Do you know how a pencil is made? it turns out no one is in charge from start to finish of the whole pencil-making thing.
Trees are cut in one place, graphite is mined in other place, machine-tools to make this happen are manufactured in a third place, all with steel from a fourth place. And that steel was made with iron ore from a fifth place. Someone has to provide the coffee for all these people along the way. Don’t get us started on where the paint or the rubber comes from. And the savings of a whole load of other people were needed to pay for all of this.
In the end, all these economic actors just sell their product to the highest available bidder. Unaware of this ballet of activity around them. And we get pencils.
We’re sorry to have to resort to technical vocabulary: but it’s fucking beautiful.
Friedrich Hayek was by all accounts a grouchy Austrian with a bushy mustache, and not exactly the life of the party. But the Nobel Prize-winning economists is the father of one of the coolest ideas of the 20th centuries: Emergent order.
He describes how complex, adaptive systems like the market economy emerge spontaneously, without a central authority or explicit design. All thanks to economic agents like you and I pursuing our own interests and going about our lives, acting upon the limited information and incentives we see in front of us.
What arises are emergent systems of unfathomable scope - a rich ecology of actors, big and small, that continuously adapts as its environment changes, and that no one would have been able to design from scratch.
It just happens.
In front of our eyes.
And no one can turn it off.
No one can even really tell you with certainty how the whole thing is going to evolve next. Or how it all works.
We made pencils, and pencils were good. And then one day we made Airpods.
Over the last 10 years, new emergent systems are forming at internet speeds, and at internet scale. In a new area of human endeavour that has been teeming with smart, idealistic people building and experimenting without asking for permission: blockchains.
There is no CEO of Bitcoin, and no one can be sure if or how it will evolve next.
The most authoritarian and powerful governments in the world have tried to club it on the head and kill it for good, and can’t. Bitcoin miners get banned in China, and some new ones just sprout up in Norway and Kazakhstan.
Over on the Ethereum blockchain and right in front of our eyes, the decentralised finance movement is rebuilding an entire financial system: value transfer, exchanges, lending, derivatives, savings products and so on. With no one in charge. With no one able to turn it off. With no one able to stop you from using it, from checking that it’s working fairly, or from building your own financial gizmo on top.
ETH stakers secure the network. Searchers and block builders produce the next block. Validators submit it to the network. Another network of oracle node operators broadcasts real-word prices on to the chain. Depositors lend, borrowers borrow, traders trade with solvers and liquidity providers. Protocol owners consistently tweak parameters to keep their system healthy. Liquidators stand ready to keep the system solvent in case of drastic price movements.
And none of these people have each other’s phone numbers.
This new financial system works 24/7, unlike the old one.
Enables payments for fractions of a cent, unlike the old one.
Is accessible to anyone with an internet connection, unlike the old one.
It bears novel technical risks, but is completely transparent, unlike the old one.
No running off with depositor’s money or hidden contagion risks this time.
We contend that it’s one of the greatest technological and financial developments since the Industrial Revolution. And we’re here for it.
Emergent Systems aims to be a small actor in this vast ballet of participants that is making decentralised finance operate and grow. By being a prudent, rigorous allocator of capital into the ecosystem. And buy helping to birth some of the innovations and products that will, next day and the day after, continue to make the system better.