Merit Circle and Yield Guild Games (YGG), a seed investment business, have agreed to a $1.75 million settlement after regular investors decided to remove YGG off the project.
- Merit Circle DAO and Yield Guild Games came to a settlement for $1.75 million (YGG).
- Members of the DAO voted to end their contract with Yield Guild Games.
- By coming to an agreement, the two sides were able to avoid going to court.
Members of Merit Circle's DAO overwhelmingly voted "to terminate the financial obligations [of] the Merit Circle DAO," claiming that YGG was not "adding value" to the company. The DAO also proposed that YGG only receive a refund of their initial $175,000 investment, making a total profit of zero dollars and zero cents.
That community vote put the company's development team, Merit Circle Ltd, in jeopardy. Merit Circle claims they were bound to follow out the DAO's intentions, but the vote endorsed a course of action that it describes as a "clear contractual violation."
Merit Circle DAO effectively forced Merit Circle to go to court with its own investors.
To make sense of the argument, USA GAG met with Clayton Roche, Head of Communications and Community at optimistic oracle provider UMA. According to Roche, problems develop when contracts seek to span many realms, such as the legal world and Web3.
In such cases, the norms of engagement remain hazy, and mistakes are possible.
"Whether there is a disagreement, it is unclear in which universe it might be settled, or if the relevant parties could even be invited to the table," said Roche, who is concerned about the consequences of abruptly excluding investors. "If things go wrong, we may see DAOs or investors hesitant to collaborate in the future owing to instances like this one."
Roche was not the only one to recognize a broader risk for crypto projects and their DAOs. While Merit Circle worked to remedy the problem, the DAO's choice to effectively rug yank its early investors was backfiring on social media.
"I'm not a member of this DAO, nor am I familiar with YGG, but it's difficult to see this as anything other than a horrific stain on web3's reputation," Tim Connors remarked in a Twitter thread that received over 1,500 retweets.
Connors, the CEO of education platform 101.xyz, went on to say that "if we want this business to survive, we'll need to engage with the off-chain world as well." This involves upholding legal obligations to investors."
Fortunately for all parties, Merit Circle and YGG confirmed their agreement in a joint statement made this Tuesday.
"While the legal matter may undoubtedly be discussed at length, all parties thought it was preferable to settle," they stated in a Medium post.
The settlement paid YGG $0.32 for each Merit Circle (MC) token they held, totaling $1.75 million on their initial $175,000 investment. While this is a substantial sum, it is still far less than YGG would have been entitled to.
As of press time, MC coins were trading at $0.7341.
Unexplored territories
Although DAOs have been used in the cryptosphere for some years, their widespread adoption is a relatively recent phenomena. There are certainly some kinks to work out, as with any new system or technology.
The disagreement between Merit Circle and YGG may be the first of its type, but it is unlikely to be the final time that members of the community inadvertently step on legal ground. Litigation appears to be nearly unavoidable in such cases. It's the type of problem that DAOs will naturally want to avoid.
"The greatest option would be to make the contracts completely DeFi native," Roche suggests. "With the assistance of an optimistic oracle, it is feasible to build on-chain contracts that define strategic support, including what occurs if such support is not provided." This transparently and uniformly enforces the whole procedure."
With the exception of the elegance of a onchain solution, credit must go to the teams at Merit Circle and YGG for successfully resolving a potentially ugly issue with both sides remaining reasonably undamaged.
This may not be Merit Circle's greatest hour, but in the midst of the crypto market's implosion, a near-miss tale must definitely rate as a dazzling success.
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