Why We Design Markets

We Exchange Everyday

Almost every experience involves exchanging. We can buy coffee from our favorite cafe or go do some grocery shopping. When we go to work, we exchange information and ideas with colleagues. So it seems important that everyone in the world understand how the way we exchange can be made better. Just think about all the horrible interactions you had where you felt the exchange was just one-sided. If you have some conscientiousness, you might have even thought about a case where you were the one extracting more value than the other person and felt a bit guilty after.

Learning about Designing Experience of Exchanging Should Be an Experience of Exchanging

Couple months ago, I gave an experimental talk to about a dozen or so people on “Principles of Market Design”, where I discussed key components that make up a market. The contents of this article is the next best iteration: I try ti mix the philosophical considerations and technicalities.

I want the readers to take away the following after reading this article - I’m sharing my knowledge and insights and in return, I ask the readers to find ways to apply the lessons from this article to their lives and works. Start small.

Quick Disclaimer: Readers may feel both negative and positive emotions while reading this article. But I hope they are never bored.

Answer 2 Questions for Yourselves

To do this best, it’s best that the readers think about 2 questions - “what matters to you and why?” and “how did you feel while answering the 1st question?”. Gut feeling answers are best because they will lead the readers toward kinds of experiences they’d like to and they are able to create. Please write them down. It’ll be illuminating and it’ll be fun.

Plain Words Only

This experience is meant to be accessible to everyone who can read plain English. Hold me accountable.

Markets are Made of Components

If you look at it from a bird’s eye point of view (or from the outside looking in), there are 3 components in a market - 1) Information Display, 2) Market Microstructure, and 3) Buyers & Sellers. If you are trying to analyze an existing market or trying to start designing one - how it works, how someone may interact with it, and what kind of experience it provides - this is helpful. But it’s really for research.

If you’re trying to design and build your own market, then you should know what are things you are going to be making. If you compare making a market to making a chair, then you’re really making the legs, back rest, and the seat. With markets, the components are - 1) Interface and 2) Information Architecture.

Interface is what we use to interact with markets and includes everything that we feel through our 5 senses about markets. Information Architecture is everything else. To be precise, it’s how information gets handled - where it starts from and goes to, how quickly, priority of orders, etc…

The exact ingredients of how to make these parts of a market really depends on your budget (both time and money), what kind of tools you are comfortable with, and what are available. Again, comparing markets to a chair - if you are a carpenter making a chair then you may as well as use wood to make a chair because you understand the costs and time of working with wood and you know how people would interface with wooden structures of various dimensions. If you are a furniture designer, then you may be familiar with variety of materials - how much they cost, their durability, best craftsmen who know how to work with them well and what they charge - as well as the way people interface with different materials. You can also mix and match.

You might think that once you choose the interface, you are picking out the list of materials you can use, but this is not true. In the chair example, the interface determines dimensionality - how different dimensions relate to different use cases. If you make a chair big enough for 1 person, then 1 person will sit on it and be limited to doing things that one person sitting on a chair can do. But if you make a chair that is big enough to seat 2-3 people, you just made a couch (or a bench) and now people who sit on it can do social things.

Do remember that user experience just doesn’t come from the interface itself. Rather, the interface defines the types of experiences but the exact materials and build specifications determine the specific experiences. Making a long wooden chair (a bench) would be too uncomfortable to sit for extended period of time but a proper couch with cushions that can seat 2-3 people can. But both a bench and a couch can be used for social purposes. A bench can be great for grabbing coffee and chatting with a friend for a brief moment. A couch can be great for playing video games together for hours with friends and family.

Ingredients Depend on the Interface and Specifications

Unlike building a chair, building a market is more conceptual than physical. Although it may involve some physical parts, designing and building markets should feel a bit like designing and building a software - where one is interacting with digital and conceptual elements that one can only interact with through computer screens1. If you have ever played games that require you to hold on and keep track of multiple things in your head (like Poker, Chess, Settlers of Catan, you name it), then designing markets should not be too strange.

• Interface

  • Physical Markets: What does your store look like and feel?

  To be honest, the ingredients are limitless. And I’m not an expert at architecture nor interior design so I suggest readers go to any group of stores they enjoy visiting and observe the following - i) what you immediately see and feel as you enter the store, ii) the way items (that are being bought and sold) are displayed, iii) the way prices and useful information that tell you about whether you’d like to buy and sell are displayed and conveyed to you, iv) the way employees at the store treat you, and v) what information they are willing to share with you without asking and when you ask.

  

  What the physical space feels like and can be used for - dimensions, color, lighting, and even the clothes that store employees where and how they behave is all part of the interface. See? More conceptual than it is thinking about real physical things. But of course, you are limited by what kinds of materials are suitable for what environments and amount of physical space you get.

  

  The significances of the 5 that I listed are as follows. i) What you see and feel impacts the how open-minded you’d be for purchasing something. ii and iii) Way information about the items are displayed impact what your buying process would look like - do you see how cool that leather jacket looks like (or how beautiful that sundress would look like on you) before you look at the price? Or do you know that you’re looking at the $50-$100 item rack? iv) Way employees treat you help fill in the gaps of your experience or to enhance a already great experience. Perhaps they are the reason why you ended up buying another shirt that you could not just give up on. v) Well if you’re at a specialty store with rare items that come in every once in a while, perhaps you can ask the store employee about some special deals. Many antique stores and luxury goods store that sell hand-crafted items work this way. Who would say no to feeling special, that they’re moving up the ranks somehow, or accomplished for digging up great deals.

  • Digital Markets: What devices will buyers and sellers will use? What do they look at and experience?

  Ingredients are your typical software engineering tools. People build iOS apps with programming languages and development tools that Apple provides such as Swift and Objective-C and Android apps with tooling that’s built on programming languages like Koitlin and Java. There are, of course, tools that let you not worry too much about what OS you are building on. Typically these are just full-stack frameworks like Dart, Svelte, React, Vue, etc…

  Much like physical stores, the following are important - i) what you see and feel when you enter the webpage; ii) how easy it to discover items; iii) how easily can you check information about items and and how wholistic the information are; iv) how is the customer service? - is the chatbot useful? FAQ or Q&A section any helpful? Does it let you connect to an agent?; v) what kind of information is actually shared and does it feel fair or like they’re omitting something?2

• Information Architecture

  • Physical Markets: What rules and processes will you create so questions that buyers and sellers ask are handled?

  You choose how you’d like questions from buyers and sellers be handled. What answers would you like to provide? How quickly would you like to provide such information? How would you deal with cases where you don’t know the answers to the questions? What software and hardware tools would you like to rely on to support these functionalities?

  Answer is that these are all decisions you make on what set of processes and rules you would like to use.

  • Digital Markets: What devices will buyers and sellers will use? What do they look at and experience?

  This can vary quite a bit. If you want things to be really fast, you may use lower-level and highly performant programming languages like Rust and C++. You may even decide that you need some complicated AI and statistical tools, in which case, Python is a great tool.

  Of course, you are limited by what’s currently doable with the available technology and what kind of tools are available.

If the above feels too basic and you already understand software and/or interior design, then I congratulate you. You have to spend less time learning than people who don’t already know.

I’ll leave what tools are available and currently doable with the technology to the readers to research but I’ll touch on what some new technology and tools that derive from it can be really interesting ingredients - especially what new kind of experiences they can enable in later sections.

Some Markets Help a Few, Some Help Everyone - But it Takes a Handful Changes From One To Another

Let us first analyze markets using specific fictitious examples so we can both think about analyzing existing ones and designing ones - 1) One in a city under lockdown in a war-torn country where shortages are common, and 2) One in a farmers’ market where farmers’ union tries to stay competitive with large grocery stores.

In a market in a war-torn country, there are 2 possible cases you can see. If people who bring supplies have absolutely nothing to do with the people of the city (they just don’t care about the people) and each merchant had full control of supply over a single type of good, you’ll likely see merchants trying to cash out quickly by dumping the supply at high prices and get out. If they somehow cared about the people of the town or there were enough merchants, the prices wouldn’t be too egregious.

Putting it into terms of the 3 components, most of the information display is really limited to the merchants and buyers only get to see the prices when the goods come to the market. Merchants get see where the supply is coming from and when they will arrive and how much. If this changed and the soldiers surrounding the city were in fact defending it and the people, they may feel free to collect the information about when and where the supplies are coming in and distribute this information to the citizens of the city. In such a case, merchants won’t feel so free to charge whatever high price they’d like to charge.

If merchants control the supply, then they may as well be able to control the way orders are processed. They can simply put out a price and buyers will have to figure out a way to pay for it. Merchants can be completely unwilling to negotiate on any price - if the citizens are starving they’ll pay what they have to. If the troops defending the city required that merchants do share information to the citizens3 as well as had enough troops to keep the markets safe, they may feel free to enforce rules where merchants cannot ignore negotiating behaviors or not allowed to engage in whatever is considered unfair selling practices.

In any of the possible scenarios, the relationship and power dynamics between the buyers and sellers are important. If there’s empathy between the two parties, then fairer and more generous practices are likely to occur even if the power dynamics were very unequal. In a case where there’s no empathy, one with more power will exert pressure on the other side without a presence of a neutral party with more power.

Now as a market designer - perhaps you are a general in the military who is deeply concerned about the well-being and happiness of the people in this city under a lockdown or perhaps you really care about winning the war and want to boost morale4 - you have to design a way to bring empathy to this market. This exercise is quite complex because not only you have to rethink the interface but also how information travels - from whom to whom, when, where, and how accessible those are to whom.

Now imagine a farmers’ market. Every time you go, you have a great experience - prices are stable, merchants really get to know you (again you might even a favorite fruit lady you always go to), and the produces are really high quality!

At this market, you don’t mind just paying what the merchants charge you, because you know you could get very competitive pricing for really high quality produce compared to large grocery stores5.

Say you dig deeper and it turns out that farmers’ union supports the market and all the merchants are part of this union. And this union has decided that they will always match prices that is charged by grocery stores. Isn’t that wonderful?

In such a case, the way market microstructure and information display is designed can be really quite simple - just show the price and just take what the buyers pay and make sure they pay the price that’s shown to them. All that merchants in the farmers’ market have to care about are really creating great relationships with their buyers and growing great produce because the farmers’ union really takes care of everything else and sets simple standards they can follow.

Now, imagine how this could change such that only the farmers’ union benefits and no one else. Nothing else needs to change but the pricing strategy and the cut that farmers’ union takes from the vendors. If the farmers do grow better quality produce than what’s sold in nearby supermarkets, then they may charge a premium and farmers’ union may decide to keep more than half the revenue and leave barely enough for individual vendors. If the farmers’ union decides they’d like to spend all this money paying the leadership, then of course it’s not a great experience for everyone but the farmers’ union leadership! Buyers who buy from the farmers’ market may be ok spending a bit more for higher quality produce but they might be super happy about it and the vendors who aren’t part of the farmers’ union leadership barely get to keep any of the money!

We’ll touch base on what role the farmers’ union plays in the following section - Role of Technology & Regulation6. But the key design innovation here is that because the information architecture is so simple, it hinges on how great the interface design is.

Market Design is Both Art and Science

• Interface

What characterizes the interface is really what buyers and sellers sense. Then designing the interface is just answering - how do buyers and sellers sense? Then to influence the health of the market, we have to answer - who to give access to?

When I write “sense”, it literally means our 5 senses. Often it’s what we see and hear. But thinking back to our farmers’ market example, it can also be a sense of touch, scent, and taste. You would smell, touch, and even taste (if they offer samples) bananas before you buy.

What are we trying to control and influence by designing the interface? And that is to design who feels what and when and then who thinks what and when. I’m certain there are multiple behavioral economics and human psychology books lying around but combining that knowledge into a wonderful experience is art. The science part is that if you want someone to feel some basic emotion (like sadness or happiness), then science says to just show them something they don’t want to hear or something they want to hear. Art part is how you combine what you show and tell so you carefully craft what people are meant to feel and think throughout the time they spend interacting with your market.

• Information Architecture

How information travels and designing how it’s transferred considering where it might leak, how to prevent that leak, and what to do once it leaks is the realm of information science. For example, if you only want the current price only to be revealed when a buyer or a seller asks, then make sure all the information that could be used to calculate the price remains hidden and control where that information is allowed to be revealed. If you want everyone to know the price at all times, then you only have to attach a price information where the things being bought and sold are, preferably right on the item itself or right next to it.

To design an entire system that consists of various information traveling securely is a system science exercise. To keep it short, it’s about - i) combining/separating where information is being kept and transferred through, ii) who has access to those places and when, and iii) who can hack your system, how, and why.

The art of information architecture is how to think about the above in a way that matches your budget and how easy it is to accomplish those that impact the experience that the interface provides. Understanding why people might hack your system and coming up with a way to prevent, discourage, or just simply absorb the damages is art as well.

If you want to dig deeper into specific topics and pre-existing concepts for how information is being handled and wrappers that help define useful building blocks - the footnote following this has a list of concepts to look into7. To put these topics simply, what they represent are - how prices are determined, how to make sure what gets exchanged gets delivered, how to make sure you can support everyone’s exchange needs.

Be creative.

How To Design Markets

Pre-reqs

1. If you know how to hold onto lot of complex concepts in your head, that is a great start.

2. If you don’t, I recommend two things - i) playing strategy games, and ii) making lego structures without a manual or something else that takes craftsmanship. For games, brainteaser games like sudoku are good alternatives. Playing strategy games helps you expand the number of concepts to hold in your mind and easily understand what the concepts even are. Building lego structures, well of course, it helps you design things.

3. If you know the interface you’d like to deal with, read up on tools you would like to use. Maybe you have to learn about interior design or programming language basics and software tooling basics.

Steps

1. Define the impact you would like to create for buyers and sellers - what do they walk away with having earned (and learned)?

2. Define the Experience - what people feel and what people think and what they think/feel after the experience and in comparison to others. Well-crafted experience is what creates that impact.

3. Identify what “designs” for what components are levers/knobs that control what parts of the experience.

4. Clearly identify what the core of the experience is - what types of feelings you want people to feel and when?

5. Understand what’s involved in your path to implementation - what tools will you use, their costs in both time and money, and technological possibilities and impossibilities.

6. Draft an implementation - what will you make with what tools and how do they fit together? Specifically with markets, information architecture does not have to be seen to users and just plugs into the interface. But you must understand how they hook up.

7. [Optional] If you need to go do some more learning please do so.

For examples, refer back to 2 fictitious examples of markets I’ve illustrated above.

Role of Technology & Regulation in Market Experiences

Technology = Implementation paths & Really sets limitations on what’s doable now vs. not doable

Regulation = Promises and Core Values → Defining the Nature of the Experience

I’ll cover self-regulation and regulation part first because that’s the most boring yet the most misunderstood part. Experience, I’d like the readers to have in the below section is that of a stern teacher reminding them how important these concepts are and what they truly are before they get a treat.

On the technology side, I’ll cover how technologies around database, AI, and cryptography can shape market experiences.

Self-Regulation is Promises You Make To Yourself

Self-regulation is a simple but deeply misunderstood concept. I’ll define it here - it’s just a promise, as a market designer, you make to yourself what kinds of experiences you’d like people to have and how you intend on maintaining that experience. This defines your brand and give you credibility.

For example, when Nasdaq or NYSE sets criteria for what types of assets are ok being listed on their exchange and what assets they allow people to trade, they are telling the world that they want to provide the experience of exchanging specific types of assets that meet their ethical guidelines. As brands, neither Nasdaq nor NYSE would like people to exchange things that is the direct cause of millions of puppies and kittens dying horribly but sure they would love for people to exchange things that is the direct cause that makes billions of people being happy because they can feed their puppies and kittens to grow up to be healthy dogs and cats.

Regulation is about Set of Values A Society Agrees Together On

Regulation is also a simple but misunderstood concept. It’s likely because it’s set by someone else who is not a market designer, usually some sort of an authority figure, that brings lot of misconceptions. Simply put, it’s a promise that as a society or a community sets together for what types of experiences should people be having and what types of experiences should never be had. This sets the tone and defines the space under which the markets can be designed in.

For example, the SEC8 is very much focused on fair and transparent pricing. So they made a rule where all the prices of assets being traded on US based exchanges be traded within the price ranges set by best bids and offers across all the exchanges in the US. As a society, the US has decided that no one should be getting really bad nor too good of a pricing because that’d be unfair to everyone else who is not getting prices that are way out of bounds.

Below, I’ll cover the fun technology parts.

Where You Store Information Impacts Who Has Access to What, When

Have you ever been to an amusement park and had to wait in lines? Then, you also likely have had at least one of these thoughts - “why didn’t I come earlier?”, “why don’t they make more fun rides?", “I wish less people knew about this ride”. Well, they might sound different but there’s only 1 reason why you might have had those thoughts: Because the amusement park has limited capacity and who gets access depends on how quickly you can get there and when you want to go. Only if there were tens of the same ride so no one ever has to wait in line.

Access to information is the same. So choose where you store your information carefully. Generally, you want as many people as possible to have the same information reasonably quickly and as many people to submit information reasonably quickly.

Distributed file systems (I mean cloud) are sort of the "state-of-art” in the year 2025, when this article was published because many people across the world can have access within similar amount of time.

To get a bit more technical, there is much room for innovation with respect to how much more distributed things can get as most of the “distributed data storage” is often accomplished through several big data centers that just clusters data. Imagine having a storage center in everyone’s home or hands, which does not really exist yet for most time-sensitive services that use more data than what are purely created through our personal devices.

Sometimes, all it takes is a giant excel file stored on a secure server. At retail stores, a clerk can just look up a file because buyers and sellers can wait a couple minutes since it doesn’t make their experience any different nor worse.

LLM-based AI Can Help Equalize How Buyers and Sellers Interact with Information

LLMs are great ways to innovate experience at the interface (and information display) level.

All information may become open-source but not all information is created equal. Some data is just so littered with jargons and technicalities such that it takes a while for anyone to learn how to properly interact and extract insights. This can be okay if you believe that people who want to spend the time learning about the data are ones who will bring great experiences to markets for themselves and others9. But it cannot be the only way.

Having only some people understand how to interact with data can be an obstacle to designing new experiences of exchanging. Just imagine only 5-10% of the world being able to interact effectively and quickly with markets for apples. If people want to create the most luxurious experience of buying an apple and charge a lot for it, sure why not. But this can’t be the only experience that other 90-95% of people can have for buying apples.

Realistically, farmers’ markets, accessible wholesale markets, and refrigeration have solved this issue for apples but there still remain many items where the experience is simply worse or new types of experiences that just do not exist. Just to give an example, securities markets still suffers from this issue where not everyone understands how to interact with the market directly. If you know the industry well, you may think that brokerages up charging regular people is the main problem but at the same time, the amount of time it takes to learn and interact with data from markets takes months of education on mathematical and financial-economics jargons. This so-called “Decentralized Finance” in meant to enhance the brokerage experience by getting rid of them, yet the data still remains hard to comprehend for many.

LLMs have the potential to make it easy for anyone to learn and quickly interact with any types of markets. If you believe that most people have good intuition on how to navigate around complex market structures and the fact that they just don’t get the jargon,10 then LLMs can be used to translate all the jargon to plain language. Realistically, training LLMs to achieve expert-level knowledge is not often done at scale11.

Non-LLM AI Can Smooth Out Various Operational Kinks

Non-LLM AI is a great tool to innovate information architecture (and market microstructure).

This might be a bit more difficult to wrap our heads around because it takes some training in operations research to fully grasp things but most problems that exist in scheduling when to transfer information from one place to another, what routes to take, and where to dedicate resources to are very well defined problems that AI can help tremendously.

If interested, I recommend reading into Operations Research and practical AI papers. I’ll post some research centers I find helpful on a footnote here12.

Cryptography is Key to Creating Trust in Information

If you can say with certainty who sent what information when & to whom the information was sent to can be controlled, this really brings immense amount of trust in the information as well as the intention of sending that information. This is what cryptography attempts to deal with.

I can only describe things at a higher level since future developments and exact impacts of cryptography are yet to be determined. Most of cryptographic systems answer the following 3 questions - 1) How do you know if some is really who they are, and 2) How do you know if someone really did what they say what they did?, and 3) How do you make sure that the right people can access things at the right times? Below is a list of systems that are often designed in attempts to answer the above 3 questions.

• Authentication Systems13: These are great to make sure only authenticated people can submit orders. Most markets have some sort of tracking and monitoring system so this may not be super important everywhere but in digital markets, this is quite important. How do you know if someone really is who says they are? Jargon for this is is “Know Your Customer“ or KYC.

• Proving Systems: These are great for making sure that some information being processed is really what it is. “How do you know if something was really done?”

• Combining the above bring answers to question 3.

Using Technology and Regulation in Market Design

It takes AI and Data Storage to Innovate the Interface and Information Architecture

Think carefully about the experience you want to create. Who should have access to what information when? Then think about where you store data and AI that can help people digest information. How easy is it for you to get one information to other place quickly enough using different set of tools? How easy is it for a market participant to grab that information and ask AI to interpret it? What is the quality of the information that users are sensing and is that somehow less than what is originally contained?

It takes Cryptography to Make Sure You Deliver What You Promised

Is what you’ve given to your customers what you intended and can you monitor it?

Self-Regulation: Keeping Promises → Credibility

Again, self-regulation is about promises you make to yourself to deliver great experiences. Make sure you make promises you can keep and make sure you don’t miss out on any important criteria.

As a tip, a good areas to cover are - i) Things I won’t do although they could really benefit me but hurt users; ii) Things that I can do to make sure that no malicious user can hurt others; and iii) Things that I will do to hold myself accountable in the public eye.

Regulation: Good Societal Values → Harmony

You may not always have full control over the regulation but if you’re even part of a society/community, then you can influence it. It’s good idea to always keep in mind what your values are, how they resonate with the rest of the society, and what are things you are willing to sacrifice vs. cannot sacrifice.

Generally, if you are designing completely new experiences, you are more likely to be in a place without so much official regulation. But there will be some unspoken rules and behaviors that people want to willingly keep up.

Understand whether the experience you want to create is disruptive or in aid. If you don’t do these properly, it’ll always be an uphill battle.

Design Cheat Sheet - Dos & Don’ts

Dos

1. If you can, focus on a great exchange - where both buyers and sellers walk away with more than what they gave up.

2. Don’t be afraid to integrate different designs for a wholistic experience - there’s no one size fits all solution in markets.

3. Be careful what you integrate - implementing different designs for single asset will influence experience of other designs. For example, don’t put an order book into something that doesn’t need one but if order book addresses most of the buying and selling experiences then combine it with others.

4. Future features should be considered during the design phase. Otherwise you’ll get a nightmare of a system where existing things just are not compatible with new features.

Don’ts

1. Do not ever (not even attempt to) predict price14.

2. Do not try to make everyone happy, keep it to your core customers15.

3. Do not design nor build markets on things that cannot be settled and cleared16.

Parting Words

Designing Markets are Pretty Much Like Designing Other Things

It’s a product like anything else.

There is One Exception

It’s impossible to satisfy everyone. That is the nature of exchange. With regular products and services, you may be able to design something that satisfies every need plus more so not everyone might end up using it.

With markets, moment you design a specific experience, you are going to sacrifice on different types of experiences. You have to think about sophisticated market participants who will interact with different types of markets because they want the experience of interacting with multiple markets at their benefit but at the expense of others.

Focus on “Great Exchanges” - Where Everyone Walks Away With More Than What They Shared.

If it’s a product like any other but impossible to satisfy everyone, at least make sure that those who would like to participate can walk away with more than what they shared. You may one day be able to turn some heads while making sure the core experience stays great.