The Current State of DAO Mergers and Acquisitions

The merger between DeFi DAOs Fei Protocol and Rari Capital in late 2021 was expected to be a groundbreaking union, combining Fei's algorithmic stablecoin with Rari's permissionless lending pools to form a DeFi powerhouse under a single DAO. The communities overwhelmingly approved the merger, and in December, Tribe DAO was established. However, nine months later, it ceased to exist. The collapse of Fei-Rari sent shockwaves throughout the ecosystem but was not an isolated incident, even in 2021. Other notable mergers included Gnosis and xDAI, which was moderately successful, Aragon and Vocdoni, which was somewhat unsuccessful, and Yearn's mergers with Cream, Sushi, and Pickle, which were difficult to assess. Since 2020, more than 65 deals have been executed by DAOs seeking to scale, merge, or consolidate, making the current state of DAO M&A more vibrant than ever. Traditional mergers and acquisitions have established playbooks, with corporate boards negotiating deals, investment banks structuring financing, and legal teams ensuring compliance. In contrast, DAOs operate in uncharted territory, with chaotic governance, no CEO to sign off on deals, and token holders voting with unpredictable outcomes. As highlighted in the State of DAO M&A report, valuations are unclear due to fluctuating DAO tokens, making it challenging to price acquisitions fairly or meet token holder expectations, as seen in Fei-Rari and Gnosis-xDAI. Regulatory uncertainty is a significant obstacle, with the lack of standards for legally binding DAO transactions preventing potentially valuable agreements from being implemented. DAOs are turning to token migrations and swap contracts as workarounds to regulatory uncertainty. Security concerns remain a significant challenge for DAOs, with hacks capable of erasing billions in value overnight, as Fei's token holders experienced when they had to cover $80 million in the Rari exploit. Sometimes, the 'mergers' are not mergers at all, as in the case of Yearn Finance's loose partnerships with Yearn, Pickle, Cream, SushiSwap, and Akropolis, which generated significant confusion over governance and responsibilities. Despite these challenges, M&A can be a DAO superpower, enabling them to execute mergers and acquisitions more efficiently and recognize more synergies than traditional organizations. Imagine standardized swap and acquisition contracts, platforms for M&A discovery, or protocol conglomerates that create richer, more integrated on-chain ecosystems. DAO M&A is here to stay, and with the increasing complexity of Web3 ecosystems, consolidation is inevitable. For future deals to succeed, DAOs must rethink their approach to M&A, prioritizing better governance alignment, more thoughtful valuations, and security. They must invest in infrastructure and partnerships to execute these complex dynamics. If DAOs can learn from these early experiments, M&A could become a critical tool for building resilient and scalable decentralized organizations. However, merging DAOs is not just about combining treasuries; it's about integrating communities, governance structures, and technical systems in ways that enhance, rather than undermine, the value of these organizations. The full State of DAO M&A report by DAOstar, Areta, and Emory University is available.