<aside> 💡 Aalps Protocol is building the 21st Century’s Mercantile Exchange. The commodity industry’s centuries’ old designs have fundamental flaws in its incentive structures and market efficiency — Aalps is redefining market efficiency by leveraging innovative cryptographic & blockchain primitives
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Aalps Protocol is a decentralized mercantile exchange that reduces information asymmetry by redistributing exchange revenue to incentivize a global intelligence network:
Aalps Alpha: A fully on-chain market for intelligence, where agents will be incentivized by redistributed exchange revenues from Aalps Finance, making participants of the global intelligence network both stakeholders and beneficiaries.
More details here: [Aalps Protocol 02] Introducing Aalps Alpha - Where Alphas Flow On-Chain For Better Predictions
Aalps Finance: A global, 24/7 permissionless futures trading platform that offers cash-settled contracts
At Aalps Labs, we are pioneering novel, fundamental incentive designs that would improve the underlying dynamics of commodities market
While the concept of spontaneous orders—the natural emergence of order from individual actions without central planning—has been lauded for its efficiency in various domains, it reveals significant flaws when applied to the commodities market.
First, although the commodities market is structurally decentralized, it lacks a global coordination layer for both value and information. This absence leads to inefficiencies and missed opportunities for optimal resource allocation. Imagine a symphony where each musician plays their part flawlessly, only to lose harmony without a conductor. Similarly, the commodities market struggles without a standardized coordinating mechanism. (More on this on [Aalps Commodities 01] Why Commodities in 2024?)
Secondly, trading operates on exchanges in a permissioned manner, where only selected participants can engage fully. This restricted access not only stifles competition but also perpetuates the dominance of established players, akin to an exclusive club where only a few hold the keys to the gate. This exclusivity undermines the principles of free market competition and innovation.
Lastly, deep information asymmetry plagues the market. In a perfect world, all participants would have equal access to information, enabling fair competition. However, the reality is more like a poker game where some players have seen the cards in advance. This imbalance leads to unfair advantages and market distortions, making the spontaneous order [more chaotic](https://www.reuters.com/business/energy/ex-vitol-oil-trader-paid-mexico-ecuador-officials-1-million-bribes-prosecutor-2024-01-05/#:~:text=Vitol in December 2020 admitted,its business dealings in Ecuador.) than organized. Addressing these flaws is crucial for creating a more equitable and efficient commodities market.
The 2022 nickel crisis on the London Metal Exchange (LME) is a fitting example where both flaws were exposed. The crisis, triggered by a massive short squeeze centered on Tsingshan Holding Group Co., highlighted the market's lack of a global coordination layer, restricted access, and deep information asymmetry. The LME's failure to understand and police large positions, particularly in the over-the-counter (OTC) market, contributed to the chaos. The exchange's decision to cancel trades and suspend the market was criticized for its impact on investors and the broader market. Regulatory probes and court rulings have since scrutinized the LME's actions, with the court ruling in favor of the LME's decisions. The crisis has led to calls for reforms, including tougher oversight of the OTC market, harsher position limits, and enhanced risk management controls.