DAO Mergers Struggle Despite Growing Deal Count
A new opinion piece published in CoinDesk by researchers Joshua Tan, Jillian Grennan, and Bernard Schmid highlights the challenging landscape of mergers and acquisitions among Decentralized Autonomous Organizations (DAOs). The authors, who recently released the "State of DAO M&A" report, suggest that while 65 deals have occurred since 2020, the sector still lacks essential frameworks for success.
One of the most notable failures in DAO mergers was the collapse of the Fei-Rari consolidation in 2021. This merger between Fei Protocol, known for its algorithmic stablecoin, and Rari Capital, a pioneer in permissionless lending pools, initially received overwhelming community support. However, the merged entity known as Tribe DAO survived only nine months before shutting down.
The researchers identify several fundamental challenges facing DAO mergers. Unlike traditional corporate M&A with established playbooks, DAOs operate without centralized leadership or standardized governance structures. Token holder voting can produce unpredictable outcomes, and sometimes communities aren't consulted at all, as occurred with Aragon's acquisition of Vocdoni.
The high failure rate of DAOs adds another layer of complexity to merger efforts. According to Gitcoin founder Kevin Owocki, 90-99% of DAOs will ultimately fail. He describes them as experimental structures with only a 5-year history compared to 300 years of traditional corporate evolution, suggesting only 1% of DAOs will survive to become "keystone species" in the next market cycle.
Valuation difficulties represent another major obstacle. Token prices fluctuate wildly, making fair pricing nearly impossible. This issue created tensions in both the Fei-Rari and Gnosis-xDAI mergers, where token holders frequently felt undervalued in the exchange process.
Key issues preventing successful DAO mergers include:
- Chaotic governance with no central decision-makers
- Wild token price fluctuations complicating valuations
- Regulatory uncertainty and lack of legally binding standards
- Security vulnerabilities that can destabilize merged entities
- Confusion over whether partnerships qualify as true "mergers"
Despite these challenges, the authors remain optimistic about the future potential of DAO M&A. They argue that DAOs could theoretically execute mergers more efficiently than traditional organizations if proper structures are developed. Standardized swap contracts, M&A discovery platforms, and protocol conglomerates could create more integrated on-chain ecosystems.
According to Tan, Grennan, and Schmid, successful DAO mergers require more than combined treasuries—they need integrated communities, aligned governance structures, and secure technical systems. The authors believe that as Web3 ecosystems grow increasingly complex, consolidation becomes inevitable, but they emphasize that DAOs must first develop better frameworks to handle these organizational transformations effectively.
But I think DAOs have proven their ineffectiveness compared to traditional organizations. While they sound promising in theory, in practice they've become bureaucratic entities that primarily help pass the Howey Test and shield beneficiaries from responsibility.
