Ethereum Gaming DAOs Yield Guild, Merit Circle in Dispute Over Funding

As play-to-earn crypto gaming caught fire last year, so-called guild organizations gained prominence by supporting “scholars” with NFT assets and investing in up-and-coming games and startups. However, a deal inked last year between two prominent guilds appears to be fraying as a community-led dispute over funding and support has gained traction.

Yield Guild Games and Merit Circle are both DAOs (or decentralized autonomous organizations) that are focused on crypto games. The latter is the larger and more established of the pair, with backing from VC heavyweight Andreesen Horowitz and others. Last September, Yield Guild invested in Merit Circle’s seed round in exchange for its MC tokens at a discounted rate.

On May 20, a member of the Merit Circle DAO going by the name HoneyBarrel issued a proposal asking the community to vote on refunding Yield Guild’s original investment, canceling the Simple Agreement for Future Tokens (SAFT) between the DAOs, and removing its share of Merit Circle tokens.

Why? HoneyBarrel believes that Yield Guild has not provided enough support to Merit Circle. In a lengthy thread, the community member detailed ways in which other investors have been more actively engaged with Merit Circle, in their view, and have done more to help it grow.

The proposal has thus far garnered significant support from the community, based on positive replies to the thread, and prompted a response from DAO creators Merit Circle Limited.

“Needless to say, the proposal has not just taken the Web3 space by surprise, but has also taken us by surprise,” the firm wrote in a reply. “In hindsight, it was inevitable that DAO governance would come to these crossroads between law and law of code.”

A DAO is an online community united by shared interests or goals, whether it’s running a business, supporting a protocol, investing in crypto assets or NFTs, or other aims. Often a DAO has its own governance token, as both Yield Guild and Merit Circle do on Ethereum, and token holders can vote on proposals regarding decisions that affect the community and its aims.

Merit Circle Limited wrote that canceling a seed funding agreement “could have serious adverse effects” on the DAO’s reputation, but that it also wants to cede to community-led governance. “As an ltd we would like to honor all agreements, however we have to balance that with the power of the DAO,” they wrote. “The DAO holds the ultimate power here.”

The DAO creators asked for a two-week delay in the proposed actions, as well as an additional week to create a counter-proposal to allow a “resolution for all parties in a timely manner after the vote.”

In a statement posted on Wednesday, Yield Guild Games wrote that its agreement with Merit Circle did not include any stipulations regarding “‘value-add’ services,” only the “investment of capital.” The post claims that Yield Guild has helped Merit Circle land coverage in editorial publications and introduced the team to potential additional investors, amid other support.

Yield Guild also contends that it worked with Merit Circle Limited to produce a response that it thought would “quell public pressure, provide meaningful context to the DAO, and fulfill its obligations to YGG.” However, Yield Guild suggested that the response lacked its input. As the quotes above suggest, Merit Circle Limited appears open to the DAO’s wishes on the proposal.

“We have always looked to be collaborative not combative with our partners—this is the basis of strong partnerships,” Yield Guild wrote. “We support partners like Merit Circle so that we can build a better play-to-earn ecosystem together. We do not see this as a zero-sum game, especially when we seek to develop alongside one another in many of the same virtual economies.”

Founders of many startups that Yield Guild Games has invested in and supported—including Metasports, reNFT, BAYZ, and Loot Squad—have tweeted out support for the DAO. As of this writing, it’s unclear when the Merit Circle proposal will go up for a vote.

Gaming guilds like Yield Guild and Merit Circle gained prominence last year when Ethereum-based monster-battling game Axie Infinity popularized the play-to-earn concept, yielding millions of daily players and generating billions of dollars’ worth of NFT trades.

However, that game has struggled mightily over the past six months as its economic model collapsed and token prices cratered. While both guilds have also invested in and partnered with other crypto games, their respective DAO tokens have likewise lost significant value: Yield Guild’s YGG token is down 95% from its peak, while Merit Circle’s MC is down 91%.