How Market Microstructure Evolved from Trading Floors to AI Agents

Summary

The document surveys how market design has changed as trading technologies and participants have evolved. It moves from floor-based trading through electronic order books and high-frequency trading, then considers batch auctions, dark pools, blockchain-based automated market makers, block builders, and AI agents. Across these stages, it asks how markets can allocate scarce resources efficiently and fairly while allowing participants to keep their private information private.

Its central framework is that each technological shift changes the main constraint on market design: first assumptions about trader behavior, then speed, control over transaction order, and finally the complexity of information participants must report. The survey points to research on high-frequency trading, venues, automated market makers, extractable value, and algorithmic collusion as evidence relevant to these challenges. It argues that allocation deserves a distinct place in systems for agent commerce. The document is an overview rather than a detailed empirical study: it names areas of evidence but provides no specific results, and it stresses that design trade-offs remain even as their costs shift.

Key ideas

• Market microstructure examines how trading rules convert orders into prices and allocations.
• New trading technologies shift the main market-design constraint rather than removing trade-offs.
• Transaction speed and control over execution order have become central concerns in electronic and blockchain markets.
• Markets must balance efficient and fair allocation with participants’ desire to protect private information.
• The survey treats allocation as an important design layer for commerce conducted by automated agents.

Tags

# Evolution of Market Microstructure in the Age of AI


# Evolution of Market Microstructure in the Age of AI









Market microstructure studies how trading rules turn orders into prices and allocations. Those rules have been rebuilt repeatedly: for floor traders, electronic limit order books and high-frequency trading, batch auctions and dark pools, blockchains run by automated market makers and block builders, and now AI agents that discover, pay for, and compete over resources. This survey traces that evolution through one question: can a market allocate scarce goods efficiently and fairly without participants revealing everything they know and want? Each technological shift moved the binding constraint of market design from trader rationality to speed, to control over transaction ordering, to the dimensionality of what participants can report. Impossibility results persist; only their cost moves. We review evidence on high-frequency trading, trading venues, automated market makers, extractable value and algorithmic collusion, and identify allocation as the missing layer of the agent-commerce protocol stack.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.