Merger, Acquisition, Partnership, & Collaboration nomenclature in the decentralized space
What do these terms mean in a decentralized non incorporated world, and what have we learned from our interactions so far?
Lets start off with the standard definitions;
merger: a combination of two things, especially companies, into one.
acquisition: an asset or object bought or obtained.
partnership: an association of two or more entities as partners.
collaboration: the action of working together to produce something.
The interesting thing about the above, they all in some way refer to ownership. In the decentralized ecosystem, what does ownership mean?
If we look at Ethereum, who owns it? Lets look at the participants;
- Miners (they decide if the software is upgraded or not)
- Developers (they build the software for the miners to use)
- ETH holders (are the users of the system and do not drive choices)
- Vitalik (definitely a thought leader)
- Ethereum Foundation (they help fund the ecosystem, but how much say do they have?)
Difficult to pinpoint who owns it, no? But I would lean towards saying its a combination of the Developers, and the Miners. Now lets look at Yearn in terms of its engagement with Ethereum.
Yearn is built on Ethereum, so this would imply a combination of two things. Yearn has an association with Ethereum, yearn and Ethereum work together to produce something. Yearn and Ethereum could be a collaboration, partnership, or to a lesser extent merger. Why the qualification on the last one though? Simply because the Ethereum developers are not building to facilitate yearn, and the yearn builders don’t have an impact on the miners.
Now, lets look at governance protocols. Governance can be seen as Miners, they decide if the protocol upgrades. But what if there are no underlying changes to the protocol?
Looking at the recent mergers as case studies
Strong developer alignment between Pickle and Yearn. Both teams working on yield strategies. Often aligning to the same strategies which is simply duplicated work. From a development team consolidation, this made logical sense. Pickle core devs can focus on strategies, Yearn can offer additional security, peer review, audits, and discussions. The development teams merged. We are now sharing the same groups, consolidating the same discussions, and focusing on growing the ecosystem combined stronger. While Pickle and Yearn remain separate brands, the development resources are consolidated.
A merger of human talent.
Strong synergistic alignment. Yield farming and Money Markets work well together. Yield farming can be increased with leverage. Money Markets innately offer leverage. The difference however is often in vision between these two entities. We have seen money markets can be built with very different client focuses. Systems such as Aave, and Compound can be called lending markets, with a strong focus on providing lending products for end users. Looking at DyDx, they also offer lending, but for the purpose of leveraged trading, so while they are a money market, the core interest is on using this market for trading. Synthetix can also be seen as a lending market, but with a core driving force of synthetic assets. Alpha Homora is a lending market, but specifically focused on leveraged yield. Yet all of these are lending markets.
While the development teams did merge and are leveraging off of each other, this one is better categorized as two teams working together towards a common goal, that goal being protocol reserves, a protocol to protocol reserve service, and less of a lending provider. This design facilitates other protocols, such as Aave, Compound, DyDx, Synthetix, and Alpha Homora to have access to additional capital, while not constraining their resources. This is a focus on capital efficiency, and not traditional lending markets.
So lets categorize this one as collaboration & partnership. Even if the development teams did merge.
Cover protocol I would categorize as having four core areas of focus;
- Core cover offerings, fixed expiry coverage denominated in stable coins for a variable list of protocols.
- Protocol prediction market, for predicting the perceived risk that a protocol will be exploited.
- Perpetual (or as I like to call it, lazy) cover, for users and protocols that simply want to set aside reserves to hedge risk.
- Cover as a service, offering any token to become a backstop for its own ecosystem, allowing tokens to mimic the offerings in 1 & 3 using their own token as the catalyst.
While Yearn offers its security, review, and audit pipeline for all 4 items, it is specifically focused on collaboration for 3 & 4, as 4 allows YFI to become its own cover ecosystem, and 3 allows vaults to have cover taken from yield without upfront user costs. Less yield, but hedged risk.
So as with Cream, this is closer to an alignment of goals & outcomes, with shared development resources.
After having been fortunate to be involved in these discussions, I have to say, I’m no closer to having an answer on if these are mergers, acquisitions, partnerships, or collaborations, the simple answer is, a bit of each, the teams merge, the protocols leverage off of each other, vision is aligned and shared by all team members, this is something new that I don’t think fits into the boxes we have previously used. Decentralized finance allows us to be both collaborative, and symbiotic, while still being individual.
I don’t know what we should call this, but I am definitely very excited about it.