The recent mergers and acquisitions (M&A) of Yearn.finance drew much attention to the decentralized finance (DeFi) market, even with Bitcoin breaking its all-time high and making major headlines. In total, five M&As were announced within only one week, all by a single market player. These M&As represent the first time Ethereum-based protocols have merged, and therefore, are worth looking deeper into the concept of mergers and acquisitions, and if we can even call them like that.
So what happened? Everything started with Yearn’s acquisition of Pickle Finance, a yield optimizer, on November 24th. And that only some days after Pickle was hacked and lost almost $20 million. Two days later, on November 26th, Yearn announced another acquisition. This time of the lending protocol Cream. Yearn then went on with its shopping spree, acquiring Cover (an insurance platform) on November 28th, and Akropolis (a multiproduct DeFi protocol focused on institutional investors) on December 1st. But its biggest merger yet is soon to come, after Andre Croje’s Twitter announcement of a merger with SushiSwap, a fork of Uniswap, and one of the biggest projects in the decentralized finance space.
So there were five major mergers/acquisitions within almost a week when there haven’t been any (remarkable) for the past year. Although the last deal is not yet complete, these moves bring along major changes for the industry and for each involved project.
In addition to combining technical features and development teams, the mergers will pool their respective total value locked (TVL), the main measure of adoption in DeFi. Although Yearn’s TVL did not react much to the announcements, Sushi has seen an increase in the past days (see figure below).
Both TVL figures are expected to increase in the short-term once the deal is fixed and more clear. The combined assets of all the mergers would leave the conglomerate at around $1.3 billion in TVL, just below other DeFi heavyweights such as Aave, and probably higher than competing DEX Uniswap.
Although TVL will be pooled, SushiSwap tokens will remain separate from Yearn. Both tokens saw an increase in price since the announcement. Yearn.finance increased by 16% while Sushi surged 49% since December 1st.
Clearly, we can see what the moves achieved on the value side. But more so than its TVL and price increases, the technical aspect is of higher importance.
Can we even call it M&As?
The concept of merger & acquisition (M&As) is nothing new to the traditional world of finance. In corporate finance, mergers and acquisitions are transactions in which the ownership of companies, other business organizations, or their operating units are transferred or consolidated with other entities. On one hand, in a merger, two companies of similar size combine to form a new single entity. On the other hand, an acquisition is when a larger company acquires a smaller company, thereby absorbing the business of the smaller company.
However, in the DeFi industry, something like that doesn’t, or didn’t, exist. With the connotation of decentralization always in mind, the crypto world consists of many different actors trying to build a new set of rules to replace the traditional financial industry in a common manner. Until now, it was all about sharing and working together. Projects were initiated by a team of developers, or a single one, and then put out in the open for the community to interact, develop, and govern. In DeFi, applications need to interconnect with each other, different projects, and networks.
But looking at what happened, can we even call it M&As? The moves might be seen more as partnerships or collaborations to create highly efficient development efforts. Cronje called Pickle’s acquisition, for example, a “symbiotic relationship”, and pointed out that it is far from a conventional acquisition. All moves were rather a combination of human talent, some focused more on the development team, others more on the collaboration and efficiency aspect. In the end, all partnerships made sense for both sides of the parties. And rather than all projects combining into one single DeFi behemoth, they continue working separately, each with its own token. Yearn is trying to integrate with other DeFi protocols on the backend, aggregating the existing DeFi infrastructure to grow, test, and create more sophisticated financial infrastructures to continue to innovate and grow its ecosystem. This creates a variety of synergies and efficiencies, not only for the projects involved but eventually for the community.
“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.”
The partnership with SushiSwap is more profound than with other projects, including a mutual exchange of treasury allocations. Yearn will help in creating a vault to farm Sushi, ETH, YFI, and WBTC. Yearn will subsequently use SushiSwap as the automated market maker of choice for its yield farming strategies. And there are many more interconnections, integrations, and developments between Yearn sub-projects and Sushi - one major being Deriswap, a new project that will allow users to trade, access financial derivatives, and take loans all in one platform.
Whereas in traditional mergers, companies form a single entity, SushiSwap and Yearn will stay separate. Its governance and tokens will remain separate, but the teams connect the two projects’ treasuries to let each have a stake in the other. A governance vote will be held in both projects letting its respective community choose if part of their treasuries should be devoted to purchasing each other’s tokens. The two projects will thus be able to participate in each other’s governance processes in the future.
This looks like a more collaborative approach to the traditional concept of M&As. We are seeing projects with a natural fit partnering and sharing human and intellectual efforts - more so than hostile takeovers where one party benefits over the other.
The trend moving DeFi forward
The decentralized approach in the crypto world and especially in DeFi can and will not be dismissed. But with so many small actors in the market, the first “mergers and acquisitions” were inevitable, and we might see a trend of combining forces to create efficiencies. This may help to push DeFi forward faster.
In an industry as nascent as DeFi, however, these concepts still need to be defined. For now, we can call it a bit of everything. Teams merge, protocols leverage off of each other, vision and goals are aligned, shared, and applied by all team members and the community. What definitely stands out is the ease of collaboration or merging. This is a powerful testament to the composability and freedom of DeFi. It allows for more moves to be made quickly and efficiently.
But as with everything in DeFi, projects need to be cautious as some critics have pointed out that these protocol acquisitions have not been approved by community vote. Alignment within the industry is critical. The next months, and years, will show what good these partnerships and collaborations will bring, and which other projects will look to create symbiotic relationships.
Yearn.finance (YFI) “acquires” yet another DeFi protocol amid massive expansion plans - Cryptoslate ; Dec 1, 2020 
SUSHI surges 30% to multi-week highs after massive Yearn.finance (YFI) partnership - Cryptoslate ; Dec 1, 2020 
DeFi Superpowers yearn.finance and SushiSwap To Merge - Cryptonews ; Dec 1, 2020 
Yearn’s merger with SushiSwap will be the most comprehensive to date - Cointelegraph ; Dec 1, 2020 
Yearn Finance Set to Gobble Up SushiSwap for Its Fifth DeFi Merger - Coindesk ; Dec 1, 2020 
Yearn Merges With Three DeFi Projects in Four Days - The Defiant ; Dec 1, 2020 
Merger, Acquisition, Partnership, & Collaboration nomenclature in the decentralized space - Andre Croje on Medium ; Nov 29