Compute as a commodity isn't oil. It's Electricity.
How to Hedge Compute - Part 1
At Ornn we believe that compute will be the most important commodity of the 21st century. It’s the essential input to the training and deployment of artificial intelligence, and our business is built on the hypothesis that AI companies and datacenters alike need to hedge their compute exposure, just like any other commodity.
Coming from more financial/trading backgrounds, we immediately grouped compute with the current biggest commodity in the world—crude oil. The analogy was obvious: consumers of oil (compute) want to lock in a price they can purchase at to reduce future uncertainty, and producers of oil (compute) want to lock in a price they can sell at for the same fundamental reason. A future, the financial mechanism which enables these hedges, is an agreement to do just that: two parties decide to transact oil (compute) at a contracted price sometime in the future. You get to fix tomorrow’s price right now.
We’re building a futures market for compute, and we started by simply porting over the battle-tested oil model. But in due time we arrived at an intrinsic difference between the two commodities, one which we believe illuminates the foundational nature of compute as a commodity. Namely, compute isn’t a stock resource, it’s a flow good.
Stock vs Flow Goods
Fundamentally, compute is temporal. This is baked into very unit of price: compute is quoted in dollars per GPU-hour. You rent a GPU for some period of time, paying for access to its computational resources (for training or inference or whatever) over that very same period. Consumption happens over time, and any unused capacity can never be recovered. So when you purchase or sell compute, you’re really transacting a GPU’s flow.
Oil, however, is a stock commodity. It’s quoted in barrels, and there’s no intrinsic relationship with time. Indeed, oil can be stored; a barrel today is exactly the same as a barrel tomorrow. Flow goods capture a rate, while stock goods are invariant and fungible across time.
Electricity as an Analog
So, if compute is fundamentally a flow good, then oil is the wrong mental model. The right comparison—the one whose economics and financial structure mirror compute almost exactly—is electricity. Most importantly, they’re both services delivered across time.
Electricity, like compute, is not something you can stockpile. A megawatt-hour left unused at 2:00pm is gone forever. Power markets therefore price electricity as a rate over time, and all market structures (from real-time dispatch to forward curves to futures settlement) are built around this temporal nature. We believe compute should behave the same way.
And we’ve already seen the primary market for compute inherit some of electricity’s design. In particular, there’s:
Real-time spot pricing updates based on utilization
Pricing can vary significantly based upon the location of the compute
Long-term bespoke contracts for delivery of continuous compute resources
This shared status as a flow commodity is why we believe that electricity is the right analog for compute. So we think that market participants should be able to hedge their compute just like electricity, and our futures exchange is built to do exactly that.