Art by Clark Miller
Art by Clark Miller

Tokens for We but Not for Thee: How a DAO Turned Against One of Its Earliest Investors

Is the rebellion at Merit Circle a sign of more culture clashes to come?

June 10, 2022 2:00 PM PDT

On May 20, Honey Barrel, whose online bio describes them only as a “vanquisher of non-frens,” woke up and chose chaos. They’re a member of Merit Circle DAO, a decentralized autonomous organization worth over $370 million that loans non-fungible tokens to people who play crypto games but can’t afford the buy-in, according to crypto research startup DeepDAO. In a 2,000-word post on the Merit Circle DAO forum, Honey Barrel proclaimed that certain Merit Circle investors weren’t pulling their weight.

Their solution? Break the contract with the investor in question, Yield Guild Games, return its money, and show the world that DAOs aren’t to be messed with. In the normal startup world, one angry blog post would have gotten lost in the depths of tech Twitter. But in the DAO world, where anyone who holds a token gets a say in the group’s future, the post lit a fire.

The proposal from Honey Barrel—an average, albeit vocal member of the organization—threatens to usher in a new, distinctly investor-unfriendly era in the DAO world. Because if one DAO breaks its legal contract with an investor, what’s to stop others from doing the same? For venture capital firms that have put millions into DAOs—including giants such as Andreessen Horowitz, Union Square Ventures, Sequoia Capital and Paradigm—the ripple effects could be existential.

None of the firms Weekend reached out to about the situation responded. But the anxiety among venture capitalists has already gone ambient. “If a DAO successfully reneges on a SAFT [simple agreement for future tokens, a standard deal structure for token investments], it will embolden other DAOs to do the same, resulting in greater levels of politics and a chilling effect on future investments into DAOs,” crypto fund Galois Capital tweeted.

For others in the crypto sphere, however, Honey Barrel’s post was a revelation, a long-awaited release of what was formerly a barely concealed contempt for traditional investors. “We can talk about ‘legal contracts,’” Honey Barrel wrote. “Or we can talk about the uselessness of the average VC. As only the latter is the real issue.”

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