The 'Token vs. Equity' Conflict in Crypto M&A: What Circle's Axelar Acquisition Reveals About Token Holder Risk

The acquisition of Interop Labs by Circle in 2025 has ignited a firestorm of debate over the structural vulnerabilities inherent in token-based financing models within crypto mergers and acquisitions (M&A). By acquiring the development team and intellectual property behind the Axelar Network but excluding the open-source project and its native AXL token, Circle has exposed a critical asymmetry in how value is distributed in crypto deals. This case underscores a systemic risk: token holders, often positioned at the bottom of the capital structure, face disproportionate losses when teams and equity stakeholders exit, leaving tokens to bear the brunt of market volatility and governance fragmentation.

The Axelar Acquisition: A Case Study in Token Holder Disadvantage

Circle's acquisition of Interop Labs-a core development team for the Axelar Network-was framed as a strategic move to bolster cross-chain infrastructure for its Arc blockchain and Circle Cross-Chain Transfer Protocol (CCTP) according to Circle's announcement. However, the exclusion of the Axelar Network itself, its foundation, and the AXL token from the deal has drawn sharp criticism. Token holders, who funded the project during its early stages, saw no direct financial benefit from the acquisition, while the team and equity stakeholders reaped rewards. This "acquire-the-team, not-the-token" structure caused AXL's price to plummet by over 16%, reflecting market concerns about misaligned incentives and a perceived "rug pull" according to HTX reports.

Critics argue that this arrangement mirrors traditional corporate bankruptcy scenarios, where equity holders and management retain priority claims, while tokens-functionally akin to equity in decentralized ecosystems-lack legal recourse to share in proceeds according to HTX reports. The absence of a governance mechanism to bind token holders to the value realization of core contributors exacerbates this imbalance, leaving tokens vulnerable to devaluation when teams exit.

Structural Vulnerabilities in Token-Based Financing

The Axelar case highlights broader flaws in token-based financing models. Unlike equity, which is governed by well-established legal frameworks, tokens often lack clear rights to corporate proceeds, especially in M&A contexts. This is compounded by the decentralized nature of crypto projects, where governance is frequently fragmented across DAOs (Decentralized Autonomous Organizations) and community-driven initiatives.

Legal analyses from 2025 further illuminate these risks. For instance, courts have begun to treat DAOs as general partnerships under state law, exposing token holders to joint and several liability. Meanwhile, tokenized governance models remain prone to manipulation, as seen in the Balancer hack of November 2025, where $100 million was drained from a DeFi protocol according to The Paypers. These vulnerabilities underscore the need for robust legal frameworks to protect token holders, such as tokenized equity structures or DAO governance reforms like MetaDAO and LaunchOnSoar according to Futunn News.

Equity vs. Token: A Traditional Parallel

In traditional M&A, equity holders and management teams typically receive compensation first, with bondholders and other stakeholders following in a hierarchical order. The Axelar acquisition, however, inverts this dynamic. By excluding the AXL token from the deal, Circle effectively replicated a scenario where equity holders (Interop Labs) and management (the development team) exited with value, while token holders-akin to bondholders in traditional finance-were left with depreciated assets. This structural asymmetry is amplified in crypto, where tokens often lack the legal protections afforded to equity or debt instruments.

Implications for the Future of Crypto M&A

The Axelar acquisition has reignited calls for regulatory clarity on token rights and governance. As crypto firms increasingly pursue M&A to consolidate infrastructure and expand into institutional markets-evidenced by Kraken's $1.5 billion acquisition of NinjaTrader and Ripple's $1.25 billion purchase of Hidden Road)-the need for standardized frameworks becomes urgent. Without clear rules, token holders will remain at a systemic disadvantage, deterring institutional participation and stifling innovation.

Moreover, the rise of token-based financing in 2025 has exposed valuation challenges. Tokens generating cash flows are often valued using discounted cash flow methods, while actively traded tokens rely on relative valuation techniques according to CFA Institute. These fragmented approaches lack the consistency of traditional equity valuation, further complicating M&A negotiations and investor confidence.

Conclusion

Circle's acquisition of Interop Labs is a cautionary tale for the crypto industry. It reveals how token-based financing models, despite their promise of decentralization, can entrench structural risks for token holders. As M&A activity accelerates, stakeholders must prioritize governance reforms, legal clarity, and innovative tools like tokenized equity to align incentives and protect decentralized ecosystems. The future of crypto M&A depends on addressing these vulnerabilities-not just for token holders, but for the long-term viability of the industry itself.