A historic, multimillion-dollar deal between a layer 1 base layer community with a religious following and a main Ethereum infrastructure builder might have hit a snag this week as some token speculators consider they might be getting shortchanged.
In a governance discussion board proposal this week, Gnosis founder Martin Köppelmann laid out a plan that will enable the Ethereum improvement heavyweight to merge with xDai, a well-liked Ethereum sidechain for builders and one of many oldest layer 1 options.
The merger would mix technical savvy and main funding to create “Gnosis Chain,” a mixed effort that might assist the 2 tasks stand out in a crowded marketplace for layer 1s presently forcing chains to spend lots of of hundreds of thousands on incentives for builders and customers.
Not all events help the merger, nevertheless. In governance boards, holders of xDai’s STAKE token are complaining that the phrases of the deal quantity to a “hostile takeover” by Gnosis.
Meanwhile, the xDai staff says an injection of enterprise improvement, advertising and marketing and funding from Gnosis is perhaps what the chain wants to keep away from changing into an “obsolete, old-school, boomer network,” as challenge supervisor Igor Barinov put it in an interview with CoinDesk.
“If we don’t do this, if we don’t bring in new capital, we’re going to remain a chain for hipsters.” he added.
Despite widespread anticipation that decentralized mergers and acquisitions may turn out to be a well-liked phenomenon in 2021, the xDai group’s response to the proposed merger could also be a case research for why few have come to fruition.
In late 2020, a host of bloated protocol treasuries throughout the decentralized finance (DeFi) ecosystem and a sequence of high-profile mergers and/or protocol collaborations from Yearn.Finance led to widespread hypothesis the market was coming into an period of decentralized mergers and acquisition – that shifting ahead, protocols could be working to purchase different protocols through token purchases or governance motion on a routine foundation.
Mergers have largely failed to materialize other than a handful of high-profile offers together with ICO-era veterans Keep and NuCypher merging to kind Keanu, and cross-blockchain bridge Ren “joining” Alameda Research, nevertheless.
Part of the issue is that, in contrast to with conventional M&A, combining organizations isn’t as straightforward as a rebrand and swapping some inventory. Calibrating how to handle and merge a number of governance tokens and their potential alternate charges can lead to complications. Achieving consensus on deal phrases in a decentralized autonomous group (DAO) may be tougher than with a board of administrators.
In the case of Gnosis and xDai, the merger could be extra of a course of than an occasion. Per Gnosis Improvement Proposal 16 (GIP-16), so as to facilitate the merger Gnosis will construct and fund a swap contract that may settle for xDai’s STAKE staking rewards token in alternate for GNO, Gnosis’ native token. The present proposed parameters for the alternate are a 10% premium on high of STAKE’s 14-day, time-weighted common worth.
STAKE’s present native rewards system will depreciate over time, additional incentivizing holders to make the swap. GNO will then turn out to be the brand new staking token for the Gnosis Beacon Chain, and xDai will rebrand to Gnosis Chain as a shard of the Beacon Chain. Current xDai validators “will have a chance” to turn out to be Gnosis Chain node operators as effectively.
In an interview with CoinDesk, Köppelmann, the Gnosis CEO, mentioned that for all of the shifting elements, figuring out the premise of the merger wasn’t as difficult as some may count on.
“At the end [it was] surprisingly simple. I think if teams respect each other’s work and share the same values you can come to a meaningful agreement pretty quickly,” he mentioned.
Gnosis, as a spin-off from Ethereum improvement behemoth ConsenSys, is effectively linked, boasting relationships with a number of infrastructure and tooling organizations in addition to a beneficiant conflict chest of GNO tokens – each of that are key belongings that the technically inclined xDai lacks.
xDai’s Barinov instructed CoinDesk that a dearth of insider connections and big-budget incentive applications has been a barrier for xDai’s adoption. xDai solely counts 4 workers throughout the advertising and marketing, operations and enterprise improvement departments.
“To bring blue-chips on a small chain, you need VC connections like Avalanche, Polygon and Fantom [have], or you need some reputation, which is also important, or you need users and incentives that bring business opportunities,” he mentioned of the merger.
“All of the sources of potential communities will be easier for xDai” ought to the merger undergo, he added.
As a part of the proposal, Gnosis can be allocating 400,000 GNO tokens, presently value $200 million, to varied incentive applications for the brand new chain. Incentivized bridges and incentivized ecosystems are more and more changing into the norm, and varied layer 1s have been jockeying to entice customers with ever-larger liquidity mining applications.
Read extra: Harmony Has $300M for Projects Looking to Expand Beyond Ethereum
xDai, in the meantime, has lengthy been a favourite for in-the-know builders. The chain is dwelling to Dark Forest, a cult on-chain gaming hit, data-sharing protocol Swarm and NFT badge maker Proof of Attendance Protocol (POAP).
Barinov mentioned the merger between the 2 tasks – combining an incentive program, enterprise improvement chops and a pre-existing group of builders – is vital to stand out in an more and more crowded marketplace for layer 1s.
“I don’t know any other industry where you have this kind of competitive space between leaders. Other industries you have three, four, five leaders – here there’s so, so many,” he mentioned.
A vocal portion of the xDai group rejects the view of the merger as a mutually helpful association, nevertheless.
“Gno merger is a hostile takeover and the faithful hodlers of Stake is being slapped in the face,” wrote one person in xDai’s governance boards.
“xdai is being bought up for few pennies while its a damn gem. Long term holders are getting robbed,” wrote one other.
So far, 59% of respondents to a casual ballot have mentioned they don’t help the merger. At the core of most of the complaints is the alternate price for STAKE. xDai speculators have lengthy held that STAKE is overdue for a worth run, related to the astounding positive aspects layer 1 tokens like SOL, AVAX, MATIC, FTM and others loved during the last yr.
However, the alternate price is unlikely to change due to doable authorized problems. After the announcement of GIP-16, GNO rallied to a excessive of $625, up from $580 earlier within the day. Likewise, STAKE jumped from $16 to practically $21. Changing the phrases of the alternate might now represent market manipulation, Barinov warned, but he did depart open the door to further compensation for the STAKE group.
“We think the Gnosis team can somehow react to the community, and propose additional ways to compensate the STAKE holders. Gnosis plans to spin off Gnosis Safe and Cowswap, and they will airdrop [those tokens] to current Gnosis holders,” he mentioned, including wallets that make the STAKE-GNO alternate might be included in a doable airdrop as effectively.
Additionally, the xDai staff is planning an AMA to deal with considerations, and will probably be holding a snapshot vote within the coming weeks to gauge the depth of the issue amongst confirmed STAKE holders.
Barinov additionally identified that disgruntled STAKE holders may need few choices for recourse, in need of forking the chain.
“Technically they have no way to stop the swap from happening if Gnosis decides to make the swap contract,” he mentioned.
Builders and speculators
In distinction to the response on the governance boards, builders for most of the tasks constructed on xDai have expressed public help for the merger.
It is sweet to see two of our frens merge 🙂 We labored on the primary @poanetwork bridges with @barinov very long time in the past and glad to see how far they’ve come. We audited and used the early @gnosisPM codebase in our personal implementations. #poanetwork #xdai #gnosishttps://t.co/JMRx2R2was
— MixBytes (@MixBytes) November 9, 2021
Members of xDai tasks like POAP, DAOSquare and Colony have all chimed in positively, whereas xDai staff members have framed the talk when it comes to builders and speculators.
“There’s two competing interests here. There’s STAKE-ers, who are mostly involved in trading STAKE, and then there’s the people using the chain and the builders and developers, who have not yet come out in support in public forums,” mentioned xDai technical author Andrew Gross.
The xDai staff admitted it was “difficult” to see the vitriol, and expressed frustration that many had been overlooking the meat of the proposal by solely homing in on the alternate price.
“The main part is not about forking tokens or rebranding. The focus is how to widen the ecosystem, work on narratives like universal basic income and making existing partnerships broader,” mentioned Barinov.
“There’s a lot of positive here. There’s a lot of upside for the future,” he added.