The State of DAO M&A

In precocious 2021, 2 DeFi DAOs — Fei Protocol and Rari Capital — embarked connected what was expected to beryllium a transformative merger. The thought was simple: Fei, with its algorithmic stablecoin, would articulation forces with Rari, a pioneer successful permissionless lending pools, to make a DeFi powerhouse governed by a azygous DAO. Their communities approved the merger with overwhelming support, and successful December, Tribe DAO was born.

Nine months later, it was dead.

The Fei-Rari illness sent shockwaves done the ecosystem, but it was hardly the lone DAO M&A, adjacent successful 2021. Gnosis and xDAI (a qualified success), Aragon and Vocdoni (a middling failure), Yearn and Cream/Sushi/Pickle (hard to tell) each came together. Since 2020, much than 65 deals person been executed by DAOs looking to scale, merge oregon consolidate. Today, the authorities of DAO M&A is much vibrant than ever.

Traditional M&A has wide playbooks. Corporate boards negociate deals, concern banks operation financing, and ineligible teams guarantee compliance. But DAOs person been operating successful uncharted waters. Governance is chaotic. There’s nary CEO to motion disconnected connected a deal, and token holders vote, often with unpredictable outcomes. Or they larn astir it aft the fact, arsenic with Aragon's community.

As we discovered successful penning the State of DAO M&A report: valuations are murky, arsenic DAO tokens fluctuate wildly, making it hard to terms acquisitions reasonably oregon to fulfill token holder expectations, arsenic evidenced successful Fei-Rari and successful Gnosis-xDAI. Regulation is simply a landmine. The lack of standards for legally binding DAO transactions prevents perchance invaluable agreements from being implemented.

Instead, DAOs are turning to token migrations and swap contracts arsenic workarounds to regulatory uncertainty. Security concerns stay challenging for DAOs, arsenic hacks tin erase billions successful worth overnight. Just inquire Fei's token holders, who had to screen $80 cardinal successful the Rari exploit.

And sometimes the "mergers" aren't mergers astatine all: Yearn Finance’s advertised mergers with Yearn, PIckle, Cream, SushiSwap, and Akropolis were truly a bid of escaped partnerships that generated important disorder implicit governance and responsibilities.

With each that said, we judge that M&A tin beryllium a DAO superpower. That is, DAOs tin feasibly execute M&As much efficiently and admit much synergies than immoderate accepted organization. Imagine standardized swap and acquisition contracts, platforms for M&A discovery, oregon protocol conglomerates that make richer, much integrated on-chain ecosystems.

Despite challenges, DAO M&A is present to stay. If anything, the expanding complexity of Web3 ecosystems makes consolidation inevitable. But, for aboriginal deals to succeed, DAOs indispensable rethink however they attack M&A. Better governance alignment is crucial, arsenic DAOs request structured frameworks to align stakeholder incentives and debar the infighting that doomed Fei-Rari.

More thoughtful valuations are indispensable since a token swap is not the aforesaid arsenic a currency buyout; valuation models indispensable relationship for token liquidity, governance power, and aboriginal net potential. Security indispensable beryllium a apical priority, with rigorous astute declaration audits and accent tests to forestall some catastrophic exploits. And DAOs indispensable prosecute with these analyzable dynamics alternatively of hand-waving them distant — and put successful the infrastructure and partnerships to execute them.

If DAOs tin larn from these aboriginal experiments, M&A could go a captious instrumentality for gathering resilient and scalable decentralized organizations.

But we’re not determination yet. Merging DAOs isn’t conscionable astir putting 2 treasuries together. It’s astir integrating communities, governance structures, and method systems successful ways that heighten — not undermine — the worth of these organizations.

The afloat State of DAO M&A (February 2025) study by DAOstar, Areta, and Emory University is disposable here.