Discussions about mergers and acquisitions in the cryptocurrency sector were becoming heated at the Permissionless conference in beautiful West Palm Beach as industry participants began to explore this developing trend for decentralized finance at the protocol level (DeFi). Panelists Tom Schmidt, partner at Dragonfly Capital, Vanessa Grellet, managing partner at Aglaé Ventures, and Nikita Ovchinnik, chief business development officer at 1inch, joined the stage with TechCrunch to explore the future of DeFi M&A as the crypto market becomes more unstable.
While M&A occurs often in the traditional startup arena, Mike Ippolito, co-founder of Blockworks, the conference host (and my previous employer), noted during the panel’s introduction that it is something that is being investigated and pioneered in real-time at the protocol level. According to Ovchinnik, “I believe that M&A in DeFi will explode.” M&A is, in the end, the ideal instrument for how to scale, broaden your product range, and roll out the long-term horizon.
The panelists agreed that given the present negative crypto market circumstances, while certain DeFi protocols can withstand downturns and continue to raise money, it will be tougher for them to sustain themselves when that capital dries up, and there will be a lot more consolidation in the next two years. According to a PwC research, there were 118 crypto agreements in 2020, but that number increased by 233% to 393 deals in 2021. Over the same time period, the average deal size increased by 241%, from $52.7 million to $179.7 million.
Two decentralized autonomous organizations (DAOs), Rari Capital and Fei Protocol, combined in December 2021 through a token swap, adopting the name FeiRari and a new TRIBE token. The merger was then described as “a new primitive to align incentives amongst web3 communities moving forward” by Jeff Amico, a partner on the crypto team at Andreessen Horowitz. The panelists noted that even though the merger took place roughly six months ago, there is still a lack of clarity and regulations governing M&A in DeFi.
According to Schmidt, “I think the M&A infrastructure just doesn’t really exist in crypto right now,” and that until the sector reaches maturity, it will be up to chance how deals things take place. Grellet stated, “Right now, it’s the Wild, Wild West; there’s no structure. We can just copy and paste the current structure for traditional finance, but is that really what we want to do?
DeFi methods are combining as the market situation gets worse, On May 17, the multichain DeFi dashboard Ape Board was purchased by blockchain analytics company Nansen. Alex Svanevik, CEO of Nansen, stated to TechCrunch that the transaction was for an undisclosed eight-figure sum. We won’t ever rely on mergers and acquisitions as our main method of growth, but Svanevik believes that our sector of the cryptocurrency market, particularly the information landscape, is ready for consolidation. “Having to visit 20 different websites to find information is not nice.”