Protocol M&A

7 min readApr 10, 2018


Daily Bit

When we were raising money for Messari, we walked people through the bull case, the base case and the bear case for our open data project under different token market scenarios.

The bull case hinged on tokens truly eating the world. We’d create a registry and financial incentives that effectively created an EDGAR for crypto without any governmental body. That’s where we hope our token-curated registry will come into play in the coming months.

The base case was that we’d build an open-source data library that would end up being a loss-leader for additional value-added services (e.g. investor data products). There wouldn’t be enough demand or we’d be unsuccessful in rallying the market around our TCR, so we’d have to pivot into traditional data services…most likely in a cooling market.

The bear case, though, was chaos.

And I was (and perhaps still am) just as excited about the potential opportunities in the market’s carnage as I am about the bull case.

Not because I’m a sadist (maybe a little), but because someone will need to be there to pick up the pieces once things crash, and rebuild as we move up the “slope of enlightenment” in the final phase of this hype cycle.

That’s where protocol M&A comes in.

In recent weeks, I’ve heard more people talking openly about what happens when the first crypto networks merge or acquire one another?

Or more precisely, how will that even happen?

ConsenSys Ventures’ Ash Egan first wrote about a few potential scenarios for how this all could play out late last summer in the context of a traditional corporate buyout of a venture-backed company that issues a token.

If the issuing company has value (team, IP, relationships), but the tokens are irrelevant or overvalued, deals will be hard to come by. It simply won’t make economic sense to touch anything with a token, especially given the regulatory risks.

But the most interesting one to me was this: if the Company doesn’t have value (the team sucks), but the tokens look valuable and the network has traction, then an acquirer could buy out the treasury tokens and upgrade the team.

Andy Bromberg at CoinList finally elaborated on this thesis a few weeks ago, when he asked what a hostile network takeover might look like?

He lays out the steps:

1) Coordinate with suppliers; whoever is most critical in securing the network. Storage providers in distributed storage systems, registry voters in TCRs, bonded stakeholders in POS networks, etc. You want them on your side like you would in a boardroom battle.

2) Once you have the votes, lay out the transition plan to the broad public.

3) Execute the fork.

4) Drive users over to the new fork by airdropping new tokens, and give old token holders incentives to not only sell their old coins, but burn them. At the same time, dump your stake in the old network to crash the price.

In face, we’ve already seen a lot of this type of experimentation play out in bitcoin already…with arguably limited success. An aggressive and steadfast minority group of developers overcame the “New York Agreement” and SegWit2x push despite the large group of miners and exchanges that had assembled to support it. And some of those large weekend BTC dumps and BCH pumps? You’ll recall they failed to swing the balance of power to BCH in late November.

It stands to reason, then, that hostile takeovers may only work against truly overmatched teams.

Last week, Meltem Demirors at Athena Capital followed up with a more detailed picture of the various strategies we might see. You should read her full presentation, but here was my favorite slide comparing crypto to Settlers of Catan, which is fitting since both mostly use imaginary “resources” with no actual real-world utility:

Meltem notes the scarce resources in crypto right now are talent, attention, and credibility, not money or agility.

Who are the teams that can play a mission-driven long game and maximize resources like business alliances, and human capital? Who can keep their eye on the prize and limit distractions? And who will ultimately manage risks that reduce the number of enemies, survive regulatory challenges, and ensure they can survive a token winter?

With such giant war chests, the smartest token deployment strategies might be M&A. Otherwise, how do you deploy a multi-hundred million dollar balance sheets with any rhyme or reason?

The early tinkerers in this area have restricted themselves (for now) to seeding “ecosystem” funds that deploy capital to applications that choose to build on their networks. EOS, Blockstack, IOTA, Ripple, and so many others have set these up already. And we’re just getting started.

Might that end in mergers of prediction markets like Augur and Gnosis? Or acquisitions of inactive networks and development teams? Or hostile hard forks and 51% attacks like Andy laid out?

There’s fortunes to be made amidst the chaos.



I Like Pictures

Golem, announced the launch of its live network, and lagged behind a ponzi operator and a token that just got 51% attacked.

Efficient markets at work.


Red Pillz

The volunteer army at Messari is building a free, open-source library that anyone can use as a resource, so you can go down the crypto rabbit hole a bit more efficiently. First one on Aragon drops tomorrow. Stay tuned…


TBI’s Compression Algorithm

What Crypto ban? New Blockchain Fund with Chinese Government Backing. At the opening ceremony of a new Blockchain Industrial Park in Hangzhou, the Xiong’An Global Blockchain Innovation Fund announced it has raised $1.6 billion. Notably, 30% of the fundraise comes from the local government, and will go towards establishing a large physical research center and hiring and developing local talent. The HangZhou government says the goal of the center are to get China on par with the US, Japan, Korea, and Europe. TBD on how the cryptocurrency /ICO ban evolves. CoinDesk | HangZhou

Gemini Introduces Block Trading. Gemini announced block trading would be made available to customers looking to buy and sell large quantities (10+ BTC, 100+ ETH) of cryptoassets. These orders will not appear on the exchanges continuous order books until the orders have been filled. The move positions Gemini to better compete with Cumberland, Circle Trade, Genesis Trading, and (perhaps soon) GDAX, which is rumored to be exploring a similar move. Block trading will go live on Thursday at 9:30 EST. Gemini

Drama over Twitter’s @Bitcoin handle continues. Twitter suspended the @Bitcoin Twitter account over the weekend with “no [further details] to share”. The @Bitcoin account is missing followers (700k+), but Twitter is slowly restoring them. The full drama: the original handle was run by an anonymous user, then briefly taken over by a user in Turkey, then a Russian, before finally being restored to its original owner Monday afternoon. Conspiracy theories abound. The Verge

Worth the long-read: the New Yorker profiles Galaxy Digital’s Mike Novogratz. It’s a good look at someone who’s been a high flier; survived not one, but two major career crises; and yet is still in position A to capitalize on the crypto boom — as both an investor (EOS tapped Galaxy in a joint venture to manage a $325mm ecosystem development fund) and potential protocol M&A banker via its new merchant bank (reportedly raised $250mm to acquire a bank that will list publicly on the Toronto Venture Exchange). The New Yorker

Quick Bits (Don’t read that, I read it for you)

Choke Points (Exchange news)
+ South Korean financial regulators will inspect three of its domestic banks regarding compliance of its newly introduced AML rules for cryptocurrnecy exchange accounts.
+ P2P bitcoin service Remitano integrates support for Bitcoin Cash (BCH) across its platform.
+ South Korean cryptocurrency exchange Bithumb launches a SNS Pay to integrate support for sharing, billing, and marketing products registered on social networking sites and blogs.

Startup Signals (ICOs, Cryptos, and Startups)
+ Stably raises $500,000 in seed funding from Beenext and 500 Startups for its fiat-backed stablecoin that will launch on the Stellar and Ethereum blockchains.
+ But Intangible Labs raises $125 million in SAFTs for its Basecoin “stablecoin” project.
+ Learn all about cryptokitty maximalism and non-fungible token arbitrage from this post on two guys who made $100k trading crypto-kitties, including one who previously front-ran Bancor.

BigCo Noise (Enterprise initiatives)
+ Salesforce teases a blockchain product launch that will be introduced in this fall, ahead of the Dreamforce conference.
+ Overstock’s tZero reveals a prototype of its security trading software and have released demo videos to solicit public feedback. The company is raising a staggering $250 million offering via SAFEs and will continue to fundraise until May.

The Powers That Be (Legal/Reg/Policy)
+ One day after the SEC freezes $27 million worth of Longfin stock sale proceeds, its accounting firm CohnReznick resigned from its engagement with the company. Yikes.
+ South African Revenue Services will apply normal income tax rules to cryptocurrencies Tax agencies around the world are cracking down on the reporting.
+ Samoa’s Central Bank joins several other countries in the investigation of OneCoin, a cryptocurrency investment scheme widely believed to be fraudulent.

+ Richard Kim, an executive director at Goldman Sachs, has been hired by Mike Novogratz’s crypto merchant bank Galaxy Digital as the new COO.
+ Coinbase’s hiring spree continues. New VP of Communications is Rachael Horwitz from Spark Capital. Horwitz formerly held executive communications roles at Facebook and Twitter.
+ Mortgage-backed securities pioneer Lewis Ranieri partners with smart contract startup Symbiont to add “efficiency, transparency, and security” to the mortgage markets.

Did I miss something big?

Send me the link, your twitter handle and your best imitation compression algorithm write up. If I really whiffed, I’ll include your bit tomorrow (with attribution).


Shameless Plugs

Hit me up when I’m in your city!

Upcoming Travel:
+ Boston (4/25–4/27 — Pillar VC’s Unchained)
+ SF (5/1–5/3 — private event)
+ NYC (5/10–5/17 — Fluidity, Ethereal, Consensus, Token Summit)
+ Asia (Japan, Korea, Hong Kong early through mid-June)

My company, Messari, is hiring:
+ Front-end developer, blockchain engineers, data engineers
+ Volunteer analysts and summer interns
+ Content curation lead (compression algo tinkerer)

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Messari Founder. Crypto since it was “bitcoin 2.0” Formerly ConsenSys, DCG, and CoinDesk. Sign up for my Unqualified Opinions: