a16z, Paradigm and other VCs have sold all their MKR, the love-hate relationship between MakerDAO and VCs

Written by: Deep Tide TechFlow Cleaner

As a DeFi OG, MakerDAO has returned to the center stage of the crypto world this year with the narrative of RWA.

What everyone sees is a peculiar scene: MakerDAO's core investor, the Silicon Valley legendary venture capital firm a16z, continues to sell off MKR, while MakerDAO founder Rune Christensen has been continuously increasing his holdings, buying MKR, leading to a long and short showdown between the project's founder and the investors.

Since November 2022, Rune has started selling LDO to repurchase his own tokens, and in the last two instances, he has used ETH and DAI to buy MKR. As of July 17, his two addresses hold a total of 123,893 MKR, accounting for 12.6% of the total circulating supply of MKR (977,631 MKR).

Now, the sell-off by major VCs has come to an end.

Recently, a16z finally sold its last remaining balance in MakerDAO, and thus, a16z, Paradigm, and Dragonfly have finally sold all the tokens they held, relieving MKR of the VC burden.

According to crypto researcher 0xRamen's statistics, these three VCs once collectively held about 11.5% of Maker tokens, specifically as follows:

a16z:

• Purchased $15 million in September 2018;
• Accounted for 6% of the total supply;
• Average price: $250.

Paradigm + Dragonfly:

• Purchased $27.5 million worth of tokens in December 2019;
• Accounted for 5.5% of the total supply;
• Average price: $500.

Dragonfly was the first to start selling its tokens in January 2021, but most of the sales occurred in April 2021, when MKR was close to its peak of $6,000.

Result: The average selling price was $3,800 per MKR, which is 7.6 times its initial investment, performing excellently and selling slowly as the price rose.

Paradigm was the last of the three VCs to start selling, beginning in March 2023, selling 80% of its MKR tokens at prices above $800. The remaining tokens were recently sold at around $1,100.

Result: The average selling price was $900 per MKR, which is 1.8 times its initial investment, essentially selling at a low price.

So far, a16z has conducted three waves of sell-offs:

March 2021: Started selling 20% of its held tokens;

August to September 2021: Sold 26% of its held tokens;

July 2023: Sent its remaining 32,000 MKR to exchanges for sale.

Result: The average selling price was $1,800 per MKR, which is 7.2 times its initial investment.

The 32,000 MKR from a16z, combined with Paradigm's recent sell-off, amounts to nearly $40 million in selling pressure. Nevertheless, the price of MKR has still risen by over 30%.

So, why are a16z and others eager to liquidate their MKR holdings now?

One important reason is that a16z opposes MakerDAO founder's "Endgame" plan.

In June 2022, MakerDAO founder Rune proposed the Endgame Plan, which includes four main components: establishing complete decentralization of MakerDAO; increasing the liquidity of Dai and stabilizing its interest rates; enhancing the sustainability of the protocol and reducing systemic risks; improving decentralized governance and DAO operations.

Rune plans to break MakerDAO down into smaller, supposedly more decentralized units called MetaDAO, and aims to incorporate real-world assets like bonds and government treasury bonds from Maker's reserves into MetaDAO, separating them from protocol decision-making.

The initial plan was to launch six MetaDAOs, each of which would issue Sub Tokens.

Although this proposal received support from over 80% of community members, the investment firm a16z firmly opposed it, as it previously held a large amount of MKR tokens, thus having voting power and influence over the proposal's final approval.

a16z partner Porter Smith stated in a memo that he advocates for reforms in MakerDAO to enhance decentralization without hindering growth and complying with current legal and regulatory environments, rather than breaking the governance structure of the protocol into smaller units called MetaDAO.

"The core unit structure may already be decentralized from a legal perspective, and introducing MetaDAO may not change that situation, nor will it lead to greater organizational flexibility from a strict legal standpoint."

Not only the Endgame plan, but the conflict between the MakerDAO founder and the VCs has also become completely public in 2022, leading to a governance battle.

In June 2022, a governance vote was held on whether to approve the establishment of a core department for Maker loan supervision (called LOVE).

About one-third (approximately 294,000 MKR, worth about $300 million) of the circulating supply chose to approve LOVE, with the first three "yes" votes coming from VCs a16z, Paradigm, and ParaFi.

The "no" side, led by founder Rune, ultimately won with about 60% of the votes.

In the Maker community, this struggle was described as a carefully orchestrated coup by a group of venture capitalists who eat meat but leave no bones, and in the end, with the joint efforts of Maker's founder and community members, they successfully defeated the VCs and achieved a comprehensive victory for decentralization.

This description seems simplistic; the governance war behind MakerDAO has also become a stumbling block to its development. Now that major VCs have exited, what new landscape awaits MakerDAO in the future?