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Crypto Mergers and Acquisitions Predicted to Increase Summary: The crypto industry is poised for an increase in mergers and acquisitions (M&A) as experts predict a wave of consolidation across sectors such as decentralized finance (DeFi), NFT projects, and memecoins. With over 13,000 tokens...
Crypto Mergers and Acquisitions Predicted to Increase Summary: The crypto industry is poised for an increase in mergers and acquisitions (M&A) as experts predict a wave of consolidation across sectors such as decentralized finance (DeFi), NFT projects, and memecoins. With over 13,000 tokens and a $2.5 trillion market cap, the industry faces predictions of excessive funding during bull markets leading to a wave of consolidation. However, challenges in crypto M&A include the market's infancy, the nature of token markets, and the difficulty in merging decentralized projects. Regulatory uncertainties and the potential for traditional players to scoop up innovative Web3 projects also add complexity to the evolving landscape of crypto M&A.
Projects with commoditized technology that have high liquidity, but not a very active team could become targets of hostile takeover. Traditional players could also be scooping up Web3 projects that are "most innovative." M&A in the memecoin sector could reach a "fever pitch," leading to the creation of tokens such as "ShibaPepes' and 'FlokiDoges."
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.
Similarly 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 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.
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