Instruments are not the infrastructure underneath them

Capital will follow risk-adjusted opportunities through futures, ETFs, and the existing regulatory framework.

On the surface it is a reasonable position and over the years I have heard the adaptation argument and the market efficiency argument many times. I was lucky enough to meet and speak to Mandelbrot about it.

It doesn’t stand up in the examination of microstructure, it conflates the instruments with the infrastructure underneath them, and their use with their efficient use.

Each instrument exists because it solves a different problem. They are not interchangeable. Individually, if any one instrument was dominant, we would have massive concentration risk. Collectively they make a market.

A healthy market needs the diversity of utility and thus instruments to manage different types of risk properly.

That diversity gets expensive if each instrument type is margined in isolation.

Every instrument, every counterparty relationship, every bilateral margin arrangement adds capital cost. Clearing is what makes it affordable. Netting compresses exposure. Margin is calibrated to actual risk. The more instruments you clear together, the more capital efficient the whole system becomes.

Typical markets run 10-25x volume to open interest. Crypto is closer to 2x. That tells you how much capital is trapped.

An efficient clearing operation could release a massive amount of productive capital back into the market.

The instruments that already have clearing or don’t need it, futures and ETFs, are not the bottleneck.

The ones that carry real ongoing counterparty risk, concentration of utility, are the instruments that need it most, options, perps, and swaps.

Until the infrastructure is there we just carry on with massive inefficiency.

This first appeared on LinkedIn on 19 March 2026. If you want to comment or discuss, that’s the place.