Joshua Tan, Jillian Grennan and Bernard Schmid:
In late 2021, two DeFi DAOs — Fei Protocol and Rari Capital — embarked on what was supposed to be a transformative merger. The idea was simple: Fei, with its algorithmic stablecoin, would join forces with Rari, a pioneer in permissionless lending pools, to create a DeFi powerhouse governed by a single DAO. Their communities approved the merger with overwhelming support, and in December, Tribe DAO was born.
Nine months later, it was dead.
The Fei-Rari collapse sent shockwaves through the ecosystem, but it was hardly the only DAO M&A, even in 2021. Gnosis and xDAI (a qualified success), Aragon and Vocdoni (a middling failure), Yearn and Cream/Sushi/Pickle (hard to tell) all came together. Since 2020, more than 65 deals have been executed by DAOs looking to scale, merge or consolidate. Today, the state of DAO M&A is more vibrant than ever.
Traditional M&A has clear playbooks. Corporate boards negotiate deals, investment banks structure financing, and legal teams ensure compliance. But DAOs have been operating in uncharted waters. Governance is chaotic. There’s no CEO to sign off on a deal, and token holders vote, often with unpredictable outcomes. Or they learn about it after the fact, as with Aragon's community.
As we discovered in writing the State of DAO M&A report: valuations are murky, as DAO tokens fluctuate wildly, making it difficult to price acquisitions fairly or to satisfy token holder expectations, as evidenced in Fei-Rari and in Gnosis-xDAI. Regulation is a landmine. The absence of standards for legally binding DAO transactions prevents potentially valuable agreements from being implemented.
Instead, DAOs are turning to token migrations and swap contracts as workarounds to regulatory uncertainty. Security concerns remain challenging for DAOs, as hacks can erase billions in value overnight. Just ask Fei's token holders, who had to cover $80 million in the Rari exploit.
And sometimes the "mergers" aren't mergers at all: Yearn Finance’s advertised mergers with Yearn, PIckle, Cream, SushiSwap, and Akropolis were really a series of loose partnerships that generated significant confusion over governance and responsibilities.
With all that said, we believe that M&A can be a DAO superpower. That is, DAOs can feasibly execute M&As more efficiently and recognize more synergies than any traditional organization. Imagine standardized swap and acquisition contracts, platforms for M&A discovery, or protocol conglomerates that create richer, more integrated on-chain ecosystems.
Despite challenges, DAO M&A is here to stay. If anything, the increasing complexity of Web3 ecosystems makes consolidation inevitable. But, for future deals to succeed, DAOs must rethink how they approach M&A. Better governance alignment is crucial, as DAOs need structured frameworks to align stakeholder incentives and avoid the infighting that doomed Fei-Rari.
More thoughtful valuations are necessary since a token swap is not the same as a cash buyout; valuation models must account for token liquidity, governance power, and future earnings potential. Security must be a top priority, with rigorous smart contract audits and stress tests to prevent both catastrophic exploits. And DAOs must engage with these complex dynamics instead of hand-waving them away — and invest in the infrastructure and partnerships to execute them.
If DAOs can learn from these early experiments, M&A could become a critical tool for building resilient and scalable decentralized organizations.
But we’re not there yet. Merging DAOs isn’t just about putting two treasuries together. It’s about integrating communities, governance structures, and technical systems in ways that enhance — not undermine — the value of these organizations.
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