Arbitrum DAO has $3bn and wants to go shopping by taking a page out of Big Tech’s playbook

Arbitrum DAO, a digital cooperative sitting on more than $3 billion in crypto, wants to go shopping.

On Wednesday, members of the cooperative set the stage for Arbitrum DAO to take a page out of Big Tech’s playbook by overwhelmingly approving an eight-week mergers and acquisitions pilot programme proposed by Bernard Schmid, a founding partner at Areta, a firm that offers investment banking services to crypto companies.

“In addition to conducting an in-depth strategy study on the value upside of M&A,” the proposal reads, “the pilot phase should serve as a facilitated platform for in-depth discussions based on data rather than opinions.”

If the pilot is successful, Schmid plans to move forward with a more ambitious proposal: the creation of an M&A unit with a war chest between $100 million and $250 million, and a two-year mandate to identify and acquire potential targets.

Arbitrum DAO manages Arbitrum, the largest layer 2 blockchain on Ethereum. It also features the second-largest treasury of any DeFi project, according to DefiLlama data.

A Big Tech move

While Big Tech giants have long used M&As to fuel their breakneck growth, they’ve been relatively rare in crypto.

In the fourth quarter of 2023, there were just seven M&A deals in crypto, according to GlobalData. Technology writ large saw 1,069 deals.

Acquiring other companies can be particularly tricky in the world of decentralised finance. For starters, the biggest players aren’t companies as such.

Financial applications built atop blockchains are often owned and managed by digital cooperatives called decentralised autonomous organisations, or DAOs.

A major decision such as an acquisition or sale would require approval of a DAO’s members — or at least those with majority voting power — rather than a board of directors or a CEO.

“This is a largely untapped opportunity in crypto, only explored by a few different projects in the space; therefore, delving deeper into M&A would enable Arbitrum to get a jump-start on its competitors,” Schmid wrote.

In a March 27 conference call, members of the DAO’s M&A working group highlighted marketing companies, business development, infrastructure providers, stablecoin issuers, and zero-knowledge technology as the most appealing potential targets for acquisition.

Schmid also suggested purchasing other layer 2 blockchains “to unify the ecosystem, grow its user base, and reduce competition and fragmentation in the space.”

Not sold

Not everyone is sold, however.

“We’re not quite sure whether there are enough M&A opportunities for the DAO to execute on the scale outlined in the original proposal,” Krzysztof Urbański, of Arbitrum DAO delegate L2BEAT, wrote in the governance forum, referring to the larger, two-year proposal expected to follow a successful pilot. Delegates vote on other members’ behalf using loaned tokens.

Nevertheless, L2BEAT voted to approve the eight-week pilot.

“We are not entirely sure how much potential an M&A unit in the DAO has,” Urbański said, “but we understand that the purpose of the pilot proposal is to help us gauge the potential and better understand any existing possibilities in the broader landscape.”

Max Lomuscio, another delegate, echoed the sentiment.

Notable past acquisitions in crypto include Polygon’s purchases of Mir and Hermez, which it used to build a layer 2 blockchain based on zero-knowledge technology, and the acquisition of Prysmatic Labs by Arbitrum parent company Offchain Labs.

In one infamous case, Fei, the issuer of an algorithmic stablecoin, merged with Rari Capital after a pair of votes by their respective DAOs.

Fei and Rari split within a year, undone by an $80 million hack and a bitter debate about how to compensate victims.

Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can contact him at aleks@dlnews.com.