The Super Token Thesis, Part III
The Super Token Thesis, Part III
Grand Consolidation: M&A in the Web3 World
An abridged version of The Super Token Thesis was originally published by Hackernoon. You can read it here.
Make sure you check out Part I: The Dream and Part II: Infrastructure first!
Unless the market demonstrates that they are perfectly fine with monopolists and their Super Tokens, we attempt to lay out a path here where Super Tokens can be issued, distributed, and governed in a way that allows markets to consolidate with more equitable ownership structures. AKA, a fully on-chain method of mergers and acquisitions (M&A).
While we will see all forms and flavors of market consolidation in the Web3 World, even with traditional equity buyouts from the FTX/SBF mafia, the most interesting question is how consumer applications and protocols, particularly with tokens, will accomplish the same. How do mere apps become Super Apps, and how are their Super Tokens formed and governed?
Let’s start by imagining a DeFi Super App with the top protocols of today–specifically, products which have achieved some kind of market fit and whose tokens are relatively decentralized and high in circulation (think Uniswap, Aave, and Synthetix). These applications are the prime buying candidates. In stark contrast, we have a vast tail end of applications with only a few percentage points of circulating supply, which are largely held by VCs, Exchanges, and Market Makers, and are ready to be dumped into the abyss. Although such protocols may be unripe in adoption, with the aid of strong potential technology, they can benefit from integration and distribution by joining a larger, concentrated ecosystem through a Super Token acquisition/merger.
Hypothetical Case Study
Let’s say Lion Protocol and Witch Protocol achieve successful respective product/market fits and proceed to exhaust their initial opportunities for rapid growth. One of their options for the next stage of growth is to start building their own infrastructure plays: for example, the Witch Protocol might contemplate building an L2 sidechain running Snowman consensus focused on gasless, AML-enabled institutional access to open finance: it can be capital-intensive and provide multiple opportunities for scaling and reaching new markets. For the sake of argument, however, let’s say the teams behind both protocols are interested in a long-term play rather than a midterm raise-and-exit strategy. So, they go for the Super Token vision.
Currently the Lion and the Witch are application-layer plays on the same L1 network. It is infrastructurally upstream for them, and they’ve been thinking of creating proprietary side-chains anyway. Instead, they venture to pool their resources together and acquire a centerpiece of upstream infra: the Wardrobe Protocol, an overly centralized (for the time being) L2 protocol, anchored as a sidechain to the same L1 network.
In the simplest case (a controlling share in the L2 DAO is held by one entity), the acquisition would be implemented as a purchase of the controlling share through a smart contract. In order to render such proposition valid, the aforementioned must be adhered to:
Representatives of the three parties privately reach an agreement over the conditions.
The conditions are implemented in a 3-way atomic smart contract: the three parties deposit their respective funds into the contract (stablecoins from the acquiring protocols, wrapped protocol coins from the protocol being acquired). More on that below.
Protocol representatives who made the deal write up proposals to their respective DAOs, outlining the deal and requesting funding in the amount agreed upon by the parties to the 3-way contract.
Should all proposals be ratified, the funds go into the contract, and the deal settles.
Should one of the proposals be rejected, the deal contract would revert the deposits from other parties after an agreed upon grace period.
M&A DAO Governance
Governance design will experience a series of ongoing restructuring as M&A takes place. However, the governance structure that persists will likely be more centralized in nature through the form of delegated committees with a voting process that is geared towards action. Buyers will most likely take precedence over sellers; however, the governance structures for both parties will need to act efficiently and effectively to agree on any negotiations.
As the Super Token continues to acquire projects (whether for their technology or community), it shall either replace the seller’s existing token, or the two projects will merge into one, thus creating a unique token of its own. It is important to keep this one-token ecosystem in order to align incentives and continue future acquisitions.
Should the Super Token continue on a positive trajectory, its tokenomics should allow for minting of additional tokens so long as the value acquired from the seller exceeds that of the total value created from tokens minted. Creating a new token may serve to avoid any arbitrage opportunities.
The persistence of the one-token ecosystem presents a path for Super Tokens to stand out against monopolist Super Apps. It will enable future acquisitions to create a vertically or horizontally integrated Super Token, thus providing sound utility for the benefit of its community.
Our Super Token Thesis expresses our passion for a world of greater value consolidation, consumer/retail usability, and breakthroughs in the next era of internet infrastructure. This series of articles serves as a stepping stone for a series of exciting and spicy deep dives into Governance/Digital Identity, Token Design, L1/L2s, and beyond. Stay tuned, Netizens–we’re excited to have you all aboard!
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