Yield Guild Games: Official Statement Regarding Merit Circle Proposal
As many people are already aware, a community-led proposal has been put forward by the Merit Circle community regarding YGG’s earlier investment in Merit Circle Ltd.
We have been working closely with the Merit Circle Ltd founding team to firstly understand and then attempt to resolve this matter. After multiple days of communicating with them in the hopes of a reasonable resolution, YGG is issuing the following statement so that our community can better comprehend the issue at hand and the potential implications for the wider Web3 community.
In September 2021, YGG entered into a Simple Agreement for Future Tokens (SAFT) with Merit Circle Ltd to participate in their seed investment round to help get them off the ground. This seed funding was provided in exchange for future tokens to be deployed according to a pre-defined vesting schedule. There were no conditions in the SAFT that relate to “value-add” services. It only called for the investment of capital.
On 20 May 2022, a member of Merit Circle’s community made a proposal to cancel YGG’s SAFT on the basis that we had not added enough value.
This post highlighted two clear issues to the YGG team: firstly, it had not been made clear to the wider community that YGG had in fact provided meaningful value to Merit Circle; and, secondly, that the community did not understand that the signed SAFT had neither a mechanism for such action nor any call for the delivery of services beyond the investment of capital.
Once YGG became aware of the post, rather than enter a public argument about the SAFT with parties that were not the signatory, YGG reached out to Merit Circle Ltd to navigate the situation.
The YGG team worked with Merit Circle Ltd extensively under the impression that it was Merit Circle Ltd’s goal to quell public pressure, provide meaningful context to the DAO, and fulfil its obligations to YGG.
After days of communication, Merit Circle Ltd opted to issue a request to the original poster to edit their proposal to provide an additional two weeks so that an alternative proposal can be put forward.
The below screenshot is an excerpt from Merit Circle Ltd’s post.
Unfortunately, many contributions to this post that we had discussed together prior to it being published, were removed. It is not clear to us why Merit Circle Ltd walked back these parts of the response — so we will outline them later in this article.
Referring to the above screenshot, in the two final paragraphs, we agree that it is very clear that “value-add” is not part of the SAFT agreement that is still in effect. What is not clear to us, however, is what legal authority the DAO has such that it can nullify a contract Merit Circle Ltd signed on its behalf.
Honey Barrel, the original poster replied directly to the Merit Circle Ltd team with a response that critiqued decentralization as well as the role and value of VC funding. The following excerpt was the component of their response that relates directly to YGG.
Honey Barrel finished up their post in the following way.
In response, the below is the full content that we have posted to the community in the Merit Circle governance forum:
After several days of communicating with Merit Circle Ltd (the organization that we signed our SAFT with) in an attempt to reach an agreement on specific points of collaboration, we now feel the need to share some information directly with the Merit Circle community to clear up some matters. Once things started to escalate in this forum, we worked on the understanding that Marco, Tommy and Mark, as leaders of Merit Circle Ltd, were best placed to explain the position and our contributions to the Merit Circle community.
During this process we suggested to the Merit Circle Ltd. team to disclose many of these details sooner as we felt there were clear points in the thread that had been mischaracterized or were otherwise outright false. There has been an apparent reluctance to do so, despite our insistence that further clarification of these details were material and could have brought valuable context to the DAO’s discussion earlier, and we feel this has unfairly painted YGG in a bad light.
As the above post by Merit Circle Ltd makes clear, none of the seed investors are obligated under the legal documentation of the SAFT to provide any specific value add services. Further to that, there is no provision for Merit Circle Ltd to unilaterally cancel the contract regardless of how this has been presented by them to the community.
These are two simple disclosures that the Merit Circle Ltd founders could have made clear to this community on day one. It is not clear why this important information was not made available to everyone much sooner, as it would have prompted a far more productive discussion.
In any case, we would also like to expand on the brief notes outlined by the Merit Circle Ltd founders in their above statement as to YGG’s contributions, so that everyone in the community can have access to the same information as the founders do.
* Merit Circle COO Mark Borsten has known Gabby Dizon, co-founder of YGG, personally since 2018. In September 2021, Mark and the team approached Gabby and asked the guild to invest in the seed round for Merit Circle, which YGG did.
* As a further show of support, Gabby also committed additional funds from an angel network that he is involved with, Nifty Fund, to support Mark, Marco and Tommy.
* Despite queries from YGG’s own community regarding the virtue of supporting an unknown, would-be competitor, YGG invested in Merit Circle’s seed round as it felt it would be a net positive for the play-to-earn guild ecosystem.
* At that time, it was extremely early in the founders’ journey. YGG and Gabby’s support and financial backing added significant credibility to the guild, which we believe helped Merit Circle to close additional investment in its seed round.
* YGG and Gabby also made direct introductions to multiple funds and angels during the seed round (some of those chose to invest, some passed, and some others Merit Circle chose to pass on).
* YGG was also very supportive in endorsing Merit Circle to many of various investors during their negotiations, some of whom were YGG investors before they were Merit Circle investors.
* The Coindesk article placed by YGG was on October 8, 2021. This media coverage gained Merit Circle excellent exposure and helped them build credibility ahead of the public sale. Additionally, it appears to be the first time Merit Circle received any organic media coverage that they did not pay for. Merit Circle’s previous ‘media coverage’ was a single post marked as “PRESS RELEASE” on bitcoin.com (this is a service where companies pay $1,500 to post an article; it is sponsored content, which is not the same as journalism). Coindesk is a well-respected publication, with the second highest reach of any crypto news publication in the world. Coindesk does not accept payment to publish press releases, this is factually incorrect.
* The backing of every seed investor, including YGG, through their funds, their inferred goodwill, and their public support, contributed to Merit Circle having such a successful public token sale. This is why projects announce all of their seed investors publicly ahead of their sale, as this support is hugely valuable in setting public sale expectations. This is likely also why Merit Circle specifically opted to announce its partnership with YGG on November 1, 2021, just one day before their public sale (November 2, 2021), so that they could directly benefit from this goodwill.
* In our internal evaluation of this current governance situation, our team found that even after the public sale, various games and industry leaders only found out about Merit Circle through its association with YGG.
Additionally, YGG provided advice, guidance and support to the Merit Circle operations team as they were getting ready to scale.
* In October 2021, when Merit Circle only had 1,200 Axie scholars, MC reached out to YGG asking to lease at least 1,000 Axie teams (3,000+ Axies) to nearly double its scholar base. YGG immediately said yes to MC’s request with favorable terms (the standard deal for fully-fledged YGG managers, 70/20/10, where MC would take a 20% share and YGG only 10%). Ultimately, MC opted not to proceed due to operational complexities, however YGG was immediately willing to provide the asset rental support that was asked of our guild.
* YGG also provided advice about Axie breeding at an early stage. YGG’s Head of Game Operations shared our industry-leading expertise and insights with MC directly, giving access to specific competitive information about team composition, breeding, and the broader Axie-Meta that allowed Merit Circle to improve breeding output and efficiency at a greater rate than would have been possible through trial and error. This is highly valuable information and expertise that YGG would only share between its closest partners, in the interest of mutual prosperity.
* YGG has also provided introductions to early-stage NFT games so that Merit Circle had the option to purchase assets where YGG has already completed its due diligence. We cannot be responsible if either party opts not to close the deal.
It is also worth noting that advice and help goes in both directions. When called upon, we feel we have been ready and willing to lend assistance, but there is an extent to which good leadership relies on leveraging the resources on call. Had Merit Circle Ltd. come to us more regularly we would have endeavored to support even further where we could.
This information is provided in good faith because we want the Merit Circle community and the YGG community to know that we go above and beyond our legal obligations by working hard to support our shared play-to-earn ecosystem even if this information is not always widely known.
We have always looked to be collaborative not combative with our partners — this is the basis of strong partnerships. 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.
This process has made it clear that your community would like us to engage in community initiatives more often, and we hear you. We have possibly been too reliant on Merit Circle Ltd leadership for guidance throughout this process. Once the obligations to us have been fulfilled, we would be very interested for both of our communities to work more collaboratively if that is the desire.
We hope this provides greater context for the situation.
YGG is and remains a committed member of the play-to-earn ecosystem and is proud to support both its own efforts and the efforts of other DAOs to grow and prosper in the space.
