DAO mergers: the future of M&A?

On December 21, 2021, two ambitious decentralized autonomous organizations (DAO) communities approved the biggest merger in decentralized finance (Challenge) the story. The merger involved:

  • Rari Capital – an Ethereum-based open interest rate protocol that operates yield products and allows any user to fund and borrow any digital asset. The protocol allows for the unauthorized creation of bespoke borrowing and lending pools using a range of Ethereum-based assets. The FEI stablecoin is already integrated into several of these pools.
  • Fei Protocol – an iteration on the concept of a secured crypto stablecoin called FEI. FEI is largely backed by other stablecoins and Ether, and is primarily secured by an algorithmic store of value controlled by the protocol. Fei emphasizes liquidity rather than collateralization. Unlike other stablecoins that back their issuance with off-chain reserves, FEI’s backing lies entirely in protocol smart contracts executed on Ethereum.

The merger was approved on both Rari’s proposal and Fei’s proposal (with the “FeiRari” community merger) with a 93% to 1% margin on Rari and 90% to 0% on Fei . The merger was then approved by the two DAOs on the height of Ethereum block 13850929. It is expected that the projects will merge via a token exchange and be brought together under the TRIBE token.

While there have been previous DAO mergers (for example, the merger of xDai and Gnosis last month), the FeiRari merger is the largest in DeFi’s history with a combined merger value of 2.23 billion. dollars (as of the date of this article).

While the process of exchanging tokens to merge projects under one banner is well known, there remains the question of how combined governance will be implemented in the future. With the launch of the first products of the joint project slated for late January 2022 (which may include automated market makers, structured products and derivatives), governance structures need to be put in place quickly. Fei’s management is already considering further DAO acquisitions to expand its product offering.

The concept of DAOs is quickly accepted by the Australian community. The Senate Special Committee on Australia as a Technology and Financial Center (Committee) released its recommendation paper earlier this year, which recommended the introduction of a new DAO legal entity into Australian company law. This recommendation was also accepted by the government this month.

While Australia is one of the first countries to produce a formal DAO recommendation, it is clear that the DeFi community is already one step ahead. DAO mergers and acquisitions are emerging as a set course, but with a range of transaction structures and alternative joint governance models entering the fray, it’s important to have the right approach from the start.

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