At the Permissionless conference in sunny West Palm Beach, conversations around mergers and acquisitions in crypto were heating up as market players were starting to discuss this trend growing at the protocol level for decentralized finance (DeFi).
Panelists Nikita Ovchinnik, chief business development officer at 1inch; Vanessa Grellet, managing partner at Aglaé Ventures and Tom Schmidt, partner at Dragonfly Capital took to the stage with BlueHillco to discuss what DeFi M&A will look like as crypto market conditions become shakier.
Conference host (and my former employer) Mike Ippolito, co-founder of Blockworks, said while introducing the panel that though M&A happens often in the traditional startup space, it’s something that is being explored and pioneered in real time at the protocol level.
“I think we will see an explosion of M&A in DeFi,” Ovchinnik said. “M&A is ultimately a perfect tool [for] how you can scale and expand your product line and roll out the long-term horizon.”
Given the current bearish crypto market conditions, the panelists agreed that while some DeFi protocols can survive the downturns and continue to raise money, when that capital dries up, it’ll be harder to sustain themselves and there will be a lot more consolidation in the next two years.
In 2020, there were 118 crypto deals, which spiked 233% to 393 deals in 2021, according to a report by PwC. The average deal size rose 241% from $52.7 million to $179.7 million during the same period.
In December 2021, two decentralized autonomous organizations (DAOs), Rari Capital and Fei Protocol, merged via a token swap and were united under a new TRIBE token and the name FeiRari. At the time, Jeff Amico, a partner on the crypto team at Andreessen Horowitz, tweeted that the merger was “a new primitive to align incentives between web3 communities going forward.”
But it has been about six months since that merger, and clarity and guidelines around M&A in DeFi remain limited, the panelists commented.
“I think the M&A infrastructure just doesn’t really exist in crypto right now,” Schmidt said, adding that until the market matures, it’s going to be ad hoc in terms of determining how these actually happen.
“It’s the Wild, Wild West right now; there’s no framework,” Grellet said. “We can copy and paste the existing traditional finance framework, but I don’t know if that’s really what we want to do.”
DeFi protocols consolidating as market conditions worsen
On May 17, blockchain analytics platform Nansen announced the acquisition of Ape Board, a multichain DeFi dashboard. The deal was for an undisclosed eight-figure amount, Alex Svanevik, CEO of Nansen, told BlueHillco.
“We’ll never rely on M&A as a primary way to expand, but I do think that our portion of crypto, namely the information landscape, is ripe for consolidation,” Svanevik said. “It’s not great to have to visit 20 different websites for information.”
