A historic multimillion-dollar transaction between a layer 1 base network with devout followers and major Ethereum infrastructure builders may have encountered obstacles this week because some token speculators believe They may be deceived.

In this week’s governance forum proposal, Gnosis founder Martin Köppelmann formulated a plan to allow Ethereum development heavyweights to merge with xDai, which is a popular Ethereum sidechain and the oldest Tier 1 alternative one.

The merger will combine technical proficiency and a large amount of capital to create a "Gnosis Chain". This joint effort can help these two projects stand out in the crowded Layer 1 market, and currently forces the chain to spend hundreds of millions of dollars to incentivize developers and users.

However, not all parties support the merger. On the governance forum, holders of xDai’s STAKE token complained that the terms of the transaction were equivalent to a “hostile takeover” by Gnosis.

At the same time, as project manager Igor Barinov said in an interview with CoinDesk, the xDai team stated that injecting business development, marketing and funding from Gnosis may be what the chain needs to avoid becoming an “outdated, old-school, baby boomer network”.

"If we don't do this, if we don't introduce new capital, we will continue to be a chain of hipsters." He added.

Although it is widely expected that decentralized mergers and acquisitions may become a popular phenomenon in 2021, the xDai community's response to the proposed merger may be a case study of why few people have achieved results.

At the end of 2020, a large number of bloated protocol libraries in the decentralized finance (DeFi) ecosystem and a series of high-profile mergers and/or agreement cooperation from Year.Finance triggered widespread speculation that the market is entering the era of decentralized mergers and acquisitions – Moving forward, the agreement will strive to obtain other agreements through daily token purchases or governance actions.

However, with the exception of a few high-profile transactions, including the merger of the ICO veterans Keep and NuCypher to form Keanu, and the cross-blockchain bridge Ren "joining" Alameda Research, the merger has largely failed to materialize.

Part of the problem is that, unlike traditional mergers and acquisitions, merging organizations is not as easy as rebranding and exchanging some stocks. Calibrating how to manage and merge multiple governance tokens and their potential exchange rates can cause headaches. Reaching a consensus on the terms of a transaction in a decentralized autonomous organization (DAO) can be more difficult than in a board of directors.

As far as Gnosis and xDai are concerned, the merger is more like a process than an event. According to Gnosis Improvement Proposal 16 (GIP-16), in order to facilitate the merger, Gnosis will establish and fund an exchange contract that will accept xDai's STAKE staking reward tokens in exchange for GNO, Gnosis's native tokens. The currently proposed parameter for the exchange is a 10% premium to STAKE's 14-day time-weighted average price.

STAKE's current native reward system will depreciate over time, thereby further motivating holders to switch. GNO will become the new mortgage token of Gnosis Beacon Chain, and xDai will be renamed Gnosis Chain as a shard of Beacon Chain. The current xDai validators "will have the opportunity" to also become Gnosis Chain node operators.

In an interview with CoinDesk, Gnosis CEO Köppelmann stated that for all parts of the activity, the basis for determining the merger is not as complicated as some people expected.

"In the end [it] is surprisingly simple. I think if the team respects each other's work and shares the same values, you can quickly reach a meaningful agreement," he said.

As a derivative product of the Ethereum development giant ConsenSys, Gnosis has established good relationships with multiple infrastructure and tool organizations, and has a large number of GNO tokens-both of which are key assets that the technologically inclined xDai lacks.

Barinov of xDai told CoinDesk that lack of internal connections and large budget incentive plans have always been obstacles to xDai's adoption. xDai has only four employees in the marketing, operations, and business development departments.

"To bring blue chips on small chains, you need VC connections like Avalanche, Polygon, and Fantom [yes], or you need some reputation, which is also important, or you need users and incentives to bring business opportunities," he Said the merger.

He added that if the merger is successful, “xDai will have easier access to the source of all potential communities”.

As part of the proposal, Gnosis will also allocate 400,000 GNO tokens to various incentive plans of the new chain, currently valued at 200 million U.S. dollars. Incentive bridges and incentive ecosystems are increasingly becoming the norm, and various tiers 1 have been racing to attract users through increasingly liquid mining schemes.

Read more: Harmony provides $300 million for projects that want to expand beyond Ethereum

At the same time, xDai has long been a favorite of well-known developers. The chain is the location of Dark Forest, an avid on-chain game hits, data sharing protocol Swarm, and NFT badge manufacturer Proof of Attendance Protocol (POAP).

Barinov said that the merger between these two projects—combining incentive programs, business development seals, and a pre-existing developer community—is the key to distinguishing themselves in the increasingly crowded Layer 1 market.

"I don't know that any other industry has this kind of room for competition among leaders. Other industries have three, four, or five leaders — there are many here," he said.

However, the voices of the xDai community rejected the view that the merger was a mutually beneficial arrangement.

"The Gno merger is a hostile acquisition, and the loyal holders of Stake are being slapped in the face," one user wrote on the xDai governance forum.

"Xdai was bought for a few cents, and it is a damn gem. Long-term holders are being robbed," another wrote.

So far, in an informal poll, 59% of respondents said they do not support the merger. The core of many complaints is STAKE's exchange rate. Speculators at xDai have long believed that STAKE's price run has expired, similar to the amazing revenue Tier 1 tokens enjoyed by SOL, AVAX, MATIC, FTM and others last year.

However, due to possible legal issues, the exchange rate is unlikely to change. After the announcement of GIP-16, GNO rose to a high of US$625 from US$580 earlier in the day. Similarly, STAKE jumped from 16 USD to nearly 21 USD. Barinov warned that changing the terms of the transaction may now constitute market manipulation, but he does provide the STAKE community with additional compensation.

"We think the Gnosis team can respond to the community in some way and propose additional ways to compensate STAKE holders. Gnosis plans to split Gnosis Safe and Cowswap, and they will airdrop [these tokens] to current Gnosis holders. Yes," he said, adding that the wallet that enables the STAKE-GNO exchange may also be included in the possible airdrop.

In addition, the xDai team is planning to solve the problem through an AMA, and will conduct a snapshot vote in the next few weeks to assess the severity of the problem among verified STAKE holders.

Barinov also pointed out that apart from the fork chain, disgruntled STAKE holders may have little recourse.

"Technically, if Gnosis decides to sign a swap contract, they can't stop the swap from happening," he said.

Contrary to the reaction on the governance forums, many developers of xDai-based projects have publicly expressed support for the merger.

Members of the xDai project such as POAP, DAOSquare, and Colony all responded positively, while members of the xDai team constructed the debate from the perspective of builders and speculators.

"There are two competing interests here. There are STAKE people, who are mainly involved in STAKE transactions, and then those who use the chain and builders and developers who have not yet supported on public forums," said xDai technical writer Andrew Gross.

The xDai team admitted that it was “difficult” to see these ironies, and expressed disappointment that many people only focused on the exchange rate and ignored the essence of the proposal.

"The main part is not forking tokens or rebranding. The focus is on how to expand the ecosystem, work on popularizing basic income and other narratives, and expand existing partnerships," Barinov said.

"There are many positive factors here. There are many benefits in the future," he added.

As a leader in the news and information field of cryptocurrency, digital assets and the future of currency, CoinDesk is a media organization dedicated to achieving the highest news standards and complying with a series of strict editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrency and blockchain startups.

Andrew Thurman is a technical reporter at CoinDesk, focusing on DeFi.

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As a leader in the news and information field of cryptocurrency, digital assets and the future of currency, CoinDesk is a media organization dedicated to achieving the highest news standards and complying with a series of strict editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrency and blockchain startups.