Inverse Finance

Will Inverse set a precedent for protocols acquiring protocols?

In a possible decentralized finance (DeFi) first, Inverse Finance’s governance has approved today a proposal to buyout Tonic Finance in a $1.6 million-dollar deal that will bring Tonic under Inverse’s umbrella. 

First floated after “weeks of negotiation” in early April, members of the Inverse Finance DAO began voting yesterday on a proposal to acquire Tonic and hire its solo developer, Tony Snark.

The proposal quickly crossed the 4000 token approval mark and as of today is set to pass — notably without a single dissenting vote.

That feeling when your DAO is completely aligned in vision. Imagine how much you can get done.

Congrats on @InverseFinance Fam for approving a Protocol Merger Onchain!@voteWithTally pic.twitter.com/wZZSvhMzMs

— Dennison Bertram (@DennisonBertram) April 29, 2021

As a result, Snark will receive 250 INV — Inverse’s native governance token — immediately, and is set to receive another 250 upon “becoming a full-time contributor” as well as an additional 1000 INV vested over two years. Tonic, which built dollar-cost averaging vaults (a competitor to Inverse’s initial product), will continue to operate under the Inverse umbrella. 

“Tony will be joining Inverse as a full time dev to lead the entire Inverse DCA product lineup including both our yield vaults and the acquired Tonic Finance Swirl vaults,” said Inverse Finance founder Nour Haridy of the vote.

While there has been some talk and speculation about mergers in DeFi, there’s been little actual traction. The closest instance was last year’s string of “mergers” from Yearn.Finance, but the nature of those acquisitions are somewhat muddled.

In an interview with Cointelegraph, Leo Cheng of C.R.E.A.M. Finance teased that there may eventually be a YFI ecosystem meta-token, but at the moment the relationships are closer to a loose, supportive collective focused on individual projects.

By contrast, the Inverse/Tonic merger is much closer to what one would see in the traditional finance world, where both the tech and the developers come aboard. This was aided in part by the fact that Tonic did not have a governance token, and negotiations could take place with Snark directly.

“A governance token would make an acquisition a lot more complicated since it’s not possible to market-buy the entire token supply,” Haridy told Cointelegraph. “If we skip buying the governance token, then the token becomes useless. I think it’s worth exploring better ways to acquire projects with governance tokens though.”

A full-time contributor working on DCA vaults means Nour now has more time to devote to Anchor, Inverse’s synthetic stablecoin protocol. The expansion is potentially one step into turning Inverse into a fully-fledged DeFi ecosystem in the mould of 1inch or Sushiswap, which both now offer multiple services.

“We’re headed towards decoupling each product from the Inverse brand. Our existing DCA vaults will likely be branded under Tonic similar to how our lending product is branded as Anchor. Both may have their own core devs, marketing, domains, communities, etc under the umbrella and the funding of Inverse DAO,” said Haridy.

Haridy added that he’s hopeful there will be more DAO-based merger and acquisition activity after Inverse has now paved the way — and that Inverse itself might be open to further acquisitions.

“I hope that our work here sets a new precedent for projects merging with DAOs instead of going public. We certainly plan on exploring more M&A opportunities In the future. We’re also open to talk to any new DeFi projects out there at any stage.”