Why and How we SubDAO

This article presents the conclusions of a research project between RnDAO and Sobol. In this research, we attempt to define groups within DAOs- what we call DAO Units. We also explore the definitions used by members of a range of popular DAOs, determine their motivations and approaches in creating DAO Units, and identify a series of common challenges when setting up and operating different kinds of DAO Units.

RnDAO is an innovation center funded by DAOs to serve DAOs, with a mission to empower humane collaboration. We help projects deeply understand DAOs and user challenges, so they can build tools that make decentralization fluid and natural, thus facilitating mainstream DAO adoption.

Sobol is a collaboration platform for autonomous and decentralized teams. Sobol’s mission is to accelerate the transition to decentralized and humanistic work by making it easier to operate effectively as a DAO.

We formed this partnership to understand the context of DAO Units, prioritize problems that block success for DAO Units, and help the DAO tooling ecosystem become more strategic.

We formed this partnership to understand the context of DAO Units, prioritize problems that block success for DAO Units, and help the DAO tooling ecosystem become more strategic.

TERMINOLOGY

Throughout our work, we define “DAO Units” as any time a DAO forms a smaller group of contributors within the DAO, with a distinct purpose and independence to act.  We heard so many different terms and definitions from our participants, and felt like “SubDAO” implied something quite specific. Think of DAO Units as a large and diverse family, with distinct variations within.

METHODOLOGY

The team interviewed 15 diverse people contributing to 14 different DAOs. Each interview started as a casual conversation about the DAO and the individual's role in the DAO. The interviewers encouraged the DAO members to share stories about DAO Units such as 'The first DAO Unit the DAO created, how it went, what blew up, what was hard and why.' The interviewers then unpacked the root causes of why there were challenges within the DAO Unit. Finally, the participants answered a quantitative survey on DAO Units covering insights, commonalities, and common challenges.

We used this kind of in-depth qualitative research because we wanted to get beyond counting and opinions. If our goal is to invent and design tools that solve the biggest problems facing DAOs, then we need to understand the subtle details about how these problems appear. We also need to understand what motivates DAOs to create DAO Units. We use this research to create a base of insights. We recommend following our research with quantitative methods (to understand frequency in the market) and light empirical methods (to test whether the insights are true).

Why do DAOs create DAO Units?

We asked DAO Unit members and leaders about the core reason for the DAO Units' existence, and the pain points the DAO Units are trying to solve. We arrived at the following reasons:

1. DAOs create DAO Units to drive action. Rather than involving the entire DAO in every decision and action, DAOs form smaller DAO Units to drive decentralization. DAO participants believe that:
   1. Smaller groups are better at collaborating and getting things done.
   2. DAO Units bring better accountability. Clear division of work and goals can be established and tracked with smaller DAO Units. Smaller DAO Units also reduce the contributors' information burden and let the individual DAO Units focus on specific goals and, in turn, give a better sense of commitment.
   3. The DAO cannot make all decisions with proposals and vote structures; some decisions may not even need everyone's opinion. Operational decisions, routine work, or tasks that do not impact the entire DAO and its treasury, but need to be done to keep the DAO running, do not typically go for a vote or governance proposal.
2. DAOs create DAO Units to be decisive. Voting and governance processes take a minimum of 3 days or more from proposal to execution. Involving the entire DAO in every decision slows decision-making and creates information overload. The DAOs expect the DAO Units to help in:
   1. Deciding where to invest available funds. Deploying large treasuries requires time and attention that DAO Units can provide.
   2. Focusing attention on a specific domain. The DAO may decide on macro objectives, but leave the decisions on execution to smaller DAO Units. This may involve multiple, smaller decisions to be taken. Sometimes DAOs create DAO Units to introduce checks and balances. Certain DAO Units can quickly flag or veto decisions taken by the main DAO or other DAO Units. For example, Decentraland DAO has a Security Advisory Board of solidity experts with a 3 / 5 multi-sig. This board can pause, cancel or resume any action taken by the DAO.
3. DAOs create DAO Units to support broader contribution and decentralization. By organizing as DAO Units, DAO participants aim to:
   1. Enable more contributors to take responsibility in an official capacity and gain a sense of ownership as a result.
   2. Make it more comfortable for people to join
4. And finally, a few DAOs also create DAO Units for risk management.
   1. Avoid exposing the primary token to riskier activities (e.g. DeFi)
   2. Facilitate bridging to other DAOs

Common Types of DAO Units in DAOs:

When asked what constitutes a DAO Unit, each participant had clear boundaries to define DAO Units, but the criteria varied. Some use it to mean any group or organized DAO Unit within the DAO. Others made a sharp distinction between normal DAO Units and “true” subDAOs, which might have a treasury of its own, or its own method of funding, or (occasionally) its own token.

In synthesizing the stories from participants, we found the following four archetypes of DAO Units:

Departments

Functional groups where people can independently carry out work- usually a single discipline or practice. Ex: DevOps, Tech support, Marketing. These are also called Guilds in some DAOs. The structure here is similar to typical organizations in that each DAO Unit may have a lead or steward with significant influence. The leads and stewards typically have delegated voting powers meaning other DAO participants' delegate' their votes to stewards who vote on proposals. Departments typically propose a budget to the main DAO every quarter, move funds out of the treasury after the bid is voted on, and subsequently use the funds to pay the contributors, bounties, and other activities without further approvals. Departments are also typically meant to exist long-term. An interesting variation on a department is the VitaDAO Special Purpose Vehicle for collaborating with institutions such as pharma companies and funds. This group has dedicated tokens reserved for voting, which empowers it to make independent decisions. But it will have ongoing work to support every collaboration opportunity.

Projects

Multi-disciplinarian teams organized for a specific goal. This can also comprise members from multiple DAOs, so support cross-DAO collaboration. The team is typically dissolved after the project is accomplished or aborted. Projects are usually initiated by a Project leader in a DAO governance proposal with a set budget. Examples of typical projects are launching a new product, figuring out a new process for the DAO, or creating a media initiative. Project teams are also called pods or Raids.

Ventures

These are highly autonomous DAO Units that might eventually generate their own revenue. Ventures often have one or more of the following:

• a treasury solely dedicated to the DAO Unit
• dedicated, independent team
• their own token
• a separate governance model

Ventures are the rarest form of a DAO Unit, partly because most DAOs struggle to allow a project that began by supporting the DAO to then change their purpose and serve other 'clients' too.

Examples of Venture Units are CowSwap, a Gnosis DAO product-based venture spin-off, and Bankless Consulting, a service-based Venture DAO Unit.

Committees

A DAO Unit that approves or audits projects (we found one DAO with a DAO Unit to find dead accounts). Committees are not defined by their discipline (i.e. not composed exclusively of marketing people, or exclusively of finance, or HR), but instead frequently solve alignment conflicts between different departments. Often DAO leaders or stewards who have governance control form a committee.

An example within CityDAO was their mission guild. This was setup to ensure that the decisions being taken were aligned with the mission, and to prevent ‘whales’ from influencing unfavorable outcomes. As such, the committee had  veto authority. As the governance process has evolved, this DAO Unit is now being dismantled.

Quantitative survey on DAO Units

Where DAO Units come from

1. Bottom up: Group of people identify the need for a dedicated DAO Unit and raise a proposal. For example, the marketing team may propose a meme guild to onboard creative contributors or to  build fun collaborations with other DAOs.
2. Top down: A DAO leader or founder may propose the formation of a new team in the governance forum. For example, the founder of GitcoinDAO proposed the formation of a Data Science practice.

The best DAO Units

We asked the DAO participants “What makes a happy DAO Unit?” and “Tell us about the best DAO Units you have seen”. We then dug deeper into what it takes to build a successful DAO Unit. The answers varied by the type of DAO Units.

Departments worked best when given very clear tasks: where it was simple to evaluate work, and contributing was open and easy.  Bountying tasks was the common way to bring in engaged contributors. The success of departments relied on a core team or an established process to decompose and define an ongoing pipeline of work.

In Project DAO Units, DAO participants prefer having one leader who decides who can join the team, and often centralizes the decisions. This could be because of the complex nature of the projects as well as the compulsion to deliver on clear objectives in a limited time (and lack of training in other methodologies).

Finally, we found that successful Venture DAO Units tended to be those that had clearly agreed on asset ownership and shared benefits from formation.

Conclusion

In this section, we gathered insights from DAO participants and defined the ‘Why’, ‘What’ and ‘How’ of DAO Units. DAO Units are smaller groups created in DAOs to drive action, to speed up decision-making, introduce checks and balances, facilitate broader contribution, or mitigate risks. Broadly, we identified 4 types of DAO Units in the order of their frequency- Departments (a.k.a guilds), Projects, Ventures and Committees. These DAO Units are formed through proposals in the main DAOs, initiated by a small group in the DAO, or by the DAO founders/leaders.

We observed that  DAOs are taking a top-down approach to decentralization. While broader decisions are done through governance proposals, DAO Units have many of the same hierarchical structures that appear in traditional corporations. One key difference between the structures of DAO Units and corporations is transparency and permissionless access. The DAO Units are, however, answerable to a larger decentralized structure.

In the following articles, we will delve into the biggest challenges within DAO Units. We also separately gathered perspectives of DAO Unit leaders and DAO Unit members and synthesized these perspectives to suss out the root cause of challenges of DAO Unit leaders and members.

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