1. Origin and manifesto

2. How we got here - centralization and decentralization forces in history

3. Where are we now? The decentralization inflection point

4. Where do we go from here? A thesis on why decentralization is happening

5. A glimpse into the future: what a decentralized real world looks like

6. Our investment thesis

There was a very defining time in my life. I think everyone has one or more. Mine happened to be in 2009, when an acquaintance of mine suggested I check out the Bitcoin paper.

I had always had a hard time with non-earned authority but that's clearly the day I started to see the world in a very different lens. To the risk of sounding cringy, it was a bit like being able to see the Matrix for the first time. I was liberated and could now see "a world without you, a world without rules or controls, a world where anything is possible".

As I dove more into figuring out "how deep the rabbit hole goes", my complete worldview changed and things started to make sense once more.

The world around me was not setup how I wanted it to be, and there were ways to actually change it and mold it to my (and hopefully, almost everyone else's) pleasing.

I am, sadly, not nearly smart enough to invent solutions like Bitcoin (or Ethereum, or others) but I feel proud about having been able to recognize their importance.

The next best alternative therefore is to invest in these solutions and support the people that are smart enough to come up with them.

That's what happened in the following years.

Ethereum showed up on the radar, pre launch, with a random team of 10 cofounders or something, with a completely new fundraising mechanism, no product, but one of the most powerful visions I had ever heard before.

Bitcoin had decentralized monetary power.

Ethereum had decentralized computing and software development power.

The first truly new democratizing technologies after the actual invention of the parliament.

The first proper visions for a more democratic world after the American revolution.

And the rabbit hole was indeed deep.

The next step was to decentralize corporations. I was immediately attracted to the Aragon founders, who had one of the most potent visions for that, and decided to join in on the effort. That was, as every other new vision, very very hard to realize and sadly we're not there yet. But there are little doubts that the future of corporations is decentralized, on-chain, permissionless, free and democratic. We will get there, maybe in our lifetime, maybe not.

And so, it's now been almost 15 years that I've had this decentralization topic living in my brain and molding how I see the world.

And, while running Unruly, it has popped up here and again helping me recognize one trend that is now very clear to me and the team: the decentralization of the real world.

While decentralizing money, computing and all sorts of online bits is a very worthwhile mission, and the reason I co-founded Semantic Ventures to do just that, our world is atom-based.

Balaji wants to decentralize real-world governance with the Network state, and that's fascinating and very important work.

But we still have to live in a world made of sand, clay and rocks. And we still have to transform them into bricks, buildings and wires.

And so we need someone to push for the decentralization of the real world.

That is the next step, and it is happening. We, our kids, or their kids, will live in a world where everything is decentralized.

Food will be produced on your rooftop.

Energy will be produced right next to it.

Objects will be printed on demand, as needed and in your garage (or close by).

We will reduce our materials use.

We will reuse everything we can.

We will recycle everything else.

We won't rely on centralized powers determining what can be built and where.

We won't rely on government incentives and massive corporations deciding what we should eat. Fiat food is over.

There is, in my mind, very little question about this happening or not. The question is who will make it happen, how, and when.

And at Unruly it is our mission to figure this out.

How we got here

History seems to be a continuous struggle between decentralization and centralization. This is true in politics with empires, in business with mega corporations and at lower levels of other systems such as computer software, supply chains and manufacturing (there might additionally be a parallel here between bundling and unbundling cycles in tech, which we might touch upon later).

Centralization is a powerful force, and it seems that all systems at some point tend to become centralized.

At the same time, it’s also true that when systems become too centralized, and too big, there is very little chance for them to remain relevant in the long term.

The benefits of centralization are clear: more control, more efficiency, faster communication, and so on. (Another side of that medal: if a centralized system is governed by malevolent players, that control and efficiency translates into controlled and efficient tyranny, or monopoly should we talk in business terms.)

There comes a point though, when centralized entities lose that control, efficiency and communication advantage. The point when empires become too big and can’t control all lands in their territory. The point in which a corporation becomes too big, and can’t innovate anymore.

That’s the point in time when small independent actors regain the advantage. They can now move faster. They can try out new ideas with little cost of failing.

They don’t have a big apparatus to maintain, a big bureaucracy to pay, a million VPs to please, and so on.

Once you see this dichotomy, you start seeing it everywhere.

Politics

Centralization is most often discussed in political terms, and has rarely been explored in terms of other systems (there isn’t a single book out there that’s focused on this topic specifically).

The discussion here is almost too easy, with infinite examples.

Europe is the most obvious for us. The Roman empire was the first big centralizing force, removing decentralized systems of Greek origin (and Etruscan, etc.,) and forming one of the largest centralized polities ever seen. Then came the age of decentralization, of sovereign cities that thanks to a changing world order and new technologies could take over substantial power, while still being checked by all the others.

But during the 15th and 17th centuries, we saw a very similar scenario where royals began the process of centralizing their governments. Louis XIV of France, Peter the Great of Russia, and Ferdinand and Isabella of Castille and Aragon, all centralized the power of their governments to make their kingdoms stronger.

We then had other centralizing forces, most notably Napoleon, the English empire, and so on, but the most fascinating thing is to look at where we are again today, comparing the map of our present day situation, where our current political and economic zone is strikingly similar to the first image, and it still seems ever enlarging.

It’s the same in other areas of the world, with the US and China dominating everyone else because of their scale, and arguably creating a world made of only two large blocks.

The United States could very well follow similar patterns. From a fully decentralized founding, to an ever more present, powerful and seemingly indestructible federal government. Can you guess what’s likely to happen next?

Globalization and Business

Globalization can be seen as a centralizing and decentralizing force at the same time.

On the one hand, it obviously decentralizes commerce in the sense that producers and customers can now be in wildly different locations yet be part of the same commerce network.

On the other hand, it is a strongly centralizing force favoring large businesses which are the ones able to reap the biggest rewards from this new world order.

Centralization as a force is something that we see in business constantly in how corporations evolve. Startups find a large market, and grow into massive corporations, gobbling up competitors and making it almost impossible for anyone else to compete with them. Their centralized cost structure and scale enables them to outspend most and buy up everyone else.
Until they get too big, and their advantages slowly erode, making space for new small startups to catch the next wave. And on and on the merry-go-round goes.

Software is probably the most unexpected, but most recent and explicative example. It’s been a constant battle between centralized, closed-source systems and decentralized, permissionless open-source systems.

And you can see the dichotomy even just thinking about what makes it possible for you to read this: likely the product of both extremely centralized systems (an Apple phone or laptop or an Android or Windows device) and extremely decentralized ones (the internet).

Markets are also one very fun and touchy topic: Hayek famously argued that free markets themselves are decentralized systems where outcomes are produced without explicit agreement or coordination by individuals who use prices as their guide. We believe decentralized markets are the absolute optimal method to create prosperity, and can argue that all free market limitations (from governments) are what creates all the problems (monopolies, mostly) usually suspected to be caused by free markets themselves and their centralization forces.

At the same time, advancing technology may allow decentralized, privatized and free market solutions for what have been public services, such utilities producing and/or delivering power, water, mail, telecommunications and services like consumer product safety, money and banking, medical licensing and detection and metering technologies for highways, parking, and auto emissions - the shift here is very hard for many to comprehend, imagine and accept.

Where are we now?

We find ourselves at a very interesting point in time.

The world seems to still be converging to full centralization in politics and business. But we are all starting to see cracks in the matrix.

The United States has now officially relinquished its role as the global empire superpower we all have always assumed it would forever be. They are not going to be patrolling the seas for the rest of the western block indefinitely - piracy, of all things, might be coming back in this decade.

In 2020 world trade was down to 51% of global GDP from a peak of 61% in 2008. It seems that globalization might have peaked.

The implications of both examples are staggering. All geopolitical entities and businesses now need to be more wary of their inter-dependencies, originating for the first time in decades a new force field with a rising decentralization tension. Local risks now seem much smaller than global risks.

While most people are sure we’re still living in a world very similar to the one they saw in the 80s and 90s, high on free fossil energy, untapped natural resources and young populations - the truth is that we are living in a completely new world: one were even with a staggering 10 billion people, we rarely have a full qualified and willing workforce, where we are running out of all the low-hanging ways to mine critical materials, where we produce prodigious amounts of waste, and where there isn’t a very clear 1st vs 3rd world dynamic anymore.

Visiting SE/E Asia or the Middle East today for the first time is a completely mind bending experience for most western people. Everyone assumes that the world is just really happening “here” and we’re just producing cheap widgets and palm oil “there”. But the reality is that we’re very much after the peak, and those other countries have a dynamism, excitement, momentum, energy and youth that will be extremely hard for us to replicate if we cling to our old model.

And this is something that some smart people in the VC landscape have already figured out. Just like when I wrote our initial Unruly Manifesto, I was inspired by Founders Fund and Bedrock and their own manifestos, this time around I can’t not mention Andreessen Horowitz’s American Dynamism team and initiative.

I believe what led A16Z to create their American Dynamism thesis is the same realization that led us to this one. They chose to focus on defense and resiliency and are building a sector specific thesis. We aim to go one step deeper, and develop a horizontal sector-agnostic view.

Where do we go from here?

The main question to ask ourselves is then: what are the key levers that make the balance shift between centralization and decentralization.

Although it would probably take the better part of a lifetime to do the research necessary to have a strong viewpoint on this, we have a few hypotheses here.

At Unruly, we think that this force is now showing up in a much deeper and pervasive way: it is challenging the merits of the centralized production process, something that has now been going on for centuries.

The reasons are manifold, but a short list of them must include:

• Increasing shortage of low-cost qualified labor, especially in emerging economies

• Therefore, rise of automation in most sectors

• Therefore, drop in labor costs, the #1 driver for offshoring

• Extremely low communication and drastically dropping coordination costs

• Continued improvement of additive manufacturing and 3d printing

• Digitization of intellectual property

• Unstoppable electrification trend

Trying to tie it up altogether:

Extremely low communication costs coupled with the digitization of intellectual property in an environment with rising global wages and increased geopolitical risk, directly leads to decentralized, electrified and automated supply chains, often leveraging new materials.

Centralized systems are perfect when communication costs are high. The directive comes from the center, and goes all the way to all the different level subjects. No response is usually even required.

In a decentralized system, the flow of information is constant in all directions. It can only work when communication costs are extremely low. Feedback loops are vastly shortened and innovation massively accelerated.

We believe that the next centuries will be the decentralized production centuries.

A glimpse into the future

The fun part begins now, as investors and as curious people.

Predicting the decentralized macroeconomic and geopolitical scenario of the future is not something that we will attempt, but there are some areas and trends which are easy to see, validate and bet on.

• Synthetic Biology

  Synthetic biology is one of those absolutely unstoppable forces already clear to completely revolutionize how things are made. We are in the early innings, and each day we see decks of startups with visions that chart a completely different future for humankind: one of abundance. By using enzymes, bacteria, cells and so on, we do see a future in which we will be able to produce everything we need to continue running our current (and obviously a whole host of new) industrial and chemical processes.
  The key thing about synthetic biology is that it uses widely available inputs and works in modular systems, therefore removing the need for large one-in-the-world industrial plants. The future of synthetic biology is interlinked with industrial decentralization.

• Energy

  Energy is the fundamental thing that underlines everything. The more energy we have, the more abundance of everything else we will have, and the better off everyone else.

  We’ve lived an incredibly positive world phase in the second part of the last century, and that is exclusively because of basically free fossil energy. As in every basic econ intro class, we all know we can’t just erode the principal and hope for the best (although most head of states could be reminded that now and again).

  So we need to “make” our own energy and access renewable stocks, just as we do with other resources (wood in Europe comes as one of the best managed resources, worldwide fisheries are one in which we could do a whole lot better, and time will tell).
  The global shift towards solar and wind has been of the biggest decentralizing forces in modern history (although the production of panels and turbines is centralizing in some -usual- places) and this will become stronger and stronger.
  The examples both in our portfolio and outside of it are growing: small modular reactors, renewable natural gas, microgrids and so on.
  We are incredibly excited to see this trend continue growing and affirming itself as the core of the industrial decentralization space.

• Manufacturing

  Probably where most of the impact will be, and honestly, really hard to grasp the magnitude: networks of distributed 3D printers operating in hospital wards, offices, houses and battlefields are taking shape today. These are systems that can be continuously restructured, adapted, designed to operate with low-latency at high-resolution.

  The factories of the future will have many shapes, not only that of a gigantic plant. Distributed manufacturing will drive a commoditization of hardware bringing down the cost of critical machines for health, industry and defense. Fast, cheap and easy parts production will drastically reduce the time it takes to fix things, hence creating more resilient infrastructure. Medical devices will be designed and produced in situ, closing the gap between production and point of care. Bedside to bedside. Rapid prototyping and manufacturing directly in academic classes and research labs is already benefiting academic institutions and research centers, accelerating even more our ability as a species to build the things that we need.

  3D printing in aerospace and advanced industries is on the verge of a seismic shift from prototyping to large-scale production. Just-in-time manufacturing of interchangeable components is democratizing hardware as we have never seen before.

  We honestly believe decentralized manufacturing to be one of the biggest forces present today.

• Food

  Not sure how many people notice, but supermarket shopping has become ever weirder, with rarely anything grown in your own country anymore.
  Also, another non-obvious thing is that “food transport emissions add up to nearly half of direct emissions from road vehicles.”
  So something that should be obvious but often isn’t is that food prices and availability are intrinsically tied to the petrochemical industry, given that farmers are one of its biggest customers with fuel and nitrogen.

  This is also where fiat food comes along. As fiat-money is an imaginary entity, not backed by anything other than trust, “Fiat Foods are foods with no nutritional value and not backed by nature”. Fiat food has happened because of incentives and subsidies to the petrochemical industrial complex and farmers that depend on it (yeah, the big reason you can’t really eat anything that doesn’t have corn in it).

  We believe decentralization can end all of this, producing food locally where it is needed.

  Dis-intermediating this relationship with electrification, bio-based fertilizers, novel selective sustainable pesticides is one of the big steps to take.

  But the next one is to enable a whole new crop of farmers to produce all-year-long close to the large population centers. We’re already seeing a number of startups producing food from captured CO2 and we don’t expect this trend to slow down.

• Recycling / Circular economy

  When Rockefeller saw ethylene burning in his plants at Standard Oil he said he didn’t believe in wasting anything and decided to find a use for ethylene. Now we have polyethylene in no short order thanks to that.

  Reusing industrial waste is a major trend we are seeing in all industries, and we believe a new polyethylene could be found at any time when human ingenuity, greed and necessity meet.

  Circular economy is a bit of an unfortunate name nowadays as it seems to be only really applied to hippie-like “reuse this tote bag” sort of situations. But a circular supply-to-waste chain is a decentralized, resilient and decarbonized future that we should all want. It is also surely the cheapest as soon as we move away from free oil - and the only one that can bring about the future of abundance we all strive for.

  Industrial circular economy is making traditional production processes cheap, green and reliable. Chemical plants are being redesigned to improve value chain through better material flow, energy efficiency and infrastructure distribution.

  We believe that after the first wave of trendy consumer circular economy startups, we will see many, many more startups using this idea in industrial contexts.

• Natural resources

  The first time I saw the deck of Ocean Oasis, I was so incredibly excited. Obviously a company that produces cheap, safe drinking water is exciting on its own, but I believe I had already seeds of this thesis and Ocean Oasis fit it perfectly. Decoupling the geographical constraint tied to drinking water is a perfect example of our thesis here.

  And this is happening on a whole host of other natural resources. Companies creating synthetic precursors for chemical processes from CO2 are another. Asteroid mining, phytomining, ocean mining and so on are such a clear trend of delocalizing production of primary inputs that are core to a wider industrial decentralization.

• And so much more

  Decentralized fuels production and material processing will free economies from the dependency on often autocratic resource-rich countries. Distributed fertilizers will decouple food availability in developing countries from global supply chain fragility. And then vaccines and medicines produced in containers. In-space manufacturing. Affordable construction materials from industrial waste upcycling. Possibilities without limitation.

And here we are. A small fund seeing a big trend. One that we believe is the only possible path for our species, and one we are extremely excited to continue investing in.

Unruly invests in founders that leverage industrial decentralization to create abundance, resilience and freedom to bring about a more decarbonized, decentralized and developed world.