Bankless: 2022 may be the year of subDAO, what is subDAO in this article?
Original Author: Bankless
Compilation of the original text: The Way of DeFi
Original Author: Bankless
Compilation of the original text: The Way of DeFi
Decentralized Autonomous Organizations (DAOs) have exploded in popularity over the past year.
They have grown from niche projects with a handful of contributors to behemoths with billions in funding and thousands of dedicated community members all working hard to achieve their mission.
We are starting to see these new forms of social structures fulfilling their potential as the way of working in the future. Anyone, anywhere can join a DAO and start getting paid.
More recently, we've seen the rise of subDAOs, which are smaller, autonomous working groups and projects within a broader DAO. We believe these are ways for DAOs to scale without burdening the community with bureaucracy.
DAOs are already a major experiment in cryptocurrencies, but subDAOs are a very new entry in the DAO space.
Fortunately, we had the perfect opportunity to learn about subDAOs through BanklessDAO.
Our native and BanklessDAO core contributor Frogmonkee dissects what we've learned so far about subDAO.
- RSA
This is an introductory lesson for those down the DAO rabbit hole.
Let's explore that.
2021 is a big year for cryptocurrencies.
Across the space, we see the adoption of Non-Fungible Tokens (NFTs), Decentralized Finance (DeFi), Altcoin Layer 1 networks (Alt-L1), Layer 2 networks (L2), and DAOs."?
According to DeepDAO, a DAO-focused analytics platform, the DAO’s treasury grew 40-fold from $400 million to $16 billion, while its number of participants swelled from 13,000 to 1.6 million.
2021: is the first year of the DAO
Here's how the DAO ecosystem has evolved over the past 12 months?.
The treasury of DAOs listed on @DeepDAO_io has grown 40x from $400M in January to $16B in December 2021.
DAO participants have increased 130 times, from 13,000 in January to 1.6 million in December 2021.
With such attention, The DAO has achieved an inflection point in its development. In adapting to the growing pressure of new ideas, new contributors, and new funding, DAOs need to expand their coordination capabilities and best leverage newfound interest.
First, we need to realize that DAOs have almost zero switching costs.
In a traditional company, you go through an extensive hiring process before you land a salaried position with benefits. In a DAO, this doesn't happen very often. In many cases, you can simply join a Discord server, start providing value and get paid.
As such, DAOs are well suited for low-stakes experiments. People join DAOs, come up with ideas, organize teams, get funding, and execute in a relatively autonomous fashion. But once the bureaucratic red tape comes along, people leave and take their ideas elsewhere, and the DAO loses talent.
To capture the value of new ideas, DAOs have been experimenting with the concept of subDAOs, a way for superDAOs (also known as parentDAOs) to localize experiments with sufficient autonomy, while aligning them economically and relationally with superDAOs .
As we experiment with superDAO and subDAO, we need to learn how to:
Support experimentation with new ideas with a way to measure ROI.
Make the subDAO economically aligned with the superDAO in order to create new value while also capturing that value.
Template the schema of the various subDAOs and define their ownership structure and relationship to the superDAO, as not all subDAOs are created equal.
So what exactly is subDAO?
As companies grow, they add new departments, products, business verticals, teams, and initiatives to the organization. The subDAO is like these new organizational structures, except instead of following a hierarchical governance model, the subDAO operates completely autonomously while remaining consistent with the superDAO. They are more like subsidiary relationships.
autonomy
Let's dig a little further into this statement: the subDAO operates in a fully autonomous manner while remaining consistent with the superDAO.
autonomy
Let’s first explore the on-chain portion of subDAO.
In general, DAOs exist within a scope. Some "DAOs" are fairly nascent, consisting of minimal on-chain capabilities, mostly coordinated at the social level.
In a previous post, Lucas referred to these structures as Minimum Viable DAOs:
Create a task (this part is open!).
Build a community with Collab Land on Discord or Telegram
Create a shared treasury with Gnosis Multisig
Build a governance framework with Snapshot
Use Mirror or Coinvise to distribute ownership
And on the other end, protocol DAOs like Uniswap and Compound have fairly complex on-chain governance frameworks like Governor Bravo.
Compound Finance’s Governance Framework – Note how voting decisions are automatically queued as transactions, rather than manually performed like human-operated multisig.
Their level of sophistication depends on their maturity and need for decentralization. The subDAO starts out centralized, but it will gradually become decentralized over time, which is a good thing.
consistency
At least, subDAO is a multisig with social governance. However, they can do more.
consistency
Consistency refers to the relationship and interface between a subDAO and its superDAO. What is the mutually beneficial relationship between subDAO and superDAO, and can it catalyze the creation of new subDAOs?
This can be broken down into two important levers: economic alignment and relational alignment.
Economic Alignment: How closely are the economic incentives between superDAO and subDAO? (eg: Token Swap, Revenue Sharing, Buyback)
Relational Consistency: What intangible benefits do subDAOs gain from superDAOs and vice versa? (eg: branding, promotion, acquiring fresh talent)
Earlier, I mentioned that not all subDAOs are created equal. I mean, subDAOs will vary in alignment with superDAOs depending on what their economic and relational agreements look like.
Take the following situation as an example:
The BanklessDAO Writers Association pays labor in BANK (BanklessDAO’s token) and receives all funds from the BanklessDAO Treasury. If the Writers Association does not agree with BanklessDAO, then it can cut off or embezzle funds. (Most consistent with BanklessDAO)
Bankless Brazil is not funded by BanklessDAO, but still uses BANK tokens in exchange for official recognition and brand licensing.
Bankless Consulting pays BanklessDAO a 10% tax on all income in exchange for direct access to the specialized labor contained within each BanklessDAO guild.
The point here is that depending on its intended purpose, subDAO will interface with superDAO differently. For example, an internally facing subDAO (such as a guild) may have a stronger connection to the superDAO, while an externally facing subDAO (revenue generating scheme) may have a looser connection to the superDAO.
accountability
have to be aware of is. The superDAO is to determine these relationships before the number of subDAOs has swelled beyond control. Without some form of standardization, superDAO will likely spin off groups that create a lot of value, with no way to capture that value back.
accountability
The last important piece of this subDAO mental model is accountability. As highlighted in the tuning section above, subDAO and superDAO are highly correlated in the value they provide to each other. Sometimes these relationships can become one-sided, with one party receiving more value than the other.
More commonly, this happens when the subDAO becomes a fiscal burden on the superDAO without a clear ROI. After all, many subDAOs were funded by superDAOs in the first place. When this happens, superDAO must have a clear way to reduce its losses. Without a clear method, ending a subDAO will inevitably become confusing and set a bad precedent.
Pet3rpan and James Young wrote a great blog post on this topic.
some thoughts:
Scale out with KPI-oriented subDAOs. Governance is minimized and we need to focus on two areas:
What are the KPIs/indicators and OKRs of DAO?
mirror.xyz/pet3rpan.eth/5...
Which work proposals should be funded?
Hoping for more thoughts/feedback.
In the description, he highlights the need for funding and support to be tied to KPIs and OKRs. In other words, in order to maintain the subDAO and superDAO relationship, there should be tangible progress in creating value.
This is a great model that holds subDAOs accountable for delivering on their commitments to the superDAO, while also allowing the superDAO to make informed judgments about any subDAO's ongoing support.
The future of subDAOs
As I write this article, I realize that we are still very early on subDAOs. DAOs themselves are still in the process of evolving, not to mention this subcategory that introduces complex relationships.
In our Bankless 2022 forecast article, I wrote:
DAOs are the easiest way for people to participate in cryptocurrencies with low risk (the cost is only time). DAOs will take off in 2022 as instrumentation, onboarding, and compensation continue to evolve. But that doesn't necessarily mean their tokens will skyrocket.
I want to adjust this forecast. I think 2022 will be the year of the subDAO.
