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Controversial Governance Proposal: Merit Circle proposes to revoke YGG's seed investor status due to insufficient contributions

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Controversial Governance Proposal: Merit Circle proposes to revoke YGG

The gaming guild Merit Circle recently proposed a controversial governance proposal, suggesting that its seed round investor YGG did not bring enough value to the DAO. Therefore, they are seeking to revoke YGG's investor status, refund the initial investment received, and confiscate the MC tokens in their possession.

Merit Circle Governance Proposal

The governance proposal by the gaming guild Merit Circle, known as the " New Era," primarily discusses the qualification of seed investors. When selecting seed investors initially, the Merit Circle team clearly informed the DAO and the community that these investors would bring significant value to Merit Circle.

Now, after six months, most investors such as DeFiance Capital and Mechanism Capital have met the community's expectations, but the gaming guild YGG is considered to have made little contribution to Merit Circle and there is a proposal to revoke its status.

YGG's Past Contributions

The proposer points out that YGG only created a governance account two weeks ago and has been inactive in the forum and community for the past six months. Additionally, based on the contribution report provided by YGG, it is found that its contributions to Merit Circle in the past six months have been minimal.

Here are YGG's contributions to Merit Circle:

  1. Published two articles on Yahoo Finance and Coindesk, with prices ranging from 500 to 1,000 USD.
  2. Shared Merit Circle posts on Twitter, Telegram, and Discord, but very infrequently.
  3. Introduced Merit Circle to other helpful early contributors.
  4. Co-invested in projects like Big Time, Cyball, and Fancy Bird.

Overall, the quantifiable contributions are too few, and the non-quantifiable aspects are overly vague, leading the proposer to believe that YGG is not a competent seed round investor for Merit Circle.

Furthermore, the proposer also believes that YGG continuously raises substantial funds by issuing tokens for its DAO without transparently disclosing its treasury assets, which contradicts Merit Circle's principles and practices.

Due to these reasons, the proposal suggests retrieving the MC tokens currently locked up, which were initially invested at a price of 0.032 USD for 175,000 USD, with the current price being 1.12, approximately 35 times higher, and returning them to the DAO. The initial investment amount received should also be returned directly to YGG, and its status as a seed round investor should be revoked.

This proposal has not yet been put to a formal vote, but the current community sentiment overwhelmingly favors it.

Potential Negative Effects of Proposal Approval

Although the community agrees with the proposal, Jason Choi, a partner at the crypto fund The Spartan Group, has expressed some concerns, believing that if the proposal is approved, it may have negative implications for Merit Circle.

Jason Choi thinks that if the community approves the proposal, the impact on YGG may not be as significant as imagined, but rather more of a criticism of Merit Circle's leadership capabilities. Therefore, he does not believe the proposal was put forth by knowledgeable insiders of Merit Circle but rather by investors who were rejected from participating in the seed round.

Furthermore, the community should focus on what objectives can be achieved after the proposal is approved and whether it is worth severing ties with industry players. Issues related to investment contributions should have been discussed before the investment, not after. If Merit Circle's goal is to obtain deliverables from YGG, then initially, they should have allowed YGG to play a role similar to that of a consultant and linked grants and locked tokens to KPIs.

Lastly, and most importantly, if a project can arbitrarily withdraw investments, it sets a precedent for funds and projects to initiate retaliatory and zero-sum actions under the guise of "ensuring long-term value."

Proposal Voting Results and YGG Statement Update on 6/15

The proposal was open for voting on 5/26, and on the same day, YGG released a statement through Medium. YGG mentioned that though they signed a Simple Agreement for Future Tokens (SAFT) with Merit Circle to participate in the seed round investment and help them get started, the SAFT contract did not include conditions related to "value-added" services, only requiring capital investment. YGG also cannot comprehend what legal authority the DAO possesses to render contracts signed by Merit Circle invalid.

Additionally, YGG detailed their contributions to Merit Circle in the article to help the community better understand the assistance they can provide.

However, the proposal was still overwhelmingly approved on 5/28, with an approval rate of 87.7%.

New Proposal: Decrease YGG Investment Returns

However, during the buffering period between the approval of the above proposal and its formal execution, a new proposal MIP-14 emerged. This proposal was self-proposed by Merit Circle, indicating the dilemma faced by Merit Circle on whether to abide by the contract terms with YGG or respect the DAO's voting outcome. Therefore, after the previous proposal was approved, discussions were held with YGG to find a more suitable solution.

The solution proposed in MIP-14 is to buy out YGG's seed round stake at a price of 0.32 USD per token, which is 10 times what YGG paid initially at 0.032 USD per token. This means that although YGG's status as a seed round investor will be revoked, they will still receive a portion of the profits from Merit Circle's token MC, which was priced at around 0.72 USD at the time of writing.

The voting for MIP-14 concluded last week with nearly 100% support for the proposal.

At present, the overall event seems to have come to a conclusion, as YGG and Merit Circle released a joint statement yesterday, officially ending their partnership.

In such an emerging industry, teams and companies are constantly exploring uncharted territories, and this event demonstrates the lack of a clear path to follow when agreements or governance conflict with existing laws. Whether it is choosing to go against the decentralized spirit of governance or the legal enforceability of contracts, it will have a significant impact on Merit Circle. How DAO governance can complement existing regulations in operations and development is a crucial issue that cannot be ignored.