Crypto Has ‘Too Many Tokens’ and Mergers Are Coming

Between
tokens
that
replicate
complex
financial
instruments
like
rehypothecation
to
many
“a
dog
with
a
hat”
type
projects,
there
are
a
lot
of
tokens
in
the
crypto
ecosystem
these
days.
Too
many,
according
to
some
experts,
who
are
predicting
a
wave
of
consolidation
in
the
coming
weeks
and
months.

With
more
than

13,000
tokens
and
about

$2.5
trillion
market
cap,
the
question
becomes
–
why
are
there
so
many
tokens
when
the
utilization
and
adoption
of
the
technology
are
not
even
close
to
where
it
should
be?

Enter
mergers
and
acquisitions
(M&A)
which
could
help
clean
up
the
sectors
such
as
decentralized
finance
(DeFi)
to
NFT
projects
and
even
memecoins,
according
to
industry
observers.

Similar
to
the
late-90s
dot-com
era,
heavy
interest
from
venture
capital
and
the
general
public
during
the
2021
bull
run
has
led
to
capital
flowing
into
too
many
different
crypto
projects
trying
to
solve
similar
problems,
creating
more
tokens
than
needed.

“Venture
capital
and
excessive
funding
rounds
during
bull
markets
have
led
to
the
creation
of
a
slew
of
projects
often
looking
to
solve
similar
challenges,
just
taking
a
slightly
different
approach,”
said
Julian
Grigo,
head
of
institutions
and
fintech
at
smart-wallet
infrastructure
provider
Safe.

Chiliz
network
CEO
Alex
Dreyfus
told
CoinDesk
that
“there
are
already
too
many
tokens
and
too
many
‘projects,’
for
not
enough
adoption
and
utility.”

Taking
a
cue
from
the
traditional
sectors
such
as
the
internet,
semiconductors
and
health
care,
mergers
and
acquisitions
(M&A)
can
solve
the
problem
for
crypto.

“There
are
already
too
many
tokens
and
too
many
‘projects’
for
not
enough
adoption
and
utility,”
said
Dreyfus,
who
previously
said
he
is
looking
at
“some
aggressive
M&A”
this
year.
“Eventually,
consolidation
will
be
key,”
he
added.

In
fact,
there
is
already
a
three-way
merger
that
happened
last
month
as
artificial
intelligence
(AI)-related
crypto
projects

Fetch.ai,
SingularityNET
and
Ocean
Protocol
said
they
are
merging
to

create
one
7.4
billion
dollar
token
that
will
make
an
AI
collective
to
fight
the
Big
Tech
firms.

But
that’s
just
one
recent
example
of
somewhat
large-scale
M&A.
Why
aren’t
there
more?

The
simple
answer
might
be
that
the
industry
is
still
very
young
and
needs
more
time
to
reach
a
level
where
mergers
can
become
more
frequent.
“The
crypto
M&A
market
is
still
in
its
infancy
and,
as
such,
there
often
isn’t
a
template
or
rulebook
in
place
which
can
make
deals
more
difficult
and
complex,”
said
Safe’s
Grigo.

Another
unique
challenge
to
crypto
is
the
nature
of
the
token
markets.
“M&A
is
harder
in
crypto,
because
there
is
a
lot
of
money
in
crypto
trading
and
therefore,
unlike
traditional
finance,
where
a
‘stock’
could
die
…
crypto
never
dies.
Everything
is
always
a
trading
opportunity,”
said
Dreyfus.

One
way
this
can
potentially
be
managed
is
by
doing
the
deals
at
the
token
level
rather
than
corporate,
meaning
each
team
“can
work
on
their
own
initiatives
while
supporting
and
growing
the
same
ecosystem.
It
will
make
more
decentralized
ecosystems
and
also
have
very
powerful
network
effect,”
he
added.

But
that’s
not
an
easy
task
to
accomplish,
according
to
Shayne
Higdon,
co-founder
and
CEO
of
The
HBAR
Foundation,
part
of
the
Hedera
ecosystem.
“With
crypto,
where
the
ethos
is
open-sourced
and
decentralized,
what
are
you
actually
buying
or
merging?
Are
you
merging
operations
or
just
a
token?
The
former
is
incredibly
difficult
to
do
when
the
business
is
centralized
and
will
be
infinitely
harder
in
a
decentralized
world,”
he
said.

“In
crypto,
it’s
about
growing
the
ecosystem
and
subsequent
network
effects.
Having
a
common
goal
is
paramount
to
ensure
communities
vote
to
merge.
These
communities
also
hope,
as
a
result
of
a
merger,
that
they
will
make
more
money
in
the
long
run,”
Higdon
said.

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.

In
traditional
finance,
one
of
the
biggest
hurdles
for
a
deal
to
finish
is
the
regulatory
uncertainties.
TradFi
is
littered
with
such
high-profile
M&A
failures,
including
the
more
than
$40
billion
takeover
of
NXP
Semiconductors
by
tech
giant
Qualcomm
that
failed
after
China
blocked
the
deal.
Another
example
was
when
Canada
thwarted
mining
giant
BHP
Billiton’s
$39
billion

hostile
takeover
of
Potash
Corp.

Crypto’s
relatively
immature
regulatory
landscape
could
be
a
net
positive
for
the
industry,
according
to
Sweat
Economy’s
Fomenko.
“Given
the
track
record
of
Web3,
it
is
likely
to
have
the
opposite
effect
and
projects
with
significant
treasuries,
active
teams,
and
communities
are
likely
to
take
advantage
of
the
current
regulatory
climate
and
acquire
other
businesses
before
M&A
regulation
emerges
in
this
field,”
he
said.

Conversely,
a
better
regulatory
regime
might
incentivize
bigger
M&As
as
it
could
encourage
larger
financial
institutions
to
step
in
as
they’ll
have
a
better
idea
of
how
regulators
will
see
a
potential
deal,
according
to
Safe’s
Grigo.

So,
if
deal-making
takes
off
in
the
digital
assets
space,
what
should
investors
be
watching?

Naturally,
projects
that
aren’t
able
to
compete
with
the
larger
competitors
will
look
to
merge
their
businesses
to
stay
afloat.
“The
next
wave
of
M&A
is
likely
to
occur
in
sectors
where
there
is
a
high
degree
of
fragmentation,
like
Layer
1
chains
that
didn’t
break
Top
10,
DEXs,
DeFi
protocols,
node
operators,
and
possibly
even
NFT
projects,”
said
Aki
Balogh,
co-founder
and
CEO
of

DLC.Link

Meanwhile,
Safe’s
Grigo
sees
M&A
playing
out
“right
across
the
board,”
as
he
doesn’t
see
any
one
specific
area
that
is
immune
to
consolidation.
He
also
expects
traditional
players
to
scoop
up
Web3
projects
that
are
“most
innovative.”

However,
projects
that
are
only
high-quality
will
be
able
to
garner
top
dollar
for
potential
M&A.
“The
big
winners
of
this
trend
are
likely
to
become
businesses
that
have
very
sophisticated
cross-chain
analytics
capabilities
as
well
as
businesses
able
to
deliver
the
message
to
the
holder
of
the
specific
token
about
the
potential
offer,”
according
to
Sweat’s
Fomenko.

He
said
projects
with
higher
liquidity
that
lack
active
teams
could
become
targets
of
hostile
takeovers.
“I
foresee
that
this
will
likely
happen
in
the
fields
where
technologies
are
largely
similar
between
different
players
—
decentralized
exchanges
(DEXs),
collateralized
liquidity
providers,
and
liquid
staking
protocols.
However,
any
project
with
a
token
that
is
a
governance
token
might
become
a
target.”

Fomenko
thinks
that
this
might
become
a
dominant
force
within
the
memecoin
sector.

“My
prediction
is
that
this
will
reach
a
fever
pitch
in
the
world
of
memecoins
where
I
foresee
the
emergence
of
‘ShibaPepes’
and
‘FlokiDoges’
in
no
time.”

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