Evolution of Risk Assessment in Digital Asset Mergers and Acquisitions
The convergence of traditional finance and digital asset markets has led to a significant increase in mergers and acquisitions, with digital asset M&A volume reaching $15.8 billion in 2024, up from $1 billion in 2019. This growth is exemplified by notable acquisitions such as Stripe’s $1.1 billion purchase of crypto infrastructure company Bridge and Ripple’s $1.25 billion acquisition of prime brokerage Hidden Road. As the financial landscape continues to evolve, it’s essential to recognize that the acquisition of a digital asset company involves not only the transfer of people, products, and intellectual property but also every on-chain transaction that has ever taken place on that technology stack.
These on-chain transactions can range from routine operational activities to high-risk exposures, including connections to sanctioned companies or opaque cash flows. Therefore, it’s crucial for companies to integrate on-chain analysis into their traditional due diligence process to uncover potential risks that may not be immediately apparent. This includes analyzing historical transactions, wallet interactions, and governance structures to identify red flags such as connections to mixers, darknet wallets, or governance centralization.
On-Chain Data: The Layer of Truth
Traditional risk assessments focus on factors such as backlog, workforce structure, leadership stability, treasury and reserves visibility, reputation, and regulatory compliance. However, these assessments alone are no longer sufficient for digital asset mergers and acquisitions. On-chain data provides a layer of truth that can reveal specific risk potentials and operational red flags, making it essential to combine on-chain insights with off-chain data. For instance, an assessment of a digital asset company may pass standard reputational due diligence, but on-chain analysis may reveal historical transactions with high-risk wallets or protocols, indicating reputational harm and legal red flags.
On-chain analysis can also uncover other risk indicators, such as excessive exposure to a particular token, illiquid or highly concentrated positions, or unreliable technical infrastructure. Furthermore, governance structure analysis can provide insight into which actors in an ecosystem truly control and make decisions about the blockchain, offering further information about actual ownership and corporate structure. While on-chain data is crucial, it’s also important to note that it can miss critical off-chain risks, as seen in the case of FTX, where blockchain data highlighted certain risks but did not reveal the core fraud.
Towards a Hybrid, Holistic Approach
To effectively navigate the risks and opportunities in digital asset mergers and acquisitions, it’s essential to adopt a hybrid approach that combines on-chain and off-chain data. This approach enhances traditional legacy frameworks, providing a more comprehensive understanding of the risks and opportunities involved. A recent EY report found that 83% of institutional investors plan to increase their allocations to digital assets, highlighting the need for strict and appropriate oversight. Data-first due diligence that combines on-chain and off-chain signals will be critical for evaluating counterparties, managing integration, and securing long-term value.
Trust remains a crucial component of successful M&A transactions, and blockchain, with its immutable traces, is a powerful tool for building, confirming, and maintaining that trust. However, this can only be achieved by using the right data and asking the right questions. As the financial landscape continues to evolve, it’s essential to connect old and new systems, combining transparency with intelligence to manage risk effectively. By adopting a hybrid approach that incorporates on-chain and off-chain data, companies can ensure a more comprehensive understanding of the risks and opportunities involved in digital asset mergers and acquisitions.
Check out Shetret 
Check out Shetret is vice president of global policy and regulation at Elliptic. At Elliptic, Liat leads engagement with regulators, financial institutions, and policymakers, shaping compliance and risk frameworks for digital assets globally. Liat is a globally recognized authority on anti-money laundering, countering terrorist financing, and financial intelligence, with nearly 20 years of experience at the intersection of global finance, regulation, and emerging technologies.
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