DAO votes to give $5M seed money back to YGG openly breaking contract
In May, the MerÂit CirÂcle DAO votÂed in favor of a proÂposÂal to remove one of its seed investors and return their iniÂtial investÂment. The proÂposÂal claimed that Yield Guild Games had not offered sufÂfiÂcient valÂue beyond their fisÂcal investÂment. Today, MerÂit CirÂcle Ltd and Yield Guild Games issued a joint stateÂment.
The Proposal
The proÂposÂal named MIP-13 “aimed to demonÂstrate the lack of valÂue YGG has proÂvidÂed the DAO since becomÂing a seed investor.” It continues,
“It also aims to canÂcel YGG’s SAFT, refund their iniÂtial investÂment, and remove their MC seed tokens.
The author of this proÂposÂal, proÂposÂes to find a soluÂtion to terÂmiÂnate the finanÂcial obligÂaÂtions the MerÂit CirÂcle DAO has with YGG, through removÂing YGG’s seed tokens and refundÂing their iniÂtial 175K USDC contribution.”
AccordÂing to the notes added to the proÂposÂal, “YGG and YGG co-founder GabÂby Dizon investÂed $175k at a price of $0.032, which gives them 5,468,750 MC tokens in total.” By refundÂing YGG in USDC, it would miss out on unreÂalÂized gains as the token peaked at $0.99 on May 28, the day the proÂposÂal passed. The proÂposÂal was latÂer updatÂed with the folÂlowÂing paraÂgraph after YGG agreed to setÂtle out of court to avoid a lengthy trial.
“MerÂit CirÂcle ltd has argued for a clause, that will give time for MerÂit CirÂcle ltd and YGG to proÂpose a soluÂtion that would be more benÂeÂfiÂcial for the DAO and all parÂties involved in case of a YES vote. Author deemed this a fair ask and acceptÂed the clause.”
In an update to the comÂmuÂniÂty forum post where the proÂposÂal was iniÂtialÂly sugÂgestÂed, the author states:
“it is worth menÂtionÂing that YGG didn’t even have a govÂerÂnance account, or any govÂerÂnance posts until two weeks ago. We’re talkÂing over half a year of nothing.”
The Counterproposal
With supÂport from Yield Guild Games, MIP-14 was subÂmitÂted by MerÂit CirÂcle Ltd as a counÂterÂproÂposÂal in alignÂment with the amendÂment to MIP-13.
“In light of the recentÂly passed proÂposÂal (MIP-13), the MerÂit CirÂcle DAO is obligÂed to reneÂgoÂtiÂate the terms of the finanÂcial agreeÂments made between the DAO and Yield Guild Games.
This proÂposÂal votes on the following;
- The MerÂit CirÂcle DAO buys out the YGG and Nifty Fund alloÂcaÂtion, a total of 5,468,750 $MC tokens at 0.32$. For a total of $1,750,000 USDC.
- A legal agreeÂment will be signed, enforcÂing the buy-out offer legalÂly and proÂtectÂing both sides against future litigation.”
Yield Guild Games acceptÂed 30 cents on the dolÂlar and a 10X return on its iniÂtial investÂment. AccordÂing to our coin data, MerÂit CirÂcle (MC) has $4.6 milÂlion in daiÂly volÂume. ThereÂfore, had Yield Guild Games attemptÂed to sell its 5.4 milÂlion unlocked tokens on the open marÂket, it would most likeÂly crash the price. As a result, $0.32 per token may not be as bad a deal as it looks if it had planned to liquidate.
The Legal Debate
MerÂit CirÂcle DAO was set up by MerÂit CirÂcle Ltd, which received investÂment from Yield Guild Games. MerÂit CirÂcle DAO decidÂed that Yield Guild Game’s origÂiÂnal investÂment should be returned due to a lack of value.
Yield Guild Games investÂed in MerÂit CirÂcle Ltd, not MerÂit CirÂcle DAO, so the legal impliÂcaÂtions of the deciÂsion are murky. If MerÂit CirÂcle DAO has the legal right to manÂage the funds investÂed by Yield Guild Games, then there is a layÂer of sepÂaÂraÂtion that could put Yield Guild Games’ capÂiÂtal at risk. MerÂit CirÂcle DAO did not vote to revoke Yield Guild Games’ investÂment but returned the investÂment at its origÂiÂnal value.
It is unlikeÂly that a legal preceÂdent has been set to define the legal relaÂtionÂship between a DAO and its foundÂing company’s conÂtracÂtuÂal obligÂaÂtions. The uncerÂtain legal landÂscape and the posÂsiÂbilÂiÂty of a lengthy legal batÂtle likeÂly facÂtored into the deciÂsion to setÂtle. In the forum post for MIP-14, MerÂit CirÂcle Ltd statÂed, “both parÂties have givÂen it their all to work things out in a friendÂly but proÂfesÂsionÂal way.”
It appears that MerÂit CirÂcle Ltd and MerÂit CirÂcle DAO were not comÂpleteÂly aligned, at least pubÂliÂcalÂly. MerÂit CirÂcle Ltd claims that
“It is clear there needs to be a more clear alignÂment between the absolute powÂer of the DAO and the agreeÂments it makes in the past, present and future.”
It is posÂsiÂble that DAO memÂbers withÂin MerÂit CirÂcle Ltd did not realÂize the impliÂcaÂtions of MIP-13 as it comÂmentÂed when it passed, “what may seem benÂeÂfiÂcial for an orgaÂniÂzaÂtion at first glance can bring seriÂous adverse effects in the long-run.”
The Joint Statement
On June 14, 2021, some 16 days after MIP-13 passed, MerÂit CirÂcle Ltd and Yield Guild Games issued a joint stateÂment adding valÂue beyond fisÂcal supÂport “was not a requireÂment of the origÂiÂnal SAFT that was signed by MerÂit CirÂcle Ltd and Yield Guild Games.” It furÂther states, “Yield Guild Games added valÂue in many difÂferÂent ways although they were not often called upon to do so.”
The stateÂment acknowlÂedges the “danÂger a preceÂdent like this could set for the MerÂit CirÂcle DAO and the indusÂtry as a whole if agreeÂments are not upheld, and investors are not respectÂed.” It also outÂlines five core conÂtriÂbuÂtions Yield Guild Games made to MerÂit CirÂcle since its investÂment. The conÂtriÂbuÂtions allegedÂly involve supÂport in raisÂing addiÂtionÂal funds, using the YGG brand, offerÂing addiÂtionÂal funds, and indusÂtry advice.
Legal Implications
Yield Guild Games will be comÂpenÂsatÂed at a price of $0.32, and any “forÂmal relaÂtionÂship between the MerÂit CirÂcle DAO and Yield Guild Games” will be terÂmiÂnatÂed. Whether this forÂmal relaÂtionÂship legalÂly existÂed is the subÂject of the entire debate. HowÂevÂer, adding this clause closÂes the door to future potenÂtial litigation.
While this inciÂdent did not end in court, it highÂlights a potenÂtial danÂger for investors conÂcernÂing DAO-based projects. Would Yield Guild Games have won in court? We’ll nevÂer know, but perÂhaps we’ll now see more DAOs test the boundÂaries of this strange new digÂiÂtal world.