Merit Circle and YGG Caught In a DAO Governance Dispute Over an Investment Refund

Last year, Yield Guild Games invested $175,000 in Merit Circle, but a recent DAO proposal seeks to remove the company and refund the seed investment.

May 26, 2022
by Anvi Saini
Merit Circle and YGG  Caught In a DAO Governance Dispute Over an Investment Refund

Two prominent names in the play-to-earn industry are finding it hard to reach an agreement after a member of Merit Circle’s decentralized autonomous organization (DAO) proposed to remove Yield Guild Games (YGG) as an investor.

The proposal was introduced after YGG's underwhelming response to investors' requests for an explanation of their "past and future" intentions toward the DAO. Both Yield Guild Games and Merit Circle offer scholarship opportunities for P2E games. Players particularly from developing countries can borrow NFTs which serve as a game entrance fee. In exchange, the player has to send back a cut of the in-game earnings.

Last year in October, YGG invested $175,000 in Merit Circle to expand its scholarship program. However, a number of key members of the Merit Circle DAO believe that this investment is insufficient in terms of added value. The members expected YGG to bring in more investors as well as provide social media coverage.

DAO member and investor at Sad Cat Capital wrote :

“Unfortunately, we were disappointed with YGG’s response, as it demonstrates how little value they have added over the past [seven] months. As a VC firm ourselves, we take pride in the activism we do for projects that we love.”

According to YGG, the agreement between the two DAOs was only an exchange of tokens for capital, with no mention of "value-add" services. Despite the fact that many DAO members have ‘strong’ opinions about YGG’s role, the investment contract was signed by Merit Circle Ltd and is controlled by Merit Circle’s executives and early investors.

While DAO members can submit an improvement proposal for voting, it's unclear whether the signed agreement includes a clause that allows the DAO to cancel and refund the investment, making any such proposal non-binding.

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