Updated: Jul 16, 2019
When an industry matures the amount of mergers and acquisitions increase as the need for scale and global reach increases while organic growth becomes harder. The crypto market is still young but on the 24th of april this year, COSS and LALA World announced the first token merger in history. They would build the token economics of their respective tokens into one single token, COS. The markets reaction was damning, with the USD market cap of COSS almost halving in under 24 hours. "Exit scam!" was being thrown around and the community was generally upset. But, why? And why remove a "S" from the name, is that not a bit gimmicky?
To answer the last question, while it may seem gimmicky at first, it is to keep the brand while avoiding confusion in the smart contracts. To answer the other question we need to roll back the tape. As discussed in a previous article (thedecrypter.com), COSS has a 50% fee split for their token holders which they have had ever since the launch of the project. COSS also launched another native token for the exchange just a few months before the merger was announced, called CFT, which lets you discount fees on their exchange. Some people worried, firstly, about the safety of their fee split: "Would it decrease? Would they remove it?". Secondly, people were not happy with COSS issuing a new token just some months before announcing to merge that token with other tokens. They saw the CFT ICO as a scammy cash grab. Thirdly, the community were also worried about the dilution of their holdings by an eventually unfair swap ratio.
This is the community's response, but what are the actual implications of this merger?
As I said in the beginning of this article, mergers are needed to stay competitive in a maturing market, thus these things will happen sooner or later. The merger will bring more assets and resources for the development of the project. There will be more developers, more money to invest, bigger community, more intellectual property etc. All this will lead to faster development with more long term potential.
The merger will also bring positive synergies between the projects with LALA Worlds ARAX wallet (soon to be COSS wallet) which can be integrated with the exchange, in particular the new DEX, for example. COSS' goal was always, as it's name suggests, to be the Crypto One Stop Solution, for that to be achieved it needs to be more than an exchange. This merger will help with that, and to keep with the goal they have chosen to keep the COSS brand and rebrand all the LALA World products which will help build the brand.
All this will bring much more value to the project in the long term as they will be able to combine their assets and resources to further their growth in this already high growth market. But as investors what is important is really the implications of this for the ROI on the new token, COS. What is for certain is that the new token will have much more value as there are more token economics built into it, namely: Fee split, fee discounts, wallet utility token, native token to upcoming DEX as well as other upcoming features. There is, however, the question if this added value will bring higher ROI for token holders as all these tokens being merged together dilutes the value across a higher supply. In a perfect world where returns follow logic, If the swap is done fairly it, in itself, should result in a slight return for current token holders as the value of the new token will be the same as the value of each individual token combined, however, the new token will have the benefit of being simpler and more diversified as a single token.
But, do we live in a perfect world where returns follow logic? Sort of. In the long term returns tend to follow logic. This can be seen in the stock market where companies with lower valuation tend to outperform companies with higher valuation over the long term ( https://www.lynalden.com/shiller-pe-cape-ratio/ ). The other question we must ask to know if the new token will increase returns for current investors is: Is the swap ratio fair? I believe it is as the ratios have been worked out with the community, and what is fair in this case is what the community deems to be fair. Each COSS token will give you one COS token.
Regarding the release of the new token, CFT, so close to the merger, that is by no way scammy. Yes, COSS needed more money, but many ICO does as their crypto funds have deteriorated with the crash in the market. What do you do when you need money as a project? One way is to issue a new product which is what COSS chose to do. They created CFT which could be used to pay discounted fees on their exchange, and they sold these tokens to the community. This gave them funds to keep developing their projects and gave the buyers something they wanted. Although CFT will now disappear, those who hold CFT tokens will get the same value through the new COS tokens which will be given to them instead.
I was positively surprised when I first heard about this merger. For this reason, the negative reactions came as a shock to me, but because of the overwhelming negative reaction something must have gone wrong with the communication between COSS and its community... Or?
The reason most people reacted so negatively probably stems from the fact that people are afraid of change, as it brings uncertainty. That is understandable, especially in investments where you want things to be predictable. As I discussed earlier, there were many unanswered questions in the first announcement and you could argue that it would be better to wait with the announcement until the merger was clearer and more worked out. However, that would result in the community not getting a say in the matter, the swap ratios would probably have come out unfair for example. This situation would not only cause a short term sentiment hit but also long term negative consequences. The negative reactions could not have been avoided. We are talking about the first token merger ever and new things are always met with skepticism, but if you look at other industries, mergers are inevitable in the long term and are to be expected. This is probably just the first of many to come and I believe that the first couple of mergers will be met with equally negative reactions at first until it becomes normalised and people realise the potential of these events.
To me, COSS looks even more promising now than ever. With more resources, assets and employees they seem closer than ever to live up to their name. The merger shows a forward thinking management with long term strategies for success. As always though, do your due diligence before an eventual investment, everything comes with risks and the crypto market is extremely competitive and still in its early stages which makes it even more high risk.
Read more about how to best invest in the cyrpto market in this article: thedecrypter.com
/Alex - TheDecrypter.
Note: Invest at your own risk and always make sure to research your investments thoroughly.