A potential legal battle has been prevented between the Merit Circle decentralized autonomous organization’s (DAO) backing company Merit Circle Ltd and Yield Guild Games (YGG) as the organizations reached a deal after the DAO originally voted to remove YGG.
Merit Circle Ltd is a company that created the Merit Circle DAO to help gamers interested in play-to-earn games by lending items from its treasury to be used for gameplay, as well as delivering educational content.
Speaking to Cointelegraph Gabby Dizon, Co-Founder of YGG said a DAO member took the current market conditions as an opportunity to pass a proposal canceling YGG’s Simple Agreement for Future Tokens (SAFT) and refund it only with its initial 175,000 USD Coin (USDC) seed contribution.
Despite some acrimony, YGG has still walked away with ten times its initial investment.
The improvement proposal, called MIP-13, passed on May 28, alleging YGG provided a “lack of value” to the DAO and the guild was actually a “top competitor” to Merit Circle, not a partner. The proposal would “trim the fat” from the DAO to “ensure only those who want to see Merit Circle succeed remain.”
But, the passing of MIP-13 may not have honored a legal agreement between Merit Circle and YGG, which would see YGG receive tokens in return for its financial contribution toward Merit Circle.
YGG said in response to the proposal that it wasn’t clear what legal authority the DAO has to nullify a contract Merit Circle Ltd signed on its behalf and that no condition existed for Merit Circle to cancel the contract “regardless of how this has been presented by them to the community.”
Merit Circle agreed upon a counterproposal with YGG to honor the legal agreement. It was posted and unanimously passed on June 9, and the DAO bought out YGG’s fund allocation.
Dizon said it was fortunate it was able to collaborate with the founding team of Merit Circle to avoid legal action.
“From a YGG perspective, we were still able to assist one of our portfolio companies while exiting with a 10x return, which is a great result for us, especially given the current market, with zero future risk.”
The counterproposal netted the guild 1,750,000 USDC, a ten-times return on its original seed investment.
On Tuesday, both Merit Circle and YGG stated they were amicable on the outcome, saying the solution “still satisfies the will of the Merit Circle community, but was also acceptable to YGG.”
They added that as the original proposal clashed with the prior legal agreement Merit Circle made with YGG, it likely would have led to legal action.
Both parties stated that they recognized the “danger a precedent like this could set for the Merit Circle DAO and the industry as a whole if agreements are not upheld and investors are not respected.”
Related: Number of DAOs increases 8x along with spike in votes and proposals
“Whilst the legal question is one that could probably be argued at length,” the organizations said, “both parties agreed it was better to settle:”
“This would spare both parties from a costly, time-consuming, legal process with uncertain outcomes. None of the parties had to settle, but both parties chose the constructive path to help Merit Circle move forward.”
Updated June 16 to include quotes from Gabby Dizon.