A New Paradigm for Web3 Project Expansion: subDAO Model

In the field of Web3, the growth potential of a project is crucial for investment returns. However, there are very few projects that can successfully expand into new business areas, and established projects often struggle to compete with new projects that focus on these fields. To address this issue, the subDAO model combined with efficient execution may offer a solution. Taking Magpie as an example, it is rapidly expanding through the subDAO model, and this article will delve into the best practices of subDAO.

Definition and Characteristics of subDAO

A qualified subDAO should have the following characteristics:

1. Have independent tokens and autonomous expansion capabilities
2. The parent DAO holds a large proportion of subDAO equity.
3. Achieve mutual benefit and win-win between the parent DAO and subDAO

Taking Radpie, the yield booster of Radiant under Magpie's subDAO, as an example. Radpie will issue $RDP tokens, of which 20% will be held by the Magpie treasury, and an additional 30% of the IDO allocation will also be distributed to MGP. This means:

• MGP holders can share the IDO profits.
• MGP holders will enjoy the "dividends" of $RDP in the future.
• Magpie has gained significant control over Radpie, thereby influencing the governance of Radiant.
• Radpie can quickly launch using the team resources of Magpie.

Advantages of the subDAO Model

1. Reputation Inheritance: subDAO inherits the reputation accumulated by the parent DAO, facilitating a quick launch.
2. Growth Momentum: Independent tokens provide ample incentive budgets.
3. Narrative Update: subDAO keeps up with new trends, allowing the parent DAO to also stay in tune with market hotspots.
4. Resource Circulation: Achieve linkage and resource sharing within the mother DAO ecosystem to enhance efficiency.
5. Governance Leverage: The parent DAO of the governance track can achieve leveraged governance through subDAOs.

Credibility Advantages

New projects in the cryptocurrency space are most worried about exit scams (rug pulls), and liquidity providers often give high risk discounts to new projects. subDAOs can inherit the reputation of the parent DAO, greatly reducing concerns in this area, and making cooperation with opinion leaders and other project parties smoother. Reputation is an intangible asset that can be continuously accumulated, and the success of existing projects will pave the way for new subDAOs in the future.

growth and narrative advantages

The Web3 field generally adopts aggressive customer acquisition and financing models, with tokens being a key tool for achieving this model. Established projects often find themselves in a dilemma when launching new businesses: a large issuance of tokens to incentivize the new project may lead to a price drop, while not doing so makes it difficult to win in the competition.

What makes it more challenging is that old project tokens are difficult to speculate on due to their large scale and unclear positioning. When the market chases new hotspots, these tokens are often not included in the core discussion. For example, StakeDAO has developed a governance rights business similar to Convex over the past year, integrating 10 projects but with limited effectiveness. Even with the integration of Pendle, it has not been able to share much of Pendle's popularity.

In contrast, the subDAO model is different. Taking Penpie/$PNP as an example, as an independent project, it has not issued any additional $MGP, and it is closely tied to the narrative of Pendle. Although on the surface the price of $MGP has not changed significantly, considering that similar projects like WMX have recently dropped by 70%, without Penpie, the situation for MGP could have been worse.

Resource Recycling

For example, recently the mPendle/Pendle trading pool launched Wombat and is seeking to use a bribery mechanism through MGP, so that the incentive expenditure of PNP flows to MGP holders. In the future, could mWOM/mDLP and both parties' LP tokens also land on Pendle, and then use $MGP and $RDP to participate in Penpie's bribery market? Although there is currently no clear information, it can be inferred that this possibility is not small.

The newly issued tokens remain within the Magpie ecosystem through a bribery mechanism, forming an internal cycle that reduces net external expenditure. In addition to the internal cycle, there is also an external cycle, which lowers costs and improves efficiency through resource sharing among multiple projects. For example, Ankr obtains Wom incentives through Magpie's bribery, and Penpie has also been successfully introduced.

The ultimate goal of Magpie may be that all incentive tokens are not directly distributed, but rather enhance efficiency within the ecosystem through bribery, achieving mutual benefits, and establishing a more competitive bribery market through resource sharing in business development.

Magpie focuses on the governance rights track, and the subDAO model is a perfect match. This track differs from perpetual contracts that require continuous development, as the follow-up work is relatively minimal after the project is established, and the degree of homogenization is high, allowing new projects to extensively reuse previous work. For example, Penpie quickly launched a bribery market that is very similar to the market Magpie previously created for Wom, which is also part of resource recycling.

Governance Leverage

Taking Magpie as an example, nominally Magpie controls 20% of Penpie's governance rights, while Penpie controls 25% of Pendle's governance rights. From one perspective, Magpie enjoys 20% × 25% = 5% of the various benefits of vePendle, but from another perspective, in the governance of the protocol, 20% of Magpie's votes will largely determine Penpie's votes, equivalent to holding nearly 25% of Pendle's governance rights.

This is what is known as the leverage effect. Although subDAO dilutes the general equity part, there is almost no dilution in terms of protocol governance. The entire Penpie is, in a sense, a concerted actor, equivalent to 1/20%=5 times leverage.

The Importance of Execution

The concept of subDAO is good, but ultimately it relies on execution to be realized. Taking MakerDAO's Spark as an example, its progress has been poor after more than half a year since its launch, having only forked AAVE and no significant updates since then. The tokenomics has yet to be determined, and it cannot yet be called a true subDAO. This highlights the importance of the team's execution capability.

Conclusion

The subDAO model, coupled with excellent execution capabilities, has opened up new growth paths for Web3 projects. By rapidly expanding through subDAOs, projects can gain ample new growth budgets, keep up with the latest market trends, and achieve ecological synergy and resource sharing. Of course, the prerequisite for all of this is that the team possesses outstanding execution skills.

In the past, most DeFi projects were single modules, making it difficult to compete with the vast systems of large centralized exchanges. However, if DeFi can quickly expand horizontally and form a complete ecosystem, perhaps the moment of true transformation is about to arrive.