At the center of Web 3, there’s decentralization: Web 3’s alleged purpose of redistributing ownership, decision power, and revenue between those who add actual value to a project, which more often than not includes the people formerly known as customers. Decentralization is a big deal. It has technical, architectural, legal, and political implications, and it challenges many preconceptions about how organizations work. It is a polarizing subject, too. While many people are devoting their lives to the purpose of true decentralization, others consider it little more than a marketing gimmick.

Twitter founder and Block CEO Jack Dorsey is one of the most vocal skeptics of Web 3’s power to redistribute ownership. Jack is a true believer in Bitcoin and a supporter of crypto’s potential to disrupt the existing power dynamics between governments, investors, corporations, and end-users. But from his point of view, decentralization in Web 3 is a hypocritical revision of the same-old relationships, where wealthy venture capital investors are just surreptitiously replicating the old VC incentive structure.

https://twitter.com/jack/status/1473139010197508098?ref_src=twsrc^tfw

The state of affairs in this battle between true decentralization and VC power can be witnessed live these days on a vote held by Merit Circle.

Merit Circle is a gaming DAO launched in late 2021 “with the aim of bringing social entrepreneurship, gaming and generating yield, all the while investing in the metaverse, together.” Their areas of activity include coordinating a guild of gamers for Play-to-Earn platforms, creating a marketplace for gaming NFTs, and investing in sister GameFi projects.

In October 2021, they closed a $4,5M seed funding round that included industry leaders such as DeFiance Capital, Mechanism Capital, Spartan Group, DCG, Maven11, OP Crypto, Dialectic, CitizenX, Yield Guild Games, and Bitscale Capital.

We’re very proud to have the support of some of the largest names in the industry. Through a seriously oversubscribed round of funding, we selected only those who could contribute to the long-term success of the Merit Circle DAO.

But Merit Circle DAO members are not too happy with some of the VCs, and they want to erase/rewind.

The Merit Circle team addressed some community concerns in a forum post in late April. The DAO members had raised questions about the added value from the early stakeholders involved in the seed round, so the team requested investors to respond to a few questions. Mainly, what their contribution had looked like to date, and what they were planning to bring to the table in the future.

Some firms like Maven 11, Mechanism Capital, or Defiance Capital responded swiftly. Yield Guild Games, on the other hand, was sluggish and vague. The DAO was not happy.

Let’s take a moment to remember what YGG is about. Yield Guild Games was a pioneering gaming guild founded in the middle of the Axie Infinity fever. In August 2021, YGG became Andreessen Horowitz’s first immersion in Play-to-earn through a $4.6M investment. GP Arianna Simpson explained that a16z was tapping into the new concept of “job” the digital economy was creating. As a result, Yield Guild Games would become one of the most well-known names in play-to-earn gaming and, like so many other crypto firms, turn into a VC themselves.

YGG’s investment in Merit Circle might have come as a surprise, as this gaming DAO was a potential competitor in the gaming guild space. However, YGG brushed off the concerns claiming that they were interested in making the pie bigger for everyone.

But suspicions returned in May after YGG failed to provide any evidence of added value following their investment in Merit Circle or, for that matter, any serious interest in responding to the community’s concern.

The backlash was harsh. “Honey Barrel - The Freefolk Fellowship” championed a proposal to remove Yield Guild Games from the early investors. They suggested refunding them the money and waving them goodbye.

Henlo. This proposal aims to demonstrate the lack of value YGG has provided the DAO since becoming a seed investor. It also aims to cancel YGG’s SAFT, refund their initial investment, and remove their MC seed tokens.

Merit Circle: A New Era was the epic name of the thread, and it soon became the most active conversation in the history of Merit Circle’s forum. Most DAO members seemed to agree with Honey Barrel in their assessment of YGG’s contribution, and YGG had to respond. They edited their initial forum response to add some more detail (which the DAO considered still too vague) but also went on the offense on their blog.

In September 2021, YGG entered into a Simple Agreement for Future Tokens (SAFT) with Merit Circle Ltd to participate in their seed investment round to help get them off the ground. This seed funding was provided in exchange for future tokens to be deployed according to a pre-defined vesting schedule. There were no conditions in the SAFT that relate to “value-add” services. It only called for the investment of capital.

YGG makes one fundamental claim in their post: their investment was an agreement with Merit Circle Ltd, not with the DAO. They are not the same, and they do operate under different rules. The fact that the investment involved tokens created the illusion that the members of the community and the early investors were playing the same game. The “value-add” services were a condition expressed by the project through informal channels but were never inked into the agreement.

Here lies the crux of the matter. The Merit Circle crisis represents the collision between two worlds that are still finding their footing in the web 3 ring.

In the red corner, some Venture Capitals are still trying to play by the old rules. They sign favorable investment agreements behind closed doors, where there’s a mere exchange of funds with the promise of future profit.

In the blue corner, DAOs yield their power as a community and expect investors to participate in the ethos of crypto, contribute to the community and often even give up their oversized power.

VCs have the law on their side. No DAO can legally challenge a contract between two consenting parties, especially since most of them are not even legal entities. But DAOs have the power of the community, and web 3 is a very competitive arena. Community members can migrate and render any project virtually useless if they feel they are being mistreated and decide to abandon it.

Merit Circle, the DAO, finally voted YGG out. The community voted “Yes, with a clause,” where “the clause” was a condition requested by Merit Circle, the company. The team asked for two weeks to deliberate with YGG on the least harmful exit for the VCs. The DAO complied.

Jack was wrong this time. The community was able to take the wheel and steer based on the power of their moral authority and the threat of delegitimizing a project that depends on the trust and commitment of its users. It probably isn’t so in every case, and VCs are indeed holding a privileged position in many projects that claim to be community-owned and decentralized. Web 3 lives in a gray area where the power dynamics of big fish, retail investors, entrepreneurs, and customers are being re-designed.

At the center of Web 3, there’s decentralization: Web 3’s alleged purpose of redistributing ownership, decision power, and revenue between those who add actual value to a project, which more often than not includes the people formerly known as customers. Decentralization is a big deal. It has technical, architectural, legal, and political implications, and it challenges many preconceptions about how organizations work. It is a polarizing subject, too. While many people are devoting their lives to the purpose of true decentralization, others consider it little more than a marketing gimmick.

Twitter founder and Block CEO Jack Dorsey is one of the most vocal skeptics of Web 3’s power to redistribute ownership. Jack is a true believer in Bitcoin and a supporter of crypto’s potential to disrupt the existing power dynamics between governments, investors, corporations, and end-users. But from his point of view, decentralization in Web 3 is a hypocritical revision of the same-old relationships, where wealthy venture capital investors are just surreptitiously replicating the old VC incentive structure.

https://twitter.com/jack/status/1473139010197508098?ref_src=twsrc^tfw

The state of affairs in this battle between true decentralization and VC power can be witnessed live these days on a vote held by Merit Circle.

Merit Circle is a gaming DAO launched in late 2021 “with the aim of bringing social entrepreneurship, gaming and generating yield, all the while investing in the metaverse, together.” Their areas of activity include coordinating a guild of gamers for Play-to-Earn platforms, creating a marketplace for gaming NFTs, and investing in sister GameFi projects.

In October 2021, they closed a $4,5M seed funding round that included industry leaders such as DeFiance Capital, Mechanism Capital, Spartan Group, DCG, Maven11, OP Crypto, Dialectic, CitizenX, Yield Guild Games, and Bitscale Capital.

We’re very proud to have the support of some of the largest names in the industry. Through a seriously oversubscribed round of funding, we selected only those who could contribute to the long-term success of the Merit Circle DAO.

But Merit Circle DAO members are not too happy with some of the VCs, and they want to erase/rewind.

The Merit Circle team addressed some community concerns in a forum post in late April. The DAO members had raised questions about the added value from the early stakeholders involved in the seed round, so the team requested investors to respond to a few questions. Mainly, what their contribution had looked like to date, and what they were planning to bring to the table in the future.

Some firms like Maven 11, Mechanism Capital, or Defiance Capital responded swiftly. Yield Guild Games, on the other hand, was sluggish and vague. The DAO was not happy.

Let’s take a moment to remember what YGG is about. Yield Guild Games was a pioneering gaming guild founded in the middle of the Axie Infinity fever. In August 2021, YGG became Andreessen Horowitz’s first immersion in Play-to-earn through a $4.6M investment. GP Arianna Simpson explained that a16z was tapping into the new concept of “job” the digital economy was creating. As a result, Yield Guild Games would become one of the most well-known names in play-to-earn gaming and, like so many other crypto firms, turn into a VC themselves.

YGG’s investment in Merit Circle might have come as a surprise, as this gaming DAO was a potential competitor in the gaming guild space. However, YGG brushed off the concerns claiming that they were interested in making the pie bigger for everyone.

But suspicions returned in May after YGG failed to provide any evidence of added value following their investment in Merit Circle or, for that matter, any serious interest in responding to the community’s concern.

The backlash was harsh. “Honey Barrel - The Freefolk Fellowship” championed a proposal to remove Yield Guild Games from the early investors. They suggested refunding them the money and waving them goodbye.

Henlo. This proposal aims to demonstrate the lack of value YGG has provided the DAO since becoming a seed investor. It also aims to cancel YGG’s SAFT, refund their initial investment, and remove their MC seed tokens.

Merit Circle: A New Era was the epic name of the thread, and it soon became the most active conversation in the history of Merit Circle’s forum. Most DAO members seemed to agree with Honey Barrel in their assessment of YGG’s contribution, and YGG had to respond. They edited their initial forum response to add some more detail (which the DAO considered still too vague) but also went on the offense on their blog.

In September 2021, YGG entered into a Simple Agreement for Future Tokens (SAFT) with Merit Circle Ltd to participate in their seed investment round to help get them off the ground. This seed funding was provided in exchange for future tokens to be deployed according to a pre-defined vesting schedule. There were no conditions in the SAFT that relate to “value-add” services. It only called for the investment of capital.

YGG makes one fundamental claim in their post: their investment was an agreement with Merit Circle Ltd, not with the DAO. They are not the same, and they do operate under different rules. The fact that the investment involved tokens created the illusion that the members of the community and the early investors were playing the same game. The “value-add” services were a condition expressed by the project through informal channels but were never inked into the agreement.

Here lies the crux of the matter. The Merit Circle crisis represents the collision between two worlds that are still finding their footing in the web 3 ring.

In the red corner, some Venture Capitals are still trying to play by the old rules. They sign favorable investment agreements behind closed doors, where there’s a mere exchange of funds with the promise of future profit.

In the blue corner, DAOs yield their power as a community and expect investors to participate in the ethos of crypto, contribute to the community and often even give up their oversized power.

VCs have the law on their side. No DAO can legally challenge a contract between two consenting parties, especially since most of them are not even legal entities. But DAOs have the power of the community, and web 3 is a very competitive arena. Community members can migrate and render any project virtually useless if they feel they are being mistreated and decide to abandon it.

Merit Circle, the DAO, finally voted YGG out. The community voted “Yes, with a clause,” where “the clause” was a condition requested by Merit Circle, the company. The team asked for two weeks to deliberate with YGG on the least harmful exit for the VCs. The DAO complied.

Jack was wrong this time. The community was able to take the wheel and steer based on the power of their moral authority and the threat of delegitimizing a project that depends on the trust and commitment of its users. It probably isn’t so in every case, and VCs are indeed holding a privileged position in many projects that claim to be community-owned and decentralized. Web 3 lives in a gray area where the power dynamics of big fish, retail investors, entrepreneurs, and customers are being re-designed.