Opinion M&A could possibly be essential for constructing resilient and scalable decentralized organizations. But, after 65 offers and counting, we’re not there but, say Joshua Tan, Jillian Grennan and Bernard Schmid.
In late 2021, two DeFi DAOs — Fei Protocol and Rari Capital — launched into what was imagined to be a transformative merger. The thought was easy: Fei, with its algorithmic stablecoin, would be a part of forces with Rari, a pioneer in permissionless lending swimming pools, to create a DeFi powerhouse ruled by a single DAO. Their communities authorized the merger with overwhelming assist, and in December, Tribe DAO was born.
Nine months later, it was lifeless.
The Fei-Rari collapse despatched shockwaves by the ecosystem, but it surely was hardly the one DAO M&A, even in 2021. Gnosis and xDAI (a certified success), Aragon and Vocdoni (a middling failure), Yearn and Cream/Sushi/Pickle (exhausting to inform) all got here collectively. Since 2020, greater than 65 offers have been executed by DAOs seeking to scale, merge or consolidate. Today, the state of DAO M&A is extra vibrant than ever.
Traditional M&A has clear playbooks. Corporate boards negotiate offers, funding banks construction financing, and authorized groups guarantee compliance. But DAOs have been working in uncharted waters. Governance is chaotic. There’s no CEO to log off on a deal, and token holders vote, typically with unpredictable outcomes. Or they find out about it after the very fact, as with Aragon’s group.
As we found in writing the State of DAO M&A report: valuations are murky, as DAO tokens fluctuate wildly, making it troublesome to cost acquisitions pretty or to fulfill token holder expectations, as evidenced in Fei-Rari and in Gnosis-xDAI. Regulation is a landmine. The absence of requirements for legally binding DAO transactions prevents doubtlessly invaluable agreements from being applied.
Instead, DAOs are turning to token migrations and swap contracts as workarounds to regulatory uncertainty.. Security issues stay difficult for DAOs, as hacks can erase billions in worth in a single day. Just ask Fei’s token holders, who needed to cowl $80 million within the Rari exploit.
And generally the “mergers” aren’t mergers in any respect: Yearn Finance’s marketed mergers with Yearn, PIckle, Cream, SushiSwap, and Akropolis had been actually a collection of unfastened partnerships that generated vital confusion over governance and obligations.
With all that stated, we consider that M&A could be a DAO superpower. That is, DAOs can feasibly execute M&As extra effectively and acknowledge extra synergies than any conventional group. Imagine standardized swap and acquisition contracts, platforms for M&A discovery, or protocol conglomerates that create richer, extra built-in on-chain ecosystems.
Despite challenges, DAO M&A is right here to remain. If something, the rising complexity of Web3 ecosystems makes consolidation inevitable. But, for future offers to succeed, DAOs should rethink how they strategy M&A. Better governance alignment is essential, as DAOs want structured frameworks to align stakeholder incentives and keep away from the infighting that doomed Fei-Rari.
More considerate valuations are crucial since a token swap will not be the identical as a money buyout; valuation fashions should account for token liquidity, governance energy, and future earnings potential. Security have to be a prime precedence, with rigorous good contract audits and stress exams to stop each catastrophic exploits. And DAOs should have interaction with these complicated dynamics as a substitute of hand-waving them away — and spend money on the infrastructure and partnerships to execute them.
If DAOs can study from these early experiments, M&A might grow to be a essential device for constructing resilient and scalable decentralized organizations.
But we’re not there but. Merging DAOs isn’t nearly placing two treasuries collectively. It’s about integrating communities, governance buildings, and technical methods in ways in which improve — not undermine — the worth of those organizations.
The full State of DAO M&A (February 2025) report by DAOstar, Areta, and Emory University is obtainable here.
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