Governance SubDAO

A SubDAO is granted exclusive authority over a defined operational area, such as treasury management, protocol parameter adjustments, or grant funding. This creates a clear separation of concerns, allowing for specialized expertise and preventing governance fatigue in the main DAO. For example, a Treasury SubDAO might manage investment strategies, while a Grants SubDAO reviews and funds ecosystem projects.

The parent DAO delegates a specific scope of power to the SubDAO, often via a formal on-chain proposal and vote. Once established, the SubDAO operates autonomously within its mandate using its own governance token or voting mechanisms. This autonomy allows for faster, more agile decision-making on tactical issues without requiring a full DAO-wide vote for every action.

SubDAOs are typically composed of members with relevant skills for their domain. Membership can be based on:

• Token-gated access (holding a specific NFT or token).
• Reputation-based (earned through contributions).
• Election by the main DAO. This ensures decisions are made by informed participants, increasing the quality of governance outcomes in complex areas like smart contract upgrades or financial risk assessment.

A core feature is the SubDAO's control over a dedicated treasury or budget allocated by the parent organization. This allows it to:

• Execute payments for operational expenses.
• Fund grants or bounties.
• Compensate contributors. Spending authority is governed by the SubDAO's own rules, which might include multi-signature wallets or internal proposal voting, creating a clear audit trail for resource allocation.

While autonomous, SubDAOs remain accountable to the main DAO. Standard oversight mechanisms include:

• Veto power reserved by the parent DAO.
• Periodic review and renewal of the SubDAO's mandate.
• Ability to dissolve the SubDAO via a main DAO vote. This creates a checks-and-balances system, ensuring SubDAOs act in the broader community's interest and can be corrected if they deviate from their purpose.

SubDAOs implement tailored governance tooling suited to their needs, which may differ from the main DAO. This can include:

• Snapshot spaces for off-chain signaling.
• Custom voting contracts (e.g., quadratic voting for grants).
• Multisig wallets (e.g., Gnosis Safe) for treasury management.
• Reputation systems like SourceCred. This modularity allows each unit to optimize its processes for efficiency and security within its specific context.

A Parameter SubDAO is tasked with the ongoing optimization of a protocol's key economic and operational levers. This includes adjusting:

• Fee structures and revenue distribution.
• Collateral factors and loan-to-value (LTV) ratios in lending protocols.
• Staking rewards and inflation schedules.
• Slashing conditions in Proof-of-Stake networks.

This allows for rapid, expert-led adjustments without requiring a full DAO vote for every parameter tweak.

A Security SubDAO acts as a dedicated committee for ongoing protocol safety. Its mandate covers:

• Managing the bug bounty program and white-hat communications.
• Coordinating and paying for smart contract audits.
• Monitoring for economic exploits and proposing risk parameter updates.
• Acting as a first responder in the event of a security incident.

Example: MakerDAO's Risk Core Unit analyzes and proposes changes to collateral debt ceilings and stability fees.

A Legal SubDAO navigates the complex interface between the decentralized protocol and real-world legal systems. Its work involves:

• Engaging with outside counsel for jurisdiction-specific advice.
• Structuring legal wrappers or foundations for limited liability.
• Managing KYC/AML processes for services that require them.
• Drafting and enforcing terms of service for front-end interfaces. This SubDAO helps insulate the broader DAO from legal liability.

A Technical SubDAO or Protocol Engineering team is responsible for researching, specifying, and implementing core protocol changes. This includes:

• Drafting and socializing improvement proposals (e.g., EIPs, BIPs).
• Coordinating developer resources for implementation.
• Managing the upgrade process and timelocks.
• Maintaining critical oracle or keeper networks. This ensures technical decisions are made by those with the requisite expertise.

A SubDAO with elevated permissions to act swiftly in a crisis. Its role involves:

• Monitoring for protocol exploits or vulnerabilities.
• Executing emergency pauses or upgrades via a multisig or specialized module.
• Post-mortem analysis and proposing long-term security improvements.

Example: Many protocols have a Security Council or Emergency DAO with limited, time-bound powers to intervene during critical incidents.

SubDAOs that handle the interface between the decentralized protocol and the traditional legal system. Tasks include:

• Managing legal wrappers (e.g., Swiss associations, Cayman foundations).
• Overseeing intellectual property and trademark usage.
• Engaging with regulators and managing compliance for off-chain activities.

Example: The MakerDAO Foundation (now dissolved) initially served this role, later transitioning responsibilities to the broader DAO and specialized units.

A SubDAO composed of core developers and technical contributors who guide the protocol's roadmap. It focuses on:

• Prioritizing protocol upgrades and new feature development.
• Managing the core development fund and contractor payments.
• Reviewing and auditing code before production deployment.

Example: Curve's Curve DAO has a grants component, but technical direction is heavily influenced by its core development team and token-holder votes on improvement proposals.

A Governance SubDAO delegates authority to a focused group with specific expertise, such as treasury management or technical upgrades. This allows for efficient decision-making on complex topics without requiring the entire, often more generalist, main DAO community to vote on every detail. For example, a Treasury SubDAO can manage investment strategies and liquidity provisioning based on its members' financial acumen.

By compartmentalizing decisions, SubDAOs prevent voter fatigue in large communities. The main DAO sets high-level parameters and elects SubDAO members, who then handle the volume of granular, day-to-day proposals. This structure is critical for scaling protocols like Compound or Aave, where continuous parameter adjustments (e.g., collateral factors, interest rate models) are necessary but would overwhelm the broader electorate.

SubDAOs create security boundaries that limit the blast radius of a governance attack or a faulty decision. If a SubDAO governing a specific module (e.g., a grant program) is compromised, the attack is contained and does not threaten the protocol's core smart contracts or entire treasury. This principle of least privilege is a fundamental security best practice adopted by protocols like MakerDAO with its various FacilitatorDAOs.

Smaller, dedicated SubDAOs can iterate and execute decisions much faster than a monolithic DAO. They operate with defined mandates and budgets, enabling rapid experimentation and adaptation in areas like business development, marketing, or protocol integrations. This agility allows the broader ecosystem to test new initiatives without committing the full weight and slower pace of the main governance process.

SubDAOs establish clear accountability frameworks. Members are directly responsible for outcomes within their domain, and their performance can be measured against specific Key Performance Indicators (KPIs). This allows for better incentive alignment, as compensation or reputation for SubDAO members can be tied to the success of their specific mandate, unlike in a diffuse general assembly.

SubDAOs enable a modular architecture for protocol evolution. Different components (e.g., a new lending module, an oracle system) can be developed and governed by independent SubDAOs. This allows the main protocol to plug in new functionality without a contentious, all-or-nothing upgrade vote. The SubDAO model is foundational to cosmos SDK-based chains and optimistic rollup governance, where execution environments are managed separately.

A common risk where token holders in the parent DAO fail to actively participate in SubDAO governance, leading to capture by a small, motivated group. This can result in:

• Low quorum for critical proposals, stalling operations.
• Centralization of power among a few large holders or core contributors.
• Decisions that do not reflect the broader community's will, undermining legitimacy.

SubDAOs can develop goals and incentives that diverge from the parent DAO's overarching mission. Key issues include:

• Resource competition: SubDAOs may lobby for excessive treasury allocations.
• Mission drift: Focusing on sub-goals at the expense of the ecosystem's health.
• Coordination failure: Requires clear, enforceable mandates and key performance indicators (KPIs) to maintain alignment, often enforced via smart contracts or multisig oversight.

Delegating authority increases the attack surface. Each SubDAO typically controls its own treasury and smart contracts, creating vulnerabilities:

• Increased exploit vectors: A breach in a SubDAO's contracts can drain allocated funds.
• Multisig compromise: If governed by a multisignature wallet, the compromise of a threshold of keys is catastrophic.
• Upgrade risks: Poorly audited governance or treasury management contracts can be hijacked.

The decentralized and often anonymous nature of SubDAOs conflicts with traditional legal frameworks, creating liability risks:

• Lack of legal personhood: Difficulty entering contracts, holding IP, or defending in court.
• Regulatory scrutiny: SubDAOs handling financial activities (e.g., grants, investments) may attract securities or money transmission regulations.
• Member liability: In some jurisdictions, active participants could be deemed general partners, bearing unlimited liability for the SubDAO's actions.

Effective SubDAO design requires robust checks and balances from the parent DAO to mitigate risks. Common mechanisms include:

• Veto power: Parent DAO retains the ability to overrule major SubDAO decisions.
• Treasury limits: Capping the amount of assets a SubDAO can control without approval.
• Sunset provisions: Automatic dissolution of the SubDAO after a period or upon meeting its mandate.
• Transparency mandates: Requiring regular reporting of on-chain activity and financials.

A foundational model where voting power is proportional to a user's holdings of a native governance token. This is the most common mechanism for on-chain voting, used by protocols like Compound (COMP) and Uniswap (UNI). Key features include:

• One-token-one-vote: Simple but can lead to plutocracy.
• Delegation: Token holders can delegate voting power to representatives.
• Proposal Thresholds: Minimum token requirements to submit a governance proposal.

A security model where proposals are executed immediately after a vote, but are subject to a challenge period. During this period, any participant can dispute the proposal's validity, often by staking a bond. This model, pioneered by Optimism's Citizen House, enables faster execution while maintaining security through cryptoeconomic incentives and fallback arbitration.

A design philosophy aiming to reduce the scope and frequency of active governance decisions by making core protocol components immutable or autonomous. The goal is to limit the attack surface and coordination overhead of governance. This is often achieved through:

• Parameterization: Setting safe, wide bounds for adjustable parameters.
• Escalation Games: Using time delays and multi-step processes for major changes.
• Example: MakerDAO's Emergency Shutdown Module is a minimized, last-resort governance mechanism.

The ultimate exit mechanism in decentralized governance, where a dissenting group clones the protocol's code and state to create a new, competing network. This acts as a credible threat to keep the core governance honest.

• Code Fork: Copying the open-source protocol.
• Social Fork: Migrating the community and liquidity, as seen in the Uniswap v3 license expiration and potential forks.
• Token Distribution: New forks often involve airdropping new tokens to existing holders or participants.