With a road system that expanded from the hills of Britannia to the shores of the Euphrates, Rome was renowned for its empire-wide highway network. The marvel is remembered to this day with “All Roads Lead to Rome” still reverberating in the minds of millions who still think about the Roman Empire. And just like Rome, the road system was not built overnight. In fact, the first road in the legendary highway network was paved in 312 B.C. to aid allies in the south who were in the midst of battle. The name of the road was Appia Way, which takes its namesake from the Roman statesman Appius Claudius Caecus who championed its completion, proved to be vital in the success in that conflict and provided justification for the highway network to expand further. Fast-forward 2000 years and some change, a new type of sovereign power is emerging in the digital realm. Marking its territory on-chain, protocols and ecosystems are now expanding at an ever-increasing rate, and like a black hole, are absorbing its surroundings exponentially.
One such ecosystem that has made a name for itself is Frax Finance, a protocol that issues decentralized stablecoins and subprotocols to support them. In a matter of 3 years, Frax has grown to have $2 billion of value across its products and between upcoming upgrades, new primitive deployments, and a rollup on the way, it’s safe to say that Frax is ready to make 2024 its biggest year yet. What makes this all the more remarkable is you can count members of the core team with both hands, all who are deeply technical devs. Yet, with a small team that does not have an awareness or outreach strategy internally, it has throttled understanding of the protocol by outsiders. Frax is intimidating to understand even to the experienced in DeFi. It was clear that grassroots community efforts were needed in order to both educate the wider public and fight misinformation. This is how Flywheel DeFi came about in 2022 and through a series of grants from the Frax DAO, has grown to be the standard bearer of Fraximalism in the industry.
Although grants have been proven sufficient to this point, is there a better and more sustainable way to support grassroots contributors in the ecosystem. A popular saying in the early days of the protocol was fittingly “All Roads Lead To Frax”. The road to a trillion is preordained, it’s a matter of when not if and just as Rome wasn’t built in a day Frax won’t be either. This road will only be made smoother if allies of the protocol are empowered in the same way Rome did with theirs. Fortunately, there is a route to do this and it’s through subDAOs.
Frax & SubDAOs
For those unfamiliar, subDAOs are DAOs with a purpose of advancing the interests of their parent DAO with a clear mission and objective, receive funding and support to accomplish their goals, and have KPIs established to measure progress. Conceptually, it is best to compare subDAOs to subsidiaries who receive support from their parent organization but maintain a level of independence to make their own decisions.
There is a tremendous opportunity for Frax to construct a support network for subDAOs in the same way Rome did with their allies. Instead of bloating the core team internally, subDAOs would be created externally and would have checks and balances with the Parent DAO to keep them accountable. Furthermore, Frax’s can utilize its ve-tokenomics to construct a system that not only supports subDAOs but makes the ve-system more valuable.
How? For example’s sake, let’s say there was a “Flywheel DAO” that was governed by the FLY token. Here are ways that Frax could support the subDAO:
- Frax DAO authorizes a portion of unused FXS in the Treasury to be locked as veFXS and delegated to Flywheel DAO for voting power.
- Frax DAO approves of gauge in order to help fund Flywheel DAO operations
There is justification and precedent for this arrangement. The delegated portion of veFXS voting power can be used to build products that bring both utility to the FLY token and value to the Frax ecosystem. The precedent for the gauge to the subDAO comes from Curve DAO approving a CRV gauge for the Vyper Dev Team in the spring of 2022.
But of course, there is no free lunch. With great power comes great responsibility, and how Frax DAO can keep Flywheel DAO accountable is the ragequit-like nature of these privileges. Frax DAO could vote to remove its delegation of voting power and/or stop the gauge at any time.
In return for the permissions stated above, Flywheel DAO can:
- Allocate Frax DAO a portion of FLY tokens
- Commit a portion of FLY tokens to bribe veFXS holders
This arrangement provides immense value to the Frax DAO. Not only will Frax have a stake in the success of Flywheel DAO, but having FLY tokens be used to incentivize gauge votes brings more utility and increases the value of veFXS.
For Frax, what subDAOs ultimately accomplish is giving the ecosystem a novel coordination mechanism that allows it to scale and serve the needs of the Parent DAO. In return, subDAOs have skin in the game with a native governance token and are able to advance the ecosystem at a much faster and more effective rate than monolithic organizations. In the future, I envision there being a plethora of subDAOs pursuing diverse paths in areas that include specialties, geographic region, or common interest that advance and grow the Frax ecosystem in their own unique way. Just how Rome supported its allies with its roads, Frax can accomplish the same through subDAOs.