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When a company acquires or merges with a digital asset business, it’s not just acquiring the people, products, and intellectual property; it’s also acquiring every on-chain transaction that has ever occurred on that technology stack. These touchpoints range from the mundane to the high-risk. From day-to-day operational activities to exposure to sanctioned entities and opaque financial flows.
summary
- As traditional finance and cryptocurrencies converge, M&A in digital assets has skyrocketed, reaching $15.8 billion in 2024. But beyond teams and products, acquirers inherit any on-chain transactions, including potential exposure to sanctions, illicit funds, or opaque counterparties.
- On-chain analysis should complement traditional due diligence and uncover hidden risks such as ties to mixers, darknet wallets, and governance centralization that are often missed by balance sheet and compliance checks.
- The future of M&A lies in a hybrid, data-first framework that blends on-chain and off-chain insights to enhance trust, transparency, and risk management as the financial system bridges the old and new worlds.
As traditional financial and digital asset markets continue to converge, mergers and acquisitions in both directions are accelerating. From Stripe’s $1.1 billion acquisition of crypto infrastructure company Bridge to Ripple’s $1.25 billion acquisition of prime brokerage company Hidden Road. In 2024 alone, digital asset M&A volume reached $15.8 billion, a staggering jump from just $1 billion in 2019.
In this converging market, your digital footprint on the blockchain is more than just background noise. They are risk signals. Without proper on-chain analysis, they can quickly become a potential liability. Traditional frameworks that focus on balance sheet, market position, leadership, and reputation factors remain essential, but they do not convey the complete picture.
Without integrating traditional risk assessments with on-chain data, businesses operate with an incomplete picture. This could be detrimental not only to trading, but also to broader trust and stability in the industry if products are developed that link fiat and cryptocurrencies.
Therefore, today’s M&A transactions require evolved risk assessments.
On-chain data is a layer of truth
Traditional risk assessments start with fundamentals such as order book depth, workforce structure and leadership stability, financial and reserve transparency and reputation, and regulatory compliance. These are all central to traditional deal formation.
However, this process alone is no longer sufficient for digital asset M&A. Analyzing and understanding on-chain data in combination with traditional methods is the only way to uncover specific risk pockets and operational red flags. That means aligning on-chain insights with off-chain data.
Consider this scenario. A digital asset company’s reputation may pass standard reputational due diligence, and traditional compliance checks will reveal that it has no direct exposure to sanctioned jurisdictions or entities. These checks do not take into account the decentralized or pseudonymous nature of blockchain transactions, and wallet transactions and previous DeFi activity may not be visible. Without integrating and analyzing on-chain data, you can miss significant risks.
Past transactions using high-risk wallets or protocols may indicate reputational or legal red flags. For example, mixers can be used as obfuscation tools to hide the source and destination of funds.
Further on-chain analysis could reveal Treasury’s repeated interactions with wallets tied to darknet marketplaces that provide stolen data, money laundering services, or tools to commit fraud. These on-chain metrics represent more than a compliance oversight. These pose specific reputational, financial and legal risks and may subject us to penalties from regulators and other bodies.
This is just one example. Other on-chain risk indicators can range from overexposure to certain tokens, to illiquidity or highly concentrated positions as seen with the collapse of crypto financier Celsius, and even unreliable technology infrastructure that could pose challenges for future integration.
Governance structure is also important. On-chain voting data can reveal which actors within the ecosystem are actually directing and making decisions regarding the blockchain, further informing actual ownership and corporate structure.
Despite the obvious benefits, on-chain data alone can miss important off-chain exposures. In 2022, FTX looked healthy. Blockchain data may have flagged certain risks, such as low liquidity of the token FTT, large transfers between FTX and Alameda Research. Still, the core misconduct of Sam Bankman Freed, including the adulteration of customer funds and false claims of solvency, would not have been uncovered.
Moving to a hybrid, holistic approach
Understanding risks and opportunities in digital asset M&A requires off-chain data to complement on-chain risk signals and enable a flexible and evolved risk management framework. This is the only way to provide companies with adequate preparation to assess and identify risks arising from M&A.
Most importantly, this hybrid approach does not replace traditional frameworks. it strengthens them. According to a recent EY report, 83% of institutional investors plan to increase their allocation to digital assets. The higher the level of interest, the greater the pressure to apply rigorous surveillance that is fit for purpose. Data-first due diligence that combines on-chain and off-chain signals is essential for evaluating counterparties, managing integration, and protecting long-term value.
Trust remains the key to M&A success. Blockchain, with its immutable trail, is a powerful tool for building, verifying, and maintaining this trust. But this can only be achieved if the right data is used and the right questions are asked.
The future of finance depends on bridging old and new systems. That means evolving the way we view and manage risk. Balancing transparency and intelligence.
