MakerDAO is a name that resonates without the need for an introduction. However, for the sake of clarity, they proudly hold the title of being the largest and most established decentralized autonomous organization (DAO). Comprising individuals from across the globe, they harness the power of blockchain and crypto to collaborate and govern a substantial on-chain economic system.
MakerDAO stands as a shining example of a truly decentralized autonomous organization. Beyond that distinction, they can proudly lay claim to a revolutionary role in the DeFi ecosystem. Maker was the pioneering force behind DeFi's inaugural decentralized stablecoin, the multi-collateralized DAI.
Image source: MakerDAO (Rune, Co-founder, MakerDAO)
Rune, a Co-founder of MakerDAO had this to say about Maker’s role in DeFi, its main product, and standing vision: “The key product that the DAO runs is the DAI stablecoin, the world’s biggest decentralized stablecoin. In regards to our role in DeFi, we’ve gotten to this position as basically the leader of DeFi, DAOs and user applications because the culture for us has been to build something real for real users and not get caught up in the hype.”
Maker’s progress has been somewhat slow and steady over the last eight years, of course with some challenges. However, it speaks to how consistency and an unwavering commitment to clear goals can put you back in the spotlight and rightly so.
Undoubtedly, MakerDAO is enjoying some attention at the moment and this could be said to be part of a new wave of refocus on foundational DeFi protocols and DAOs.
“All the other stuff that took the attention turned out not to be real, so it’s not a refocus of attention but a recalibration of what is even there," says Rune. "And it’s not like the OG protocols did something, they just did the same thing they’ve always been doing.
“And then there was big smoke and mirrors of certain things but it all turned out not to be the real deal.”
As an OG Protocol, there’s a tendency for MakerDAO to feel somewhat responsible for building products that attract users and ensure that they don’t get hurt being swayed by other protocols lacking in the basic rudiments of what makes this space safe.
However, the events of the previous year and even this year (Luna, FTX, and other significant deleveraging events) have served as a wake-up call to build products that are exciting enough to retain users — The result? Maker’s ENDGAME.
“The goal is to come up with a solution that would keep Maker itself stable and reliable forever so that it can act as a foundational layer for an economic ecosystem. We realized that this is possible by simplifying the core; extracting the complexity and putting it into what’s called SubDAOS, and this is the game changer.”
Maker recognizes SubDAOs as specialized smaller communities with the potential to enact profound change within the space. These SubDAOs essentially take a specific facet of Maker's broader objectives and cultivate a unique community and culture that seamlessly aligns with the goals of both the SubDAOs and Maker as a whole. It's a strategy designed to foster alignment and drive innovation within the Maker ecosystem.
With SubDAOs, MakerDAO is looking to reignite the fun in gamifying finance without the nuances and risks, allowing folks the opportunity to experience DeFi summer without it blowing up right into their face. One obvious power of the SubDAOS is that they’re run by DAI users or existing community members of the Maker community.
Rune explains: “There are no insiders, no founders, there are just the DAI stable users. You upgrade your DAI and then you pick the SubDAO you want to farm and now you have the voting power for that SubDAO, and then the users decide what they want and what they’re interested in.”
It’s important to note that SubDAOs are sort of a first of its kind and so there’s no precursor as to what to do. However, the Maker community has presented various options and incubated some projects as potential models. Ultimately, it's left to the users to determine their own path within this framework.
Among the SubDAOs aligning with Maker's vision is SakuraDAO, one of four business-focused DAOs. SakuraDAO has a distinct regional focus, primarily centred around the Japanese community. They recently hosted their Genesis event in Seoul in September, marking an exciting step forward in their journey.
Image source: MakerDAO
The interesting thing about a SubDAO like Sakura is that the DAO members all have one thing in common: A deep love for Japanese culture which includes cool Animes and more, as well as the desire to earn DeFi yields.
Other SubDAOs exist as well, such as SparkDAO, a DAI-centric money market protocol leveraging liquidity from Maker and an impeccable UX to offer incredible yields and of course, will be governed by the SPK token.
Lastly, are the real-world asset SubDAOs wherein you'll find the Quantitative and Qualitative SubDAOs, each with distinct missions.
The Quantitative SubDAO concentrates on public-credit Real-World Assets (RWAs), while the Qualitative SubDAO is venturing into the realm of on-chain tokenization for tangible assets, aiming to bridge the gap between private and public credit. These specialized branches showcase the diverse and innovative approaches emerging within the Maker ecosystem.
It’s important to state that these SubDAOs are sort of region-specific, focusing on Southeast Asia because of the economic conditions that support the growth of such initiatives.
“With the SubDAO you can create the conditions and encourage local people to be the top holders because they are based in South-East Asia, they should get the tokens because they have the know-how to make the good deals,” says Rune.
Amidst these audacious efforts by the MakerDAO and the SubDAOs, it’s equally important for Maker to take into consideration the marketing and education of such initiatives (SubDAOs), as this has been a shortfall both in the past and even now.
“It (marketing and education) is the centrepiece of the whole thing,” says Rune. “One part of Endgame is all about resilience and sustainability, that all of this structure runs forever.”
“But if you’re gonna’ run forever then you’ve to figure out how to grow forever. So growth is an integral and completely fundamental part of it. The key thing that underscores that is the fact that this is a new brand and everything around it changes and gets with the times to focus on user wants and how to build it.”
MakerDAO is looking at the blind spots, at the back and front of their journey, and in doing so, has come up with a solution that effectively caters to those blind spots — The SubDAOs which will operate as separate but connected entities governed by their own tokens — at the moment, all six of them.
Indeed, launching six tokens simultaneously is no small feat, and it's quite a bold move. While MakerDAO's reputation as one of the most prominent and liquid protocols in the space is reassuring, tokenomics remains the proving ground for sustainability and success. There's often no middle ground in this regard.
Understanding the meticulous thought and planning that went into the tokenomics of this venture is crucial, as it plays a pivotal role in the long-term viability of these tokens and the overall ecosystem.
Image source: MakerDAO
The approach to tokenomics by MakerDAO is done through what they call “Alignment engineering” which is the idea that you can design all the tools available to people or DAO members including the governance rules, the tokenomics, the cultural vibe, designed to push people towards an aligned behaviour and away from the pitfalls of the space. What makes it more interesting is that you can get free tokens from the SubDAOs simply by holding DAI and opting in.
“The basic thing is you can get a cash yield from Maker which Maker is completely able to generate because it is deploying the capital into actual yield-generating assets.
"You can also choose to not get the cash yields, and the leftover money then goes to the SubDAO and at such, the economics checks out; you can get free tokens from the SubDAO.”
While this might not mean you get outrageous APYs, the sound of free tokens makes it very fun.
“The Tokenomics is supposed to be fun but it doesn’t mean it is stupid or unsustainable”
The concept of SubDAOs indeed offers a fresh perspective on how these innovations can extend into the real world. With the existing framework in place, the possibilities for SubDAO ideas are limitless. They can venture beyond the insular world of crypto and DeFi, actively engaging with users outside of these echo chambers.
By incorporating outliers and tapping into diverse user bases, SubDAOs have the potential to craft a financial ecosystem that is not only functional but also enjoyable and accessible to a broader audience. An example of such an experiment is in SubDAOs taking advantage of the localized “boots on the ground” approach to fund small businesses for higher interest rates through funding from Maker core.
Truly, it’s a beautiful thing when you envision how SubDAOs can act as powerful catalysts for emerging economies, efficiently deploying capital to ventures that make a tangible impact.
MakerDAO as an OG DeFi ecosystem has evolved to a stage that resembles the operations prevalent in Trad-Fi powerhouses in terms of ventures through smaller moving vehicles— in this case, SubDAOs.
SubDAOs stretch the limits of true innovation both in the echo chambers of the blockchain ecosystem and in the real world. What's particularly impressive, especially in the context of real-world impact, is the localized approach these initiatives take, tailoring their efforts to address specific regional needs and opportunities.
“The big question is if it’s possible to sort of scale the people's side of this with these tokens. And one approach is to hire the experts, get the locals who are the top holders as well, and focus specifically on the venture.”
The driving force behind all of this is building a system that runs itself and does something good. And the way MakerDAO is achieving this isn’t by developing some big machine that runs a code in a loop but rather by getting humans to run themselves through preset structures and mechanisms in a way that’s beneficial, positive, efficient, and sustainable — The ENDGAME.
N/B: This featured article has undergone editing to enhance its brevity and clarity.