that should increase transparency and standardize transactions.

This paper has argued that such an approach may misunderstand the nature of the OTC markets it seeks to improve.

Physical commodity trading evolved not as a centralized marketplace but as a decentralized communication system. Its structure reflects the reality that relevant information is scattered across locations, companies, and individuals around the world. Price discovery, counterparty selection, credit formation, logistical coordination, and risk management emerge from the continuous exchange of information across networks of specialized participants that are not easily interchangeable - each one brings unique perspectives, expertise, and relationships to the transaction.

The industry acknowledges this as a core tenet - people matter.

Viewed from this perspective, the primary function of market infrastructure is not to eliminate information asymmetry but to facilitate the circulation and verification of information while preserving the entrepreneurial discovery process that drives market coordination.

Research on market communication systems suggests that network structures can, under certain conditions, outperform centralized marketplaces in transmitting information and coordinating economic activity. This observation aligns closely with the Austrian understanding of markets as mechanisms for coordinating dispersed knowledge.

The implication is significant.

If commodity markets already function as decentralized knowledge networks, then digital infrastructure should reinforce rather than replace those structures.

The next generation of market infrastructure may therefore be less about building larger platforms and more about building open communication layers that allow participants to interact, verify information, establish trust, and coordinate globally without surrendering control of their identities, relationships, or data.

A decentralized network-trading infrastructure would not replace traders, brokers, suppliers, financiers, inspectors, or logistics operators.

Instead, it would strengthen the communication layer that connects them.

In doing so, it could improve market resilience, reduce structural opacity, enhance information diffusion, and preserve the decentralized discovery mechanisms that have enabled physical commodity markets to coordinate global trade for decades.

The question, therefore, is not whether commodity markets should become more digital. They already are.

The question is whether the digital infrastructure of the future will reflect the decentralized nature of the markets it serves.