At the end of 2021, two DEFI DAOS – The FEI and RARI Capital protocol – launched into what was supposed to be a transformative fusion. The idea was simple: Fei, with its stable algorithmic, would associate with Rari, a pioneer in the loan pools without authorization, to create a power defined by a single DAO. Their communities approved the merger with overwhelming support and, in December, the DAO tribe was born.
Nine months later, he died.
The collapse of Fei-Rari sent shock waves through the ecosystem, but it was not the only DAO M&A, even in 2021. Gnosis and XDAI (a qualified success), Aragon and Vocdoni (an intermediate failure), Hearn and Crame / Sushi / Pickle (difficult to say) all. Since 2020, more than 65 transactions have been executed by DAOs that seek to evolve, merge or consolidate. Today, the state of DAO M&A is more dynamic than ever.
Traditional mergers and acquisitions have clear manuals. The boards negotiate transactions, the financing of investment banks and the legal teams guarantee compliance. But the DAO worked in unexplored waters. Governance is chaotic. There is no CEO to sign an agreement, and chip holders vote, often with unpredictable results. Or they learn afterwards, as with the Aragon community.
As we discovered by writing the DAO M&A Report: The evaluations are disturbed, because the DAO tokens fluctuate wildly, which makes it difficult to acquire price equally or to meet the expectations of token holders, as evidenced by Fei-Rari and in Gnosis-XDAI. Regulations are a terrestrial mine. The absence of standards for legally binding DAO transactions prevents the implementation of potentially precious agreements.
Instead, the DAOs turn to chip migrations and exchange contracts as a bypass solution to regulatory uncertainty. Safety problems are difficult for DAOs, as hacks can erase billions of people overnight. Just ask the FEI token holders, who had to cover $ 80 million in Rari’s feat.
And sometimes, the “mergers” are not at all mergers: the mergers announced in finance finance with Aswen, Cornichon, Crème, Sushiwap and Akropolis were really a series of loose partnerships that generated significant confusion on governance and responsibilities.
That said, we believe that mergers and acquisitions can be a DAO superpower. In other words, DAOs can execute mergers and acquisitions more effectively and recognize more synergies than any traditional organization. Imagine standardized exchange and acquisition contracts, mergers and acquisitions discovery platforms or protocol conglomerates that create richer and more integrated chain ecosystems.
Despite the challenges, Dao M&A is there to stay. If anything, the growing complexity of web 3 ecosystems makes consolidation inevitable. But, for future transactions to succeed, the DAOS must rethink the way they approach mergers and acquisitions. Better alignment of governance is crucial, because DAOs need structured frames to align stakeholders incentives and avoid the intestine struggles that condemned Fei-Rari.
More thoughtful evaluations are necessary because an exchange of token is not the same as a cash buyout; Evaluation models must take into account the liquidity of the tokens, the power of governance and the potential for future profits. Security must be an absolute priority, with rigorous intelligent contract audits and stress tests to prevent catastrophic exploits. And the DAOS must engage with these complex dynamics instead of acting them – and investing in infrastructure and partnerships to execute them.
If the DAO can learn from these first experiences, mergers and acquisitions could become a critical tool to build resilient and scalable decentralized organizations.
But we are not there yet. The merger of the DAOS is not only to bring together two treasury vouchers. It is a question of integrating communities, governance structures and technical systems in a way that improves – not to undermine – the value of these organizations.
The full report of the Dao M&A (February 2025) from Daostar, Areta and Emory University is available here.
