Rari Capital, Fei Protocol Look to Overcome Bagholder Bias in Ambitious DeFi Merger

By November 23, 2021DeFi
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Last week, two major decentralized finance (DeFi) protocols proposed an ambitious merger that could create a lending and liquidity powerhouse.

Untangling the details of how to combine two decentralized entities, however, is proving to be a complicated affair.

On Nov. 16, Rari Capital co-founder Jai Bhavnani and Fei Protocol founder Joey Santoro each made a proposal in their counterpart’s governance forums: combine lending protocol Rari and stablecoin protocol Fei via a token merger agreed upon by each’s decentralized autonomous organization (DAO) governance.

The joint protocols would immediately command over $2.4 billion in total value locked (TVL), provide a unique combination of stablecoin minting and money markets, and serve as a proof-of-concept for future DeFi mergers – a trend that was widely predicted to flourish at the end of 2020 but has largely failed to materialize due to inherent DAO complexities.

A DAO is a group of people on the internet using various tools to exercise governance decisions in a variety of areas.

In Fei and Rari’s case, a number of factors stand in the way, including a pair of investor communities suspicious of one another, a token exchange rate that is the subject of some scrutiny and a number of details at the “social layer” that requires mutual trust.

However, both teams believe not only that the merger is the best way forward for their respective protocols, but that they can also push it through.

“This is not a done deal, but the core teams are committed to this,” Santoro said in a Fei community call last Thursday. “A treasury swap’s not good enough. We want to be fully incentive-aligned to do this together, to build really powerful integrations that aren’t just surface-level, and that only happens when you’re working under the same token.”

Synergies

On a surface level, a merger makes natural sense.

The two protocols are already closely aligned. Many of Rari’s lending pools accept both Fei’s stablecoin, FEI, as well as the project’s TRIBE governance token, and this usage has allowed Fei to put its foot in the door of a stablecoin market largely dominated by USDC, USDT and DAI.

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