What is a DAO merger?
What is DAO?
DAO, or decentralized autonomous organization, is a community-led entity with no central authority. It is entirely autonomous and transparent and follows smart contracts to lay the foundational rules, execute the agreed-upon community-led decisions, proposals, and votings. To simply put it, DAO is governed entirely by its members who collectively make crucial decisions about the future of a particular project, such as technical upgrades and treasury allocation.
The part where it attracts the most is its alignment of incentives. It is in the best interest of the community members to be outspoken about their voting decisions and support only those decisions that will benefit the protocol itself.
Why is it important in 2022?
DAO is supposed to become a primary mode or method that can enable businesses to access finance without actually relying on traditional financing and corporate rule-making. As crypto enthusiasts and early investors try to find various ways of inculcating cryptos in businesses, the association with more DAOs can definitely be expected.
Both social and media can fit quite efficiently in an entrepreneurs’ model. By providing the customers with a common interest to discuss will eventually promote brand loyalty and increase customer engagement for a brand.
Dao Merger
On 21 December 2021, two ambitious decentralised autonomous organisation (DAO) communities approved the biggest merger in decentralised finance (DeFi) history. The merger involved:
Rari Capital - an open interest rate protocol built on Ethereum that operates yield bearing products and allows any user to supply and borrow any digital asset. The protocol permits the permissionless 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 crypto collateralised stablecoin called FEI. FEI is broadly backed by other stablecoins and Ether, and is primarily collateralised by an algorithmic reserve of protocol controlled value. Fei emphasises liquidity rather than over collateralisation. Unlike other stablecoins which back their issuance with off-chain reserves, FEI’s backing resides entirely in the protocol’s smart contracts running on Ethereum.
The merger was approved on both the Rari proposal and Fei proposal (with the community amalgamation “FeiRari”) with a 93% to 1% margin on Rari and 90% to 0% rate on Fei. The merger was subsequently approved by both DAOs on Ethereum block height 13850929. It is expected that the projects will merge via a token swap and be united under the TRIBE token.
While there have been previous DAO mergers (eg, the merger of xDai and Gnosis last month), the FeiRari merger is the biggest in DeFi history with the combined merger value of US$2.23 billion (as at the date of this article).
While the token swap process to merge projects under a single banner is well known, there remains the question of how combined governance will be implemented moving forward. With first products from the joint project expected to launch in late January 2022 (which may include automated market makers, structured products and derivatives), governance structures need to be settled quickly. Fei’s leadership is already considering further DAO acquisitions to expand its product offering.
The concept of DAOs is quickly becoming accepted by the Australian community. The Senate Select Committee on Australia as a Technology and Financial Centre (Committee) released its recommendation paper earlier this year, which recommended the introduction of a new DAO legal entity in Australian corporate law. This recommendation was also agreed to by Government this month.
While Australia is one of the first countries to produce a formal recommendation on DAOs, it is clear that the DeFi community are already ahead of the curve. DAO M&A is becoming a well-trodden path, but with a range of deal structures and alternative joint governance models coming into the fray it is important to have the right approach from the outset. We can help.
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For more information, please contact Gavin McInnes on 07 3367 8681 or gmcinnes@grmlaw.com.au.
The information contained in this article is general in nature and cannot be regarded as anything more than general comment. Readers of this article should not act on the basis of this comment without consulting one of GRM LAW 's legal practitioners who will consider their particular circumstances.
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