Start of Arbitrum M&A Working Group

TLDR: This post calls for a working group to explore M&A for Arbitrum DAO to equip us to take advantage of this growth segment. We invite the community to join our first working group call on Wednesday, March 20 at 13:30 ET to get involved.

Hi all, kicking off the Arbitrum M&A working group out of discussions in Denver.

As M&A is one of the largest growth opportunities for Arbitrum we are extremely excited to move this topic forward!

Please find below more details:

I. Context on the M&A Working Group
II. Background on the Arbitrum M&A Opportunity

We are meeting on Wednesday, March 20 at 13:30 ET (18:30 CET) for our first weekly call. Please find the invite in the Arbitrum Governance Calendar and below.

I. Context on the M&A Working Group

What? M&A Working Group

Why? To explore the potential for M&A within Arbitrum DAO

How? Starting with a month of exploration, we will focus on one milestone each week to explore the potential of M&A for Arbitrum DAO and to develop a structured plan.

When and Where? Kick-off of Weekly Calls on March 20 at 13:30 ET.

Our next meeting will take place on Wednesday:
Arbitrum M&A Working Group - Community Call #1
Wednesday, March 20 · 13:30 – 14:30 ET
Google Meet joining info
Video call link:

For the next 4 weeks, we will work along 4 milestone topics to advance the topic. This is a first suggestion, obviously this is open for discussion and input.

  • Week 1: Understand DAO/DeFi M&A basics
  • Week 2: Discuss M&A target areas for Arbitrum DAO
  • Week 3: Assess risk and mitigation strategies for M&A for Arbitrum DAO
  • Week 4: Develop a conceptual structure for M&A for Arbitrum DAO

Everyone passionate about the topic is welcome to join and contribute.
This group is open to all major stakeholders, not just those listed.

To date, this group has a couple of initial members: @jacobpphillips, @Matt_Gauntlet, @JoJo, @MattOnChain, @juanbug, @AbdullahUmar, @raam, and @sid_areta.

We also invite @stonecoldpat @cliffton.eth and other Arbitrum Foundation members to attend. Areta offers to lead the group and facilitate the discussion.

An ideal outcome after a month of exploration would be to equip ourselves with enough knowledge and align our efforts, gaining conviction to advance the topic with the next practical steps. These would be (in our mind) to involve an independent legal party to assess the possibility of Arbitrum DAO M&A from a regulatory/legal perspective. But let’s see where the working group discussion will lead us.

II. Background of the M&A Working Group


This thread outlines the opportunity for Arbitrum DAO to identify and execute on M&A opportunities.

Arbitrum is among the largest, most active DAOs in the space with a $8 billion treasury. One of the primary ways for Arbitrum to scalably deploy capital and grow rapidly is to get in the M&A game, and the upside is potentially massive. Additionally, this is a largely untapped opportunity in crypto, only explored by a few different projects in the space; therefore, delving deeper into M&A would enable Arbitrum to get a jump-start on its competitors.

1. Motivation and Opportunity

Why Arbitrum Should Consider Exploring M&A

Arbitrum DAO has significant potential to be the first movers in this market. Other leading ecosystems have started to explore the opportunity as well (e.g., Uniswap’s former discussion which is not moving ahead at the moment), and Polygon has made M&A a cornerstone of its growth strategy.

Several M&A market catalysts are converging:

  • Early Industry Maturation: Incumbents buying companies with high growth potential.
  • Protracted Bear Market Distress: Leads to increased distressed sales.
  • Buy or Build: Newcomers to web3 consider acquiring instead of in-house development.
  • Regulation & Compliance: Companies acquire those with necessary licenses to navigate regulations.
  • Acquihire: Companies buy others mainly for their web3 developer talent.

Preliminary M&A Target Areas for Arbitrum

There are several initial ways in which M&A could act as a key growth driver for the Arbitrum ecosystem (non-exhaustive):

1. Tech Talent Acqui-Hires

Acquire or acqui-hire a team and enable them to focus on building tech for (or otherwise servicing) the Arbitrum DAO. The best opportunities are tier-1 tech teams who need distribution.

There are already examples of this occurring in Web3, one which is close to home for Arbitrum:

  • Polygon acquired Mir in Nov 2021 for $400M. Mir’s system generates recursive zero-knowledge proofs which results in one of the fastest and most efficient L2 options (see case study). This transaction presents a compelling narrative for Arbitrum: The founders of the Mir protocol had technically built the best ZK chain, but launching a token would likely have led to failure. Therefore, the acquisition was mutually beneficial.
  • Offchain Labs bought Prysmatic Labs, one of the core engineering teams behind the Merge, bringing in 11 new engineering talents to the Offchain Labs team.
  • Hadron Labs brought Duality Labs to Neutron, an app-chain on Cosmos, as a core team. Hadron Labs allocated 2.5% of the NTRN supply as a long-term incentives package to current Duality Labs members with a 1-year lock and 3-year linear unlock.

Other adjacent examples include: Governance tooling that can potentially be scaled and licensed out to other DAOs (e.g., grants management platform, improved governance portal, etc.).

2. Acquire or Strategically Invest in Complementary Infrastructure / Protocols

Zero-knowledge technology, e.g., could play a large part in Arbitrum’s future and strategic acquisitions / investments could accelerate the realization of this vision. Arbitrum can super-charge its entry into the ZK space by acquiring or investing in pioneers in the ZK space, such as Lagrange, Panther Protocol, Herodotus, Ingonyama, or Supranational (these are just examples for illustrative purposes).

3. Acquire L2s

The L2 space is saturated and extremely fragmented at the moment and is only expected to grow in the future. While there are efforts to unify liquidity and enable interoperability across the ecosystem, these will take time to be perfected, and in the meantime, will fragment users and liquidity. With its large treasury, Arbitrum could potentially acquire L2s to unify the ecosystem, grow its user base, and reduce competition and fragmentation in the space.

4. Acquire Applications as L3s for Arbitrum Orbit

Arbitrum is a clear leader in the derivatives and DeFi markets and has made great strides in DeFi generally, while there are 50+ projects currently confirmed to be launching as Orbit chains. However, M&A presents the DAO with an opportunity to identify gaps in the types of applications Arbitrum supports and that it thinks present strategically important use cases going forward in the crypto space - these could range from borrowing and lending protocols, PERP DEXs, NFT DEXs, gaming, etc., and would enable the Orbit ecosystem to scale even more rapidly.

2. Background on Crypto M&A

Status of M&A in Crypto

As with every early-stage industry, crypto is incredibly fragmented, with the open-source nature of crypto further adding to this fragmentation. The crypto M&A market is still very nascent, presenting significant opportunities to scale and grow for active market participants. M&A and consolidation is crucial to the crypto space maturing; this trend was seen in the early stages of the technology market as well, and as can be seen in the below chart, M&A is well and truly active across tech today:

There is a substantial opportunity, moreover, for web2 buyers to enter the crypto M&A space at the moment. As one of the most well-capitalized entities in crypto, Arbitrum DAO would benefit greatly from being one of the first movers. As can be seen below, the time to learn and act is now, before larger/experienced Web2 buyers enter the stage:

3. Case Studies

Several protocols have already experimented with M&A. Although not all of the below have led to sustainable success, the case studies provide good insights into some of the dynamics involved.

Polygon’s Acquisition of Mir

Polygon acquired Mir in Nov 2021 for $400M. Mir’s system generates recursive zero-knowledge proofs which results in one of the fastest and most efficient L2 options. This, along with Polygon’s acquisition of Hermez, allowed it to scale its ZK-vision and build solutions like the AggLayer that was recently announced. The acquisition was completely in line with Polygon’s strategy of focusing on ZK cryptography as the end-game for blockchain scaling, and is also emblematic of Polygon’s complimentary buy-and-build strategy:

Klaytn & Finschia: The First Blockchain Merger

Klaytn and Finschia are both large L1s in Asia that recently merged in Feb 2024; their combined market cap is ~$887M, with a combined Web3 community of 410K+ members. The merger has allowed Klaytn + Finschia to become Asia’s number one blockchain by infrastructure and Web3 services by providing the following benefits:

  • Integration of messenger-based Infrastructure and existing Web3 ecosystem
  • Burning 23.6% of issued tokens and building a new 3-Layer burning model
  • Providing an integrated network environment compatible with Ethereum and Cosmos
  • Establishing the largest Web3 governance in Asia and maximizing decentralization

Fei Protocol’s Acquisition of Rari Capital

One of the most infamous examples in the crypto M&A space is when algorithmic stablecoin Fei acquired Rari to vertically integrate their permissionless money market protocol. There was significant controversy around valuation with objective voices agreeing on $RGT holders being underpaid, and the deal left a critical precedent for on-chain M&A.

Since the teams negotiated the transaction parameters themselves, a key takeaway is that specialized advisors could have helped on the questionable valuation and eased communication.

Looking forward to seeing you soon in our weekly call at 13:30 ET!


Summary: M&A Working Group Call #1 (March 20)

Hi all, thanks for the great first session on Wednesday!
As discussed find below the summary together with the next steps.
We are currently scoping out the legal workstream and tasks for next week.

Also, feel free to join our TG channel for comms and questions here.

Added and shared in the TG chat: Our current working doc on legal set-up here, feel free to comment /amend. We’ll discuss this in our slot on Wednesday.

Looking forward to next week!

I. Key Questions (Output from group exercise)

Priority Questions (3 - 5 votes):

  1. Legal Set-up: How can we ensure legal clarity regarding the ownership of M&A targets? (5 votes)
  2. Portfolio Management: What strategies can be implemented for managing acquired companies, especially when founders depart? (5 votes)
  3. Target Selection: How should decisions be made concerning the selection of targets for acquisition? (3 votes)

Other main questions:

  • What measures are necessary to mitigate common DAO frictions, and is there a need to appoint a board or manager for micromanagement?
  • How can we ensure cross-DAO alignment of strategies across short, mid, and long-term objectives?
  • What is the role of the Foundation in supporting the DAO’s governance and operational strategies?

II. Next Steps


  • Legal questions owned a large portion of discussion and emphasized the need to gain further legal and regulatory clarity around investment structures for a DAO, ownership, and management of M&A targets.
  • To target this topic we are currently working together the AVI initiative (who took a first stab at some of the relevant overlapping questions, e.g., “How can a DAO invest in equity? Who holds it? etc.”) building up on an exercise from @coinflip and Dan. We are building up on this and are drafting a day-1 legal structure to be vetted by the Arbitrum Foundation compliance team.
  • If anyone has additional input here, feel free to reach out.

Strategic objectives

  • This topic came up in the call multiple times. We are aware that this is largely unsolved as not a priority, or being progressed on different fronts. As our working group does not need 100% solved strategic objectives now (we need to get many things sorted before even thinking about operationalizing the search of M&A targets) we work under a work-in-progress assumption if needed (building up on Strategic Big Bets from the GovHack and other info like the target areas put together last year by @dk3.

III. Further Notes

  • There are key outstanding questions on the legal side around investment/equity structures and operational involvement of community/Foundation/Offchain Labs.
    • Debated the rationale around DAOs acquiring strategic objectives vs. other associated entities.
  • Highlighted the need for a method of assessing and selecting M&A targets, which will largely be contingent on the creation of overarching strategic objectives and priorities for the DAO.
    • What metrics are to be put in place to assess the performance of acquired assets?
  • There was an emphasized importance of determining the capacity in which the community will direct capital allocation.

CCing: @krst @AlexLumley @lino @raam as promised to keep you up to date.


Summary: M&A Working Group Call #2 (March 27)

Thank you all for another productive working group call! Find below key items of discussion.

Telegram Group: Invite

Current working docs: Legal

Recording: Call #2 March 27 (access here still needs to be requested, Foundation is currently fixing this)

Looking forward to the next call!

I. Main Discussions and Decisions

  1. Legal Clarity for Equity Management
  • We have set up a dedicated group with all relevant parties involved in these discussions (Foundation, Coinflip, Gaming Fund (Dan), AVI (Lino), M&A).
  • Legal considerations are currently with Arbitrum Foundation which will get back when internal alignment is found to pave the way to operationalize the intitiatives mentioned above.
  1. Operational Structure Exploration
  • Discussed the v1 of an entity structure for Arbitrum DAO to hold and manage equity in an M&A construct
  • Iterated on the legal structure in the call and discussed the need for further DAO steering bodies. I.e., structured management and reporting mechanisms to ensure DAO oversight, appropriate checks and balances between entities, and ultimate accountability to the DAO.
  • Day-1 Idea would be a DAO-elected committee to oversee Management Company decisions and ensure GP accountability. With the set-up we need to strike a balance between maintaining confidentiality during M&A processes, while ensuring enough transparency for DAO engagement.

Bildschirmfoto 2024-04-01 um 14.14.47

  1. Strategic Target Exploration
  • A first exercise to open the discussion for potential interesting strategic M&A targets for the DAO (full details below).
  • Discussed potential collaboration with the ARDC on further researching strategic target areas for Arbitrum DAO.
  • See the full Mural Board as a first attempt at identifying potentially interesting M&A targets for Arbitrum.
  • The categories of types of M&A opportunities for Arbitrum were considered:
    • Complemetary Infra
    • Applications as L3s for Arbitrum Orbit
    • Talent / Acquihire
    • Other L2s / Consolidation
    • Ecosystem Development
  • The following targets were of most intrigue:
    • Marketing Company (4 votes): as a potential acquihire, a marketing agency that is versed in web2 and web3.
    • BD/Partnerships (3 votes): to encourage strategically important projects to build on Arbitrum.
    • API/RPC Provider (3 votes): an infrastructure provider as a potential acquihire.
    • Stablecoin Issuer (3 votes)
    • zk Tech (3 votes)

II. Next Steps

  1. Entity Structure: Refine entity structure with additional DAO steering bodies
  2. Legal Workstream: Continue exchange with Foundation and other relevant parties
  3. Collaboration with ARDC: Define ways to collaborate with ARDC on strategic target research and other topics
  4. Review Omnbius Proposal: Review DAO Omnibus Proposal and assess if M&A group should be part of it
  5. Target Areas: Take group exercise and turn into day-1 target view that is ready to be refined by other groups (e.g., ARDC)

CCing: @krst, @AlexLumley, @lino, @raam, @DisruptionJoe @stonecoldpat @cliffton.eth @coinflip @dk3 to keep you up to date.


As your delegate representative, I want to express my appreciation for the work you’ve been doing. Your efforts and exploration into Arbitrum DAO mergers demonstrate your commitment and enthusiasm for community development. I look forward to more people joining our decision-making process to ensure we make the best choices and drive Arbitrum forward. Let’s work together to create a more prosperous future for our community.


Summary: M&A Working Group Call #3 (April 3)

Thank you all for another productive working group call! Find below key items of discussion.

Telegram Group: Invite

Current working docs: Legal; Proposal draft (please request access individually)

Recording: Call #3 April 3

Looking forward to the next call!

I. Main Discussions and Decisions

  1. Operational Structure Amendments
  • Went through final amendments to the operational structure:
    • Added the Arbitrum DAO Steering Committee to have oversight over the Mgmt. Co. and will have veto rights over certain actions of the Mgmt. Co.
    • Outlined the responsibilities in detail in the shared document that is in the group.
    • Added the ARDC as the Technical Research Advisory Board to 1) identify targets, 2) continuously refine the targets, and 3) feed into the commercial and technical DD when a deal is being pursued.
    • Added a dedicated legal party; could either be from the AF or a dedicated party. The M&A Mgmt. Co. could procure the outside legal counsel, draw up a budget, and present it to the DAO.
  • Most of the mandates of the OpCo could match the M&A WG which could be a tool to execute some of these mandates. This comes down to what, effectively, is the goal - we could merge with an entity for aqui-hire, we could get a marketing company which would match the marketing mission of the OpCo, etc. This could be the execution arm if there is interest in any mandate of the OpCo.

  1. Strategic Target Exploration
  • Ran through outcome of initial exercise to define key themes and identify areas of interest as targets. This perspective is intended solely as an additional point of reference.
  • Should this initiative move further, a comprehensive analysis of target areas will be conducted from both strategic and financial perspectives. Additionally, a widespread survey across the DAO will be carried out to further refine these areas.
  • Find output of last weeks exercise below:

II. Next Steps

  1. Legal Workstream: Drive Foundation legal workstream [AF] + add other legal precedents [Working Group] (Check with PaperImperium (insights from MakerDAO holding assets); Northlake (has done work on Equity set-up); dK on OpCo )
  2. Solve outstanding topics: ROI measurement; Roles definition; Reporting details; Day-1 Funding ask
  3. Share 90% version for review: Involve WG, delegates, foundation, relevant committees

CCing: @krst, @AlexLumley, @lino, @raam, @DisruptionJoe @stonecoldpat @cliffton.eth @coinflip @dk3 to keep you up to date.

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Summary: M&A Working Group Call #4 (April 10)

Thank you all for another productive working group call!

After turning around comments from last week - we put our thoughts into a proposal to continue iteration publicly on the forum: M&A for Arbitrum DAO

Helpful links below:

Now collecting detailed feedback on the proposal.
We will present the status on the next Governance call on 23rd April.

I. Main Discussions and Decisions

Detailed Proposal Amendments

  1. Limit differences between organizational structures

    • Highlight how we work together with other initiatives
    • Integration with OpCo
  2. Double-click on other phases

    • Details on deliverables, timelines, cost, and outcomes
  3. Costs:

    • Show cost plan for entities, incl. set-up costs and operating costs
    • Outline funding amounts and different options for fund sizes
  4. Highlight Commitment of Operator Areta

  5. Outline the end goal of unit

    • Strategic objectives and ROI (soft-level)
  6. Detail out flow of funding

    • Funding facility - How does it work
    • When does DAO vote?; How does DAO Steering Committee vote work.

II. Next Steps

After turning around comments from last week - we put our thoughts into a proposal to continue iteration publicly on the forum: M&A for Arbitrum DAO

CCing: @krst, @AlexLumley, @lino, @raam, @DisruptionJoe @stonecoldpat @cliffton.eth @coinflip @dk3 to keep you up to date.

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Summary: M&A Working Group Call #5 (April 17)

Thank you all for another productive working group call!

We had another round of sharpening the edges of the current proposal that is live on the forum: M&A for Arbitrum DAO

Helpful links below:

We just presented the current status on the next Governance call on 23rd April and collecting last rounds of feedback on and off the forum.

Next Steps

As announced in the last Governance call, the coming working group call will be used to wrap up the WG’s work over the last 6 weeks and present next steps as we’ve received sufficient input to move forward. Discussion will continue on the forum and in our TG group.
Thanks to everyone involved until here - it’s been a blast!

CCing: @krst, @AlexLumley, @lino, @raam, @DisruptionJoe @stonecoldpat @cliffton.eth @coinflip @dk3 to keep you up to date.

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Summary: M&A Working Group Call #6 (April 24)

We had a last great call together with the working group - recapping on progress over the last 6 weeks and discussing the way forward in more detail.

Essence of the discussion were three major updates:

  1. As the outcome of the 6 weeks M&A working group, we will post detailed amendments on the forum.
  2. The legal workstream is solved for now with GCP and the foundation - which comprises an initial entity structure that the foundation supported us with. The way forward here is that the GCP will use the entity structure (for when it passes on-chain vote), and we will piggy back on their learnings at point of operationalization.
  3. After recapping the working group progress and posting amendments, we are now ready to take next steps as outlined below.

Next steps

With the amendments in place and a perceived level of positive interest across the DAO, we aim to move the M&A pilot phase to Snapshot by the end of the week.

  • Any feedback on this, whether on or off the forum, is greatly appreciated.

The pilot phase (as detailed in the proposal) will entail an 8-week sprint with a focus on:

  1. Analysis of M&A value upside for Arbitrum DAO, incl. benchmarking
  2. Development of strategic areas for Arbitrum DAO supported by in-depth analyses, incl. alignment of target areas with key stakeholders in the DAO
  3. Analyses of target examples and presentation to the DAO

The 8 weeks will further be used to provide an extensive platform for discussion before moving to the operationalization phase

Helpful links:

  • M&A Pilot Phase Proposal: here
  • M&A Core Proposal: here
  • M&A Telegram Group: here
  • Easy-to-digest Video Summary (s/o to Sinkas): here