Two Gaming DAOs Skirmish Over Funding Deal Turned Sour

Merit Circle DAO Proposes Ousting YGG

A member of the Merit Circle DAO has proposed revoking the group’s early-investment deal with Yield Guild Games.

Two of the largest play-to earn gaming guilds have been trying to come to an agreement for almost a week now, after HoneyBarrel (a Merit Circle DAO member) submitted a governance document. ProposalTo cancel its initial funding deal Yield Guild Games. Citing the lack of “value add” that YGG had allegedly failed to provide to Merit Circle as the primary reason, the proposal suggested unilaterally canceling YGG’s SAFT (Simple Agreement for Future Tokens) and returning the gaming guild’s initial investment back. It stated:

“The Merit Circle DAO needs seed investors who are adding value. This is something the community, team, and investors all agree on. I have shown that YGG doesn’t fit this criteria. They are competitors who are only interested in extracting value, and profit, from the DAO, and their actions go against the ethical principles that Merit Circle upholds.”

HoneyBarrel suggested that Merit Circle DAO terminate its financial obligations with YGG. HoneyBarrel would return YGG 175,000 USDC seed investments and take its seed tokens. In response, the YGG DAO Publiziert an official statement today, countering that the legal agreement with Merit Circle Ltd had no “value-add” conditions and represented a simple capital for equity exchange. It said:

“This seed funding was provided in exchange for future tokens to be deployed according to a pre-defined vesting schedule. There were no conditions in the SAFT that relate to “value-add” services. It only called for the investment of capital.”

Furthermore, YGG argued that it “had in fact provided meaningful value to Merit Circle,” although it was under no obligation to do so, and reassured the Merit Circle community that it planned to continue doing so in the future.

Although the Merit Circle DAO is yet—if ever—to vote on HoneyBarrel’s proposal, its community members’ overarching sentiment seems to be largely in favor of it. “I agree with Honey and will vote Yes [In favor of nulling the SAFT with YGG] in this matter,” one of the most liked CommentsThe thread was read. Sad Cat Capital is a venture capitalist involved with the Merit Circle DOA. that it would be voting in favor of the proposal because it was disappointed with YGG’s response, which allegedly demonstrated “how little value they have added over the past 7 months.”

A Governance Proposal sparks debate

Beyond the DAOs, the discussion has spread to the wider crypto community. Industry experts have weighed in with their opinions. Miko Matsumura, an early-stage investor and builder who has admittedly invested in YYG, said on Twitter today that Merit Circle’s potential deviation from the contract with YGG would set a terrible precedent for DAOs. He said

“I believe it is a terrible precedent for @MeritCircle_IO to be allowing their DAO to vote on breaching signed contracts both from a legal and ethical perspective. It destroys the trust in DAOs if they can simply vote to break agreements on a whim.”

Hasu, a prominent cryptocurrency researcher, expressed concern about the possibility that DAOs could overturn legally-binding promises made by legal companies behind projects in the past. “Seeing a DAO so nonchalantly consider contract breach should tell you all you need to know about ‘governance of the people and why it doesn’t work,” he said.

However, there have been some concerns raised by community members, arguing that DAOs should have the ability to make decisions on all matters involving the underlying project. “If the community feels strongly to cancel their SAFT, why shouldn’t they? A decentralized project should be able to take its own life. This is part of decentralized governance,” one user saidFollow us on Twitter.

The Merit Circle and YGG dispute is the first between two DAOs to involve legal elements beyond crypto sphere.

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