Crypto has ‘too many Tokens’ and mergers are coming

M&A in crypto may lead to “short-term token appreciation,” but may dilute value in the long-run. “Without the presence of clear, non-redundant roles and responsibilities for the company, teams, and personnel, it will be difficult to reach efficient, economies of scale,” he added.

That’s not to say the fundamentals of M&A can’t work for crypto.

The first rule of any M&A would be to ensure synergies between the companies or projects and if the new company can get an edge over the competitors by merging. “From an infrastructure side, we will increasingly see interoperability play a crucial role in aligning these ambitions and likewise, I expect to see increased M&A activity amongst projects that share a common goal,” said Safe’s Grigo.

Next would be figuring out the tokenomics and incentives for holders to vote for the deal – similar to how bankers would structure a merger or acquisition offer, may it be friendly or hostile. “For projects where founders, investors, or teams control the bulk of circulating supply, it is easy to negotiate the deal with a small number of players,” said Oleg Fomenko, co-founder of the decentralized app Sweat Economy.

“Whereas for sufficiently decentralized projects, it is easy to launch a ‘hostile takeover’ making the offer for tokens to all token holders in order to accumulate a sufficient amount to influence the governance of the protocol,” Fomenko added.

Other considerations are figuring out if a merger can increase the project awareness, reach a larger community, creating a stronger team to achieve a common goal, said Fomenko adding that lack of central medium to deliver a potential takeover offer as one of the biggest barrier right now for the Web3 ecosystem. In decentralized systems, you often don’t know all the token holders. There’s no proxy agency who can contact holders to get then vote – as there would be with traditional companies.