subDAOs: Classification and Templatization

[jameswmontgomery.eth]

BanklessDAO has always been subdivided; decentralized organizations must be.

Guilds & Projects - each with a separate multisig and governance process (albeit inspired or shared with others) - are critical subdivisions of the larger DAO. Without the distribution of operations, governance, and funding, we would be bottlenecked with centralization.

These original subdivisions are the inspiration for subDAOs.

The term has been casually circulated, but (imho) has not been well discussed and too many assumptions have been made for it to be an effective organizational term.

On the shoulders of Guild & Projects, let’s evaluate “what is a subDAO”, why it matters, how we can harness its power, and understand the evolution coming for BanklessDAO.

Additional reading: BanklessDAO subDAOs and subTokens (bDAO forum, August '21)

Terms

subDAO - The “child” DAO

superDAO - The “parent” DAO

Requirements of a subDAO

While some things may still be discussed or otherwise exist on a spectrum, there are some fundamentals that we need to define. Bonus points if we can tangibly define them on-chain!

It has a separate address

The first and clearest requirement of a subDAO is that it exists as a separate address from the superDAO.

It’s probably a multisig

Most often this is represented as a multisig treasury, but advanced contracts that allow a group of people to control assets in various ways would be included here as well.

It could be a smart contract

On the back of a simple multisig, a subDAO could be defined by an advanced DAO smart contract.

It’s not an EOA

Most likely, a subDAO is not an Externally Owned Account (EOA) aka a personal address.

It uses the superDAO’s token

Using the superDAO’s token is a clear indication of organizational alignment.

It might have its own tokens

Whether the subDAO creates its own ERC20 or NFT for organizational use is an optional choice that should not affect the relationship. Naturally, the superDAO & community sentiment may drive this opinion.

It might have a minimum token amount

The superDAO might require the subDAO’s treasury to have a certain minimum number of tokens or even a certain percentage.

It might have to stake its tokens

Staked tokens that could be burned could be an effective alignment strategy for the DAOlationship.

It might vote in the superDAOs affairs

A subDAO might use its tokens to vote, depending on how the superDAO views this.

It says it is

If a subDAO declares its intent and defines itself as a subcomponent of the superDAO’s community, then it is - especially if it’s in good faith and they’re determined to drive the values and mission of the superDAO forward.

Community participation in DAOs is mostly open - any person or group can declare itself a community member.

It is aligned

There must be a degree of economic and incentive alignment. This is easily achieved through the sharing of a base or native token, but can otherwise be achieved through more intricate mechanisms (derivative paring, etc).

It must meet membership guidelines

While DAOs are mostly open, most have minimum terms for “membership”. This area may become more developed as superDAOs evolve a collection of subDAOs and define subDAO membership rules.

Ex: BanklessDAO has a 35,000 BANK membership requirement for Discord access (but anyone can vote in Snapshot). A subDAO may be required to have 35,000 BANK in the treasury or possibly more to certify the subDAO’s relationship.

It may inherit membership guidelines

If the superDAO requires a threshold of tokens to be a member, then the subDAO may also be forced to require that threshold for its membership.

It might have a constitution

Where would the declaration of the relationship happen? Probably a constitution signed by the members.

This requirement is becoming more and more obviously critical in the overall management of expectations between subDAOs and more.

It might need approval from the superDAO

It’s one thing to declare intent, but another to be accepted by the superDAO.

It might pay taxes, tithes, or fees to the superDAO

Depending on the terms, a subDAO might pay towards the community to remain in good standing as a subDAO.

It might get special treatment

If the subDAO is accepted by the superDAO, it might get priority access to the resources of the superDAO.

This could include grants & funding, software support, talent, discord access, etc.

Extra Thoughts

A subDAO could be polyamorous

The multisig could align itself to multiple superDAOs, so long as it meets the criteria to do so for each.

The subDAO might need its own space

It might have its own Discord server, social handles, etc.

Example subDAOs

Dev Guild

This core talent-organizing unit of BanklessDAO has its own multisig, its own roles & governance, uses BANK as a treasury asset, and has deep alignment with the BanklessDAO.

• Has a separate address
  • Is a multisig
• Uses the superDAO’s token
• Says it is
  • Inherits membership requirements
  • Approved by superDAO
  • Gets special treatment
    • Native in superDAOs Discord
    • Special grants

DEGEN

This public product was created within BanklessDAO and gets grants as well. It has both its own Discord and internal channels in the superDAO. It would eventually pay some of its revenue to the superDAO as well.

• Has a separate address
  • Is a multisig
• Uses the superDAO’s token
• Says it is
  • Pays a percentage of revenue to BanklessDAO
  • Inherits membership requirements
  • Approved by superDAO
  • Gets special treatment
    • Native in superDAOs Discord
    • Special grants

Bounty Board

This public product was created within BanklessDAO and gets grants as well. It has internal channels in the superDAO. It would eventually pay some of its revenue to the superDAO as well.

• Has a separate address
  • Is a multisig
• Uses the superDAO’s token
• Says it is
  • Pays a percentage of revenue to BanklessDAO
  • Inherits membership requirements
  • Approved by superDAO
  • Gets special treatment
    • Native in superDAOs Discord
    • Special grants

DAO Punks

This spin-out NFT community has deep roots in the BanklessDAO, pays % of revenue back to the DAO, and grants special features to BANK token holders.

• Has a separate address
  • Is a multisig
• Uses the superDAO’s token
• Says it is
  • Pays a percentage of revenue to BanklessDAO

What other examples can we use to validate our assumptions?

• Bankless Brazil
• Content Gateway
• The Rug

Why does this matter?

Increasingly (from my current viewpoint) we need to manage expectations in our projects, our guilds, and the DAO as a whole. We have journeyed 2+ seasons on amazing trust and now we are seeing some growing pains as we push into even newer territory.

Coordination at scale requires a distributed organization. Distributed organizations require certain expectations to be set to work together effectively.

By defining subDAOs, we enter a new era of organizational design - one where the lines are well defined and the rules of engagement are clear.

In every subDAO, we need to answer questions like:

• How do we define membership?
• How are conflicts resolved and escalated?
• What are our financial policies on revenue & taxation?
• How are elections handled?
• What is the contributor rewards strategy?
• How does a new token fit into the greater landscape?
• How is ownership of IP defined?

And the DAO as a whole must be able to answer:

• How do we properly create new projects?
• How do we work together across different communication platforms and duplicate Discord servers?
• How can the Grants Committee effectively evaluate projects?
• How do we know where the DAO ends?

These questions need answers and I believe that building upon the subDAO frame of reference is a great way to approach the problem.

In that vein, I see the need for firmly defining subDAOs with constitutional documents that must answer these questions.

Templatizing subDAOs

Imagine the following:

You are new to the DAO and you join the Developers guild. When you join, you are sent a Constitution that outlines the following items:

• The mission of the Guild
• Minimum requirements for membership
• Membership rewards policy (UBI, Coordinape)
• Election framework
• Conflict resolution policy
• Revenue & taxation policy
• Ownership Framework

You’d have an extremely clear view of the structure and boundaries that this organization defines itself within.

Now imagine you’re on the grants committee and are evaluating dozens of projects for funding. Wouldn’t it be much clearer to understand the shape and intent of the project if it had listed all of those policies?

As a GC member, it’s much easier to categorize a project that “sends all revenue to DAO treasury” vs one that “intends to use funds as seed capital and use revenue for the project team”.

Let’s take it further.

In the same vein as an LLC or 501c3 organization (in the US), we can create specific codes for the agreements of a subDAO as shorthand for ease of use and even compliance.

• Election Framework: EF-7
• Conflict Resolution Policy: T-800
• Taxation Policy: T-1
• Ownership Framework: O-600

Not all subDAOs could use such shorthands for everything, but my instinct tells me that there is decent overlap and this could offer a number of benefits.

1. Quick spawn new subDAOs with templates
   a. “Non for profit, internal subDAO”
   b. “Revenue seeking, external product”
2. Standardized & fast evaluation for Grants Committee
   a. “Oh, this Conflict Resolution policy is the T-800, I’m familiar with this and approve.”
   b. “This subDAO does not have a defined Conflict Resolution policy, we shouldn’t fund it.”
   c. “Our budget states that 30% of funds must go to Taxation Policy T-1 subDAOs.”-
   d. “This subDAO’s contributor rewards policy & membership policy clearly show the need to fund 200K BANK coordinape round”

Let’s take it FURTHER!

Perhaps for each of these line items, we can standardize the entire unit and roll up the common choices to a classified subDAO system.

Maybe a Guild is an “S-1” subDAO, which would be the same way of saying it has the agreement list as defined above. Maybe even subDAOs as CODE!

Ultimately, a classification system forces us to answer core questions about our subDAOs and the nature of how we are all connected. Acutely defining our values and processes will ultimately allow us to manage expectations and work together on top of a solid foundation.

What now?

We need to discuss and come to some consensus on what is and is not a subDAO.

From there we would begin evaluating each of the facets of a subDAO and if we could even templatize them - this could eventually lead to the classification system after a long effort.

This is the beginning of a long road to understanding what we are and how we work together going forward.

I’m happy I get to walk it with you all.

DAO strong

[Grendel]

Great post, I share a lot of concepts, including “A subDAO could be polyamorous”.
Many subDAOs will grow, becoming independent from the superDAO / superDAOs with which they will intertwine different modes of interaction and partnership, depending on the type of DAO they embody. It is possible to imagine that the greater the polyamorous capacity of the DAO, the greater the capacity for growth and independence.

I am more than willing to participate in the conversation and the definition of the topic together with the whole DAO.

[jonvaljonathan]

Awesome post James!

I like the idea of achieving alignment by having the subDAO hold a certain amount of superDAO tokens (BANK) on their multsig.

I also like the idea of the superDAO holding subDAO tokens.

It’s very crypto-y alignment. Count me in for anything that is crypto native.

We had a project classification system floating around at one point in the Dev Guild. I think that would be very helpful in this and the greater conversation happening within the DAO.

SubDAO’s could be classified as:

• profit seeking
• not for profit
• sort of a B-corp designation
• DAO public goods

[Eagle]

This is really a brilliant post. Thank you very much for your vision. I agree on a lot of your points. I would also like to know how do you see the “branding” problem. Can a subDAO use the brand of the superDAO? Is this a subDAO requirement?

In general terms, to me this discussion on subDAO makes sense only for sub-groups that aim at becoming economically indipendent. Devs have well organized themselves in multiple projects, but they live only thanks to the generous BANK allocations. I don’t see the point of beginning to consider the Devs as a subDAO. If there isn’t economic indipendence, it is just a nominalistic issue.

It would become even worse if beeing a subDAO would only mean partially not being subject to the superDAO governance. Until the group/sub-organization exists only because the superDAO pumps token in, I really don’t see the point of changing names.

I would be super interested in knowing what DAOpunks would be. This could be seen as a SubDAO, but perhaps it would be more a Spin-off which is completely indipendent from BanklessDAO.

Finally, from what I see you consider the superDAO-subDAO relationship something different than the Mother-company-simple company relationship. In the off-chain world the mother company has always the control, whereas - as far as I understand - you intend subDAOs as indipendent bodies. In my view this could be possible only if the creation of the subDAO is an advantage for the superDAO in economic terms.

I think that a central point here is that a community vote must decide if the DAO guild or projects could get the status of SubDAO and economic implications should be 100% clear.

[jonvaljonathan]

An example, Revenue Seeking Project, seeks funding. Completes grants process. bDAO aggrees they want to fund RSP. Negotiations happen.

bDAO agrees that they will fund RSP say, 500k BANK for 10% of RSP tokens. Parties agree.

bDAO votes on RSP governance. RSP goes on to be a wild success. Price of RSP goes up. bDAO treasury wins.

@Eagle

It would become even worse if beeing a subDAO would only mean partially not being subject to the superDAO governance.

In exchange for funding in BANK, the Revenue Seeking Project gives up RSP governance tokens. bDAO holds those tokens on the multisig and can participate in RSP governance.

In my view this could be possible only if the creation of the subDAO is an advantage for the superDAO in economic terms.

bDAO holding the RSP tokens is advantageous in economic terms.

[samanthaj]

This is an amazing post. Thank you for opening up this important discussion.

I get hung up on the guilds vs. projects debate, and it feels extra important when we begin considering subDAOs. I see guilds as coordination layers and talent pools, yet projects are the revenue-generating, output arms of those guilds. I also think the polyamorous discussion is important. I don’t see guilds as polyamorous, but I DO see projects as polyamorous.

So,

Dev Guild: Coordination layer/talent pool/superDAO connection. Incubating new projects. Always funded by the superDAO. Not polyamorous.
BB Project subDAO, generating revenue and becoming self-sufficient. Polyamorous.
Degen Project: subDAO, generating revenue and becoming self-sufficient. Polyamorous.

Another example:

Writers Guild: Coordination layer/talent pool/superDAO connection. Incubating new projects. Always funded by the superDAO. Not polyamorous.
Newsletter Project: subDAO, generating revenue and becoming self-sufficient. Polyamorous.
EPA Project: subDAO, generating revenue and becoming self-sufficient. Polyamorous.

Would love to hear everyone’s thoughts. Thanks for the interesting discussion

[tswords]

A great read thanks for sharing!

On Grendel’s original post, I like the idea of aligning economical incentives between superDAO and subDAO and that subDAO should pay tribute to superDAO one way or another, the exact mechanism has much room to play.

I really resonate with the idea of codifying all “existential” and governance matter for the subDAO to eliminate growth pain (having clear & proven processes) and misalignment issues down the road. Having a framework in place ensure subDAO is not siloed in its own community and in fact shared the same backbone infrastructure with superDAO as connection.

[Jengajojo]

Great post and definitely a conversation the community needs to have. I agree with many points you’ve mentioned however i strongly believe that sub-DAOs should not have their own token, or if they do, we should find a way so that it brings value back to BANK holders.

Specifically talking about the IMN project, we have almost 15 sub-DAOs each with their own internal rules and practices. I wonder how we can structure the incentives in a case where each sub-DAO also has its own language and all the resulting documents are written in another language besides English. Maybe ultimately a ‘proof of stake’ type arrangement is the only proof we can have about alignment with the superDAO.

Finally, I think that there could be better ways to govern a DAO of subDAOs than copying the existing nation-state frameworks which just result in increased bureaucracy instead of fast-paced innovation and quick shipping.

[Eagle]

In theory, you are right. But 90% of tokens are scams
There is the need of an enormous support in the community in order to have a valuable project. Bankless is too small at the moment: we don’t have a significant market cap and our liqudity is very low.

[jonvaljonathan]

@Eagle

In theory, you are right. But 90% of tokens are scams

This is true. They also say 90% of startups fail.

I’m not advocating to start creating scams.

I’m advocating that bDAO gets something in return for it’s funding.

I haven’t seen another option proposed outside centralization or just getting to it later.

@Eagle

Bankless is too small at the moment: we don’t have a significant market cap and our liqudity is very low.

How are we going to raise the market cap while staying decentralized?

I made my proposal. I’m hoping to step back and hear from others on this.

[lorena]

Very interesting post and replies.
1.- Could be considered the Subdao as a company and Superdao as a holding company?. That is the idea?
How can be consider for the law?

2. Could be possible that having a new token be on detrimental to the uniqueness of the DAO?, Any Subdao can later become in a new DAO if its holders so decide?.

[rotorless]

This is a great mind stimulating post and that you for taking the time to write it. Like many of the commentators I share a lot of your view on many of your points.

I also agree with @Jengajojo that we must be alert to mean-reverting governance towards a corporate nation-state model and I, at least, believe there is room to explore and ideate in this area for alternatives that can overcome the mischief that DAOs promise to resolve. While there maybe a place for subDAOs this solution could be a premature development that closes off opportunities to resolve existing gaps in the present, for example gaps in the governance that affect retention, contributor performance, or contributor self-management.

Your post has made me think about completely unperfected ideas in my head about the interplay between “skin in the game “ collateral and the incentive of not loosing it , remuneration for contributions, and IRL resolution of independent “contactor” status ( vs employee) and how it impacts governance.

For example:

Individual A ( or Project, Pod, Group or Guild , etc…) promises to produce workZ at FixDate . WorkZ pays 10 $Tokens. Individual A bonds collateral in the form of discounted bond for example 4 $Tokens (random). When WorkZ is complete, peers of individual A (Project, Pod, Group, or Guild whatever the level of the bond was made at) verify/validate/confirm WorkZ and release the undiscounted bond at 14 $Token back to the contributor (A streaming vesting schedule would also be possible).

In this model, contributors ( at any level or size) commit to bond themselves to complete work to the satisfaction of their peers. In the intervening period between bond and release of the $Token, the DAO obtains the value added opportunity to use the bonded $Token amount to diversify and grow its treasury (stablecoins for example). At the end period, the undiscounted bond $Tokens are returned to the contributor. If WorkZ was abandoned or somehow at odds with the expectation the collateral reverts to the DAO to generate further treasury revenue to fund further activity grants to groups. For example the newsletter was not produced (not picking on anyone).

This model relies less on a centralized form of taxation/tithe and responds to some existing frictions distinguishing between participation and contribution. It also presents opportunities for on-chain solutions eliminating a layer of inefficiency.

There could also be an advance/loan process to raise the collateral for contributors to the thresholds required to post bond. In this model the DAO is not exploiting the labor of the subordinate contributor project or group but collecting yield on an advance for a service it provided. It either collects yield or it collects collateral from contributors with a fixed start and end to risk and it generates revenue from its holdings, all the time advancing the mission and vision of the DAO.

From a governance lens this type of reasoning and process flattens the organization away from the direction of a hierarchical power pyramid with head taxes. This does not mean a SubDAO may not also be appropriate in certain scenarios but that evolving the existing governance model to decentralize power to the edges where self autonomy lays in the project or group itself, without cloning structures and spinning out groups as a remedy to central control, may help spell out when and what a SubDao is or is needed.

[Bpetes]

First off @jameswmontgomery.eth for a thoughtful post that furthers this important conversation of sub-DAOs and units of scale at bDAO. A detailed and articulate post. I resonate with the ‘polyamorous’ description and how this relates to what I consider to be the emerging future of:

"It's all DAO2DAO relationships". To your point of “ideally it’s on chain” See: Deals - PrimeDAO

That said, I really resonate w/ @Eagle I think it’s important to perhaps be careful with our classification of Sub-DAOs and the agreements formed. A guild might have a multi-sig and local governance so indeed it’s got the nature of a sub-DAO, but it’s entirely funded in BANK season to season. A guild mandate is more of a place of talent congregation, coordination, and engagement; along with subject-matter related standards, norms, and shared practices. Contrast this to ‘bDAO Consultancy’ which has an external facing service and revenue generation is its primary mode of operations. They’re both concentrated on deploying bDAO talent into meaningful work in a standardized way but the mandate for these are not the same thing. Both are a sub-DAO of the same parent-DAO perhaps, but not the same classification of sub-DAO and the agreements with the parent-DAO will differ greatly imo. Now I realize that sometimes guilds might incubate projects that may be revenue generating (or at least in aspiration) … more on that a bit later in my reply (i.e. Projects and the many paths of project → venture lifecycle).

Continuing this game of ‘it’s all sub-DAOs but not all sub-DAOs are the same’, I refer to the ops workstreams that congregate under the name ‘ops-guild’. It’s called a guild today but to me they’re subtly different than the dev-guild or design guild. They share more in common with things like Ombuds and Grants Committee performing services for the parent-DAO. Kind of like a community public good funded by the community. They too have a multi-sig and local governance methods so are a sub-DAO but again greater clarity on classification is required I think.

Then we have more external facing and revenue aspiring sub-DAOs like Degen, BountyBoard, etc --currently classified as projects. These have multi-sig and local governance, but today are fully funded by GC and feel more like a sub-DAO that’s incubating. This brings me to @Eagle’s point that perhaps revenue generating oriented sub-DAOs:

• may be on a path to self-sustainability;
• may be a different kind of class;
• may be on a path to “spin-out” at some stage of their life-cycle.

As they become more revenue generating and/or perhaps polyamorous in their funding (i.e. not exclusively funded by GC) they may ‘spin-out’. This forms something that feels like a greater distance from the parent-DAO and more of a DAO2DAO relationship vs. sub-DAO relationship over time (i.e. the awkward teenage in-between phase where they’re not quite a super-DAO in their own right yet). Not necessarily a bad thing given that we’re running out of Discord channels in our parent-DAO, that there may be healthy ways for children to leave home

If we think of things this way I’d consider DAOPunks a fully ‘spun-out’ sub-DAO that’s of class “VENTURE” which moved rather quickly from IDEA -> INCUBATED PROJECT -> SPUN-OUT VENTURE w/ strong DAO2DAO relations w/ bDAO. DAOPunks is different from most projects still incubating because they:

• Get significant funds from other communities;
• Have an indy tokenized primary value method (i.e. the NFTs); consequently considering BANK a secondary value transmission method in that community; and
• Needed a place that felt adjacent and connected but distanced enough from a Brand perspective that it could easily form relationships with other communities, individuals, and DAOs.

I suspect there will be more of these soon as more incubated projects find success and/or GC wishes them to be polyamourous for ongoing funding to help GC concentrate on incubation of new projects and ideas (because as mentioned in replies above there’s an incredible failure rate when it comes to innovation and GC will need to be making lots of bets as no one can predict winners well for nascent projects in a nascent space like ours)

I’d love to see:

• These classifications of sub-DAOs become better defined;
• Clear paths drawn for those that may be on a life-cycle that’s more dynamic than others (e.g. incubated sub-DAO to budding super-DAO that’s in the BanklessDAO Nation constellation; as well as,
• Templated agreements and tokenomics that make it easier for ideas to focus on execution and not negotiating/defining the way we do this.

Great call to action James!!