How SubDAOs Are Making A Bear Market Comeback

Like tectonic plates pushing against each other, the combination of novel experimentation and old-fashion politics are molding the next-generation of SubDAOs.

DeFi Dave
DeFi Dave
Sept 28, 2023
How SubDAOs Are Making A Bear Market Comeback

Like tectonic plates pushing against each other, the combination of novel experimentation and old-fashion politics are molding the next-generation of SubDAOs.

In the most recent edition of Pragma in NYC, the audience was reminded that just because we are in a bear market does not mean that opportunities do not abound. In one fireside chat with Kain Warwick, the Synthetix co-founder shared a story about how during the previous bear market in 2019 he was allowed to experiment with the tokenomics of the SNX token and removed the hard cap completely. The result gave the protocol much more leeway to incentivize activities which ended up being paramount to their growth in the years to come. It's hard to imagine token-holders approving the removal of a hard cap in the bull market but a combination of apathy and a let's try anything attitude opened the door for such experimentation.

Kain Warwick Fireside Chat at Pragma NYC

As we are in the midst of the current bear market with projects dissolving and infighting left and right, there is no better time for protocols to push their boundaries of what’s possible on and off-chain. One area that has seen a particular renewed interest is that of SubDAOs and if done right, they could offer protocols as a path to decentralization and increased resilience into the cycles to come.

SubDAOs Have (Re-)Entered the Chat

SubDAOs are not a new concept and have been written about since 2021. What is generally agreed about them is that they are created to serve to advance their parent DAO or protocol with a clear mission and objective, receive funding and support to accomplish its goals, and have KPIs should be established to measure progress.

Sounds easy enough right? It was… for a time. In 2021, money was flowing like water throughout crypto and DAOs were at peak mania. Collector DAOs sprung up to collect NFTs and historical documents alike (RIP Constitution DAO) and Harmony Protocol infamously ran a campaign to fund 10,000 DAOs which with its lax oversight would devolve into a money grab. There were declarations that 2022 would be the year of the SubDAO (narrator: and it wasn’t). DAOs and SubDAOs alike faced a rude awakening that more than “vibes” were needed to sustain themselves into the future.  

What both SubDAO articles and people alike had blind spots to was the time required to build trust with the parent DAO and the effort it takes to sustain a SubDAO after its initial launch. In other words, it takes a combination of showing progress and developing relationships with community stakeholders for a SubDAO to continue operating no matter the market conditions.

Now with DAO despair reaching its zenith, new types of SubDAOs are emerging that only bear markets could produce. It is my prediction that the SubDAOs of the future are most likely to resemble gaming guilds, collecting productive assets and NFTs across the on-chain landscape and those SubDAOs that embrace this characterization will be the most successful in the future.

Meet Your Maker: SubDAO Edition

In his recent Endgame initiative, Rune shepherds SubDAOs as a core part of his plan. The thesis is simple, Maker is too large and complicated to scale as a single monolith. SubDAOs allow the DAO to fractal into more nimble and specialized organizations that promote experimentation in parallel to each other. There are four SubDAOs that have been formed which include two for RWAs (Quant and Qual), DeFi (SparkDAO), and community (SakuraDAO). Ultimately, SubDAOs can innovate in ways that benefit Maker and while in tangent share resources with them that help ensure their success and sustainability.

Screenshot of Rune's tweet about SubDAOs

What makes Endgame’s SubDAO effort so interesting is that it is the first time tokens will play an integral part in their existence. To bootstrap each SubDAO, a SubDAO token will be created and farmed to DAI holders who upgrade to NewStable. What tokens do is that they give SubDAOs a way to incentivize activities, and accrual value, and maintain a level of independence from the Parent DAO. To kick off incentives, a recent discord message in SakuraDAO by Rune revealed that SubDAOs will receive 3333 MKR per year as an initial subsidy from Maker Core to bootstrap and incentivize activities. With nearly $5 million in value to be distributed to each DAO, this kind of support is unprecedented yet this does not come without its potential drawbacks.

As stated earlier, SubDAOs must be held accountable for their missions and actions. Recently, a maker-subsidized core unit DECO has not lived up to expectations and is effectively rugged from their commitments. Their last update was 11 months ago and it seems like the $2.5 million of MKR and DAI they have received for their contributions have effectively gone to waste. For SubDAOs not to stray off course, there should be a line of communication for community stakeholders (e.g. quarterly community call) and a system to measure progress whether that may be milestones.

The New Curve Wars

Another notable decentralized protocol that recently proposed to create SubDAOs is Curve. The proposal outlined a plan to reward four SubDAOs (in the areas of research, risk, analytics, and dev tools) over two years vesting 20 million of CRV to contributors of the SubDAOs. Unlike MakerDAO, the proposal came bottom-up from the community rather than from the leadership and there is no token associated with them. Comments regarding the proposal were generally mixed and are best characterized by AliG who stated “Curve needs to distribute autonomy (subdials) and authority (funds/vote-weight) to smaller groups to kickstart further development on cutting edges of the protocol once and for all. More oversight will not allow that. (it's proven that it did not)... That being said, understand that it looks like a lot. Maybe we can put a pin on a point in time/price and determine an evaluation method to execute when that happens.” Ultimately the latter half of AliG comments won out and the proposal did not pass.

Although I am not familiar with the history of Curve DAO funding, I do have plenty of experience when it comes to writing grants and getting funding for Flywheel from the Frax DAO. At the end of the day, funding is a political function and it always has been (the definition of politics is quite literally how to allocate and distribute resources). Politics is more of an art than science and emphasizes relationships over everything else. In the context of SubDAOs, for funding to be approved, you must justify it to key stakeholders. As C2tP states later in the comments: “That’s what grants are… they are literally “politicking” for pay right now with this proposal and will need to politick again to start up a new stream”. Stakeholders can aid in this process by providing guideposts for SubDAOs to follow whether it's a specific metric to keep track of or a milestone to reach.

At the same time, the process of receiving funding should not distract SubDAOs from their primary mission, and being too stringent shrinks the talent pool of potential contributors. The more time SubDAOs have to focus on it, the less time they have to focus on their objectives. In addition, the bear market poses an additional challenge for protocols looking to attract talent. For better or for worse, people are not jumping into crypto like they used to which should be taken into consideration when it comes to distributing funding. At the end of the day, stakeholders and SubDAOs must communicate with each other and agree to keep working towards the growth and advancement of the parent protocol.


The next fireside chat after Kain was of Camila Russo. The Defiant Founder has witnessed the evolution of DeFi from its “open finance” days to its current position today. One of her primary criticisms of DeFi and DAOs is that they are decentralized in name only and that their misrepresentation ultimately hurts the rest of the industry. While many DAOs promise decentralization, few have a real plan to do so.

SubDAOs give DAOs in DeFi and beyond an opportunity to decentralize and fulfill the promises they taught. Experimentation in the realm of tokens can offer SubDAOs a degree of autonomy and independence, not having to be 100% at the mercy of the Parent DAO for funding. In addition, for grants that SubDAOs do receive, by establishing a regular cadence in both output and responsibility, SubDAOs can be both held accountable and have the resources to scale their parent DAO to new heights. How high DAOs and their SubDAOs can reach and if they can tower over their old-world predecessors is yet to be determined and ultimately comes down to the structure, alignment, and incentives, of everyone involved.

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