Blockchain
Arbitrum DAO has $3 billion and wants to go shopping by taking a page from Big Tech’s playbook – DL News
- Arbitrum DAO is considering a Big Tech powerplay.
- By voting to approve an M&A pilot project, the collective hopes to break new ground in DeFi.
- But some have questioned whether cryptocurrencies are ready for M&A.
Arbitrum DAO, a digital cooperative with over $3 billion in cryptocurrencies, wants to go shopping.
On Wednesday, co-op members set the stage for Arbitrum DAO to take a page from Big Tech’s playbook, overwhelmingly approving an eight-week mergers and acquisitions pilot program proposed by Bernard Schmid, founding partner of Areta, a company that offers investment banking services to crypto companies.
“In addition to conducting an in-depth strategic study on the positive value of mergers and acquisitions,” the proposal reads, “the pilot phase should serve as a facilitated platform for in-depth discussions based on data rather than opinion.”
If the pilot project is successful, Schmid plans to move forward with a more ambitious project proposal: The creation of an M&A unit with a war chest of between $100 million and $250 million and a two-year mandate to identify and acquire potential targets.
Arbitrum DAO operates Arbitrum, the largest layer 2 blockchain on Ethereum. According to DefiLlama, it also hosts the second largest treasury of any DeFi project data.
Arbitrum is the largest layer 2 blockchain on Ethereum.
A move from Big Tech
While Big Tech giants have long used mergers and acquisitions to fuel their meteoric growth, they have been relatively rare in the cryptocurrency industry.
According to GlobalData, there were only seven M&A transactions in the cryptocurrency sector in the fourth quarter of 2023. Tech overall saw 1,069 deals.
Acquiring other companies can be especially tricky in the world of decentralized finance. For starters, the major players are not companies as such.
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Financial applications built on blockchain are often owned and operated by digital cooperatives called decentralized autonomous organizations, or DAOs.
A major decision such as an acquisition or sale would require the approval of a DAO’s members – or at least those with a majority of voting power – rather than a board of directors or CEO.
“This is a largely untapped opportunity in the cryptocurrency space, only explored by a few different projects in the space; therefore, delving into the topic of mergers and acquisitions would allow Arbitrum to gain an advantage over its competitors,” Schmid he wrote.
In a March 27 conference call, members of the DAO’s M&A working group highlighted marketing firms, business development, infrastructure providers, stablecoin issuers, and zero-knowledge technology as the most attractive potential targets for acquisition.
Schmid also suggested purchasing additional Layer 2 blockchains “to unify the ecosystem, grow its user base, and reduce competition and fragmentation in the space.”
Not sold
Not all of them, however, are sold.
“We are not entirely sure that there are enough M&A opportunities for the DAO to execute on the scale outlined in the original proposal,” Krzysztof Urbański, of Arbitrum delegate DAO L2BEAT, he wrote in the governance forum, referring to the broader proposal, lasting two years, which would follow a successful pilot project. Delegates vote on behalf of other members using loaned tokens.
However, L2BEAT voted to approve the eight-week pilot.
“We are not entirely sure of the potential of an M&A unit in the DAO,” said Urbański, “but we understand that the purpose of the pilot proposal is to help us evaluate the potential and better understand the possibilities that exist in the broader landscape. “
This was echoed by Max Lomuscio, another delegate feeling.
Notable past acquisitions in the cryptocurrency space include Polygon’s purchases of Mir and Hermez, which it used to build a layer 2 blockchain based on zero-knowledge technology, and parent company Arbitrum Offchain’s acquisition of Prysmatic Labs Labs.
In one infamous case, Fei, the issuer of an algorithmic stablecoin, melted with Rari Capital after a couple of votes from their respective DAOs.
Fei and Rari divided within a year, undone by an $80 million cyberattack and a bitter debate over how to compensate victims.
Aleks Gilbert is DL News‘ New York-based DeFi correspondent. You can contact him at aleks@dlnews.com.