Rune from Maker Discusses DAOs, Subdaos, and the Future of DeFi at Solana Breakpoint 2023

At Solana Breakpoint 2023, the Validated podcast hosted a fascinating conversation with Rune, one of the co-founders of Maker, a pioneering force in the decentralized finance (DeFi) space. The discussion delved deep into the challenges and innovations in DAO governance, the concept of subdaos, and the potential for cross-chain integration in the future of DeFi.

The Evolution of Maker and DAOs

Maker has established itself as a cornerstone of the DeFi ecosystem, managing the world's largest decentralized stablecoin with approximately 5.4 billion DAI in circulation. As one of the oldest and most revenue-generating DAOs in the crypto space, Maker has faced unique challenges in scaling its governance model alongside its rapid growth.

Rune reflected on the journey of Maker, from its foundation to the dissolution of that foundation and the subsequent handover to the DAO. This transition, while a common path for many crypto projects, often leads to governance challenges. As Rune put it, "You're essentially saying, yeah, let some random dudes on the internet figure it out with no help, more or less, right? It's like, yeah, vote for it and figure it out, right?"

The Endgame Plan: Rethinking DAO Governance

To address these governance challenges, Maker has developed an "endgame plan." This long-term strategy aims to create a more thoughtful and structured approach to DAO governance. The plan recognizes that simply expecting the free market or the community to figure out governance is not sufficient for a project of Maker's scale and importance.

Rune emphasized the need to be very specific about what the DAO is expected to do and what decisions people are expected to make. He stated, "We want to just remove as much as possible of any of those decisions in general, that governance, all that variability, and try to make something that really is just as simple and resilient and reliable as possible."

Subdaos: The Key to Scalable Governance

A central innovation in Maker's endgame plan is the concept of subdaos. Rune explained, "The way you scale a DAO is you sort of parallelize parts of it as it scales up and you make sure basically that there are these nested, smaller scale structures within the greater structure that allows for more flexibility and more individual decisions."

These subdaos are not just administrative divisions but separate entities with their own tokens. This structure allows for more focused governance and risk management within specific areas of the larger Maker ecosystem.

Engaging Users Through Gamification

One of the most intriguing aspects of Maker's new approach is the use of yield farming and gamification to engage users. Rune described a vision where users can not only earn yield on their stablecoins but also participate in a "almost gamified experience of picking a subdao that you believe in, that you want to be a part of."

This approach aims to make personal finance more engaging and fun, potentially attracting a broader user base to the crypto ecosystem. Rune compared this to the excitement of DeFi Summer, but with a focus on sustainable yields backed by Maker's proven business model.

Micro-Governance and User Signals

The subdao model introduces what Rune calls "micro-governance." Users' choices in which subdaos to farm become signals that the system can use to allocate resources and adjust strategies. This creates a more dynamic and responsive governance system that can adapt to user preferences and market conditions.

Balancing Community Engagement and Work

A persistent challenge in DAO governance is motivating community members to actively participate and contribute work. Rune acknowledged this issue, stating, "We're still not very good at it. However, we are very rapidly improving our capabilities in exactly this kind of stuff. So how to measure work, how to price work, how to reward work correctly."

The Maker team is exploring various tools, including AI, to streamline processes and make participation less frustrating and more rewarding for community members.

A Smooth Onboarding Experience

Rune emphasized the importance of creating a smooth onboarding experience for new users, comparing it to the progression in an MMO or RPG game. "We wanna build much more like a smooth transition, a little bit more like, you know, an MMO, right? Or an RPG or something where you start out at level one and it's really simple and easy and the whole game is crazy complicated. But it's hidden from you, right?"

This approach aims to gradually introduce users to the complexities of the system over time, rather than overwhelming them from the start.

Exploring New Blockchain Architectures

In a surprising turn, Rune revealed that Maker is exploring the possibility of using Solana's technology stack for its backend architecture. This exploration is driven by the need for high efficiency and low transaction costs to support Maker's advanced tokenomics and governance systems.

Rune clarified that this does not mean Maker is leaving Ethereum. Instead, it's about creating a standalone backend that can deliver the best possible version of Maker's system to users across multiple blockchains, including Ethereum and potentially Solana.

The Rationale Behind an App-Specific Chain

The decision to explore an app-specific chain is driven by Maker's unique requirements, particularly the need to have the ability to hard fork the chain for governance security reasons. This capability is not possible with Layer 2 solutions or when building on an existing mainnet.

Rune explained, "We simply need our own backend architecture so that we can deliver the best possible version of our system, right, of our, the big vision of what we want to do, right, of gamified savings, right, of the most efficient, the best governed DAOs, the most stable, stable coin, all of these things."

Bridging Blockchain Ecosystems

Rune expressed a vision of greater cooperation and interoperability between different blockchain ecosystems. Drawing an analogy to the formation of the European Union, he suggested that blockchains like Ethereum and Solana could benefit from closer collaboration and resource sharing.

"Everybody's got to have a very good, you know, trade route to Ethereum if they want to have any chance of competing. And I think that'll, that'll, that we will see a lot more of that," Rune stated, highlighting the potential for Maker's new chain to facilitate more robust connections between different blockchain economies.

The Future of Blockchain Technology

When asked about his excitement beyond Maker and DAOs, Rune expressed enthusiasm for next-generation blockchain stacks and Layer 1 solutions. He admitted that exploring alternatives to Ethereum had opened his eyes to the rapid advancements in blockchain technology.

"I mean, at this stage, the blockchain, I know the most is probably still Bitcoin and maybe Ethereum a little bit, but this is more crazy advanced stuff, I mean, this is really the first time I've been diving properly into that and I think that's really cool," Rune shared, highlighting the ongoing innovation in the space.

Implications for the DeFi Ecosystem

Maker's exploration of new governance models and blockchain architectures could have far-reaching implications for the DeFi ecosystem. By addressing the scalability and efficiency challenges of DAO governance, Maker is paving the way for more robust and sustainable decentralized systems.

The potential integration of Solana's technology stack also signals a move towards greater cross-chain compatibility in the DeFi space. This could lead to increased liquidity, better user experiences, and more innovative financial products that leverage the strengths of multiple blockchain networks.

Challenges and Considerations

While the vision presented by Rune is ambitious and exciting, it also comes with significant challenges. Implementing complex governance structures, ensuring security across multiple chains, and maintaining decentralization while improving efficiency are all formidable tasks.

Moreover, the crypto community's tendency towards tribalism and maximalism could pose obstacles to the kind of cross-chain collaboration that Maker envisions. Rune acknowledged this, noting that bear markets tend to exacerbate these divisions.

The Role of Education and Community Building

A key takeaway from the conversation is the importance of education and community building in realizing the full potential of DAOs and DeFi. Rune's emphasis on creating a smooth onboarding experience and gradually introducing users to the complexities of the system highlights the need for better educational tools and resources in the crypto space.

Conclusion: A New Era for DeFi and DAOs

The conversation with Rune at Solana Breakpoint 2023 offers a glimpse into a potential new era for DeFi and DAOs. By rethinking governance structures, leveraging advanced technology stacks, and fostering greater cross-chain collaboration, projects like Maker are laying the groundwork for a more scalable, efficient, and user-friendly decentralized financial system.

As the DeFi ecosystem continues to evolve, the innovations discussed by Rune could play a crucial role in bringing decentralized finance to a broader audience and realizing the transformative potential of blockchain technology in the financial world.

Facts + Figures

• Maker manages the world's largest decentralized stablecoin with approximately 5.4 billion DAI in circulation.
• Maker is one of the oldest DAOs in the crypto space and generates significant revenue.
• The "endgame plan" is Maker's long-term strategy to improve DAO governance and scalability.
• Subdaos are a key innovation in Maker's new governance model, each with its own token.
• Yield farming and gamification are being used to engage users and create a more fun experience in personal finance.
• Maker is exploring the use of Solana's technology stack for its backend architecture.
• The decision to explore an app-specific chain is driven by the need for hard fork capabilities and governance security.
• Rune envisions greater cooperation and interoperability between different blockchain ecosystems, similar to the formation of the European Union.
• Next-generation blockchain stacks and Layer 1 solutions are areas of excitement for Rune beyond Maker and DAOs.
• The implementation of subdaos and new governance models could have significant implications for the broader DeFi ecosystem.

Questions Answered

What is Maker's "endgame plan"?

Maker's endgame plan is a long-term strategy aimed at improving DAO governance and scalability. It involves rethinking how decisions are made within the DAO, implementing subdaos with their own tokens, and creating more efficient and reliable systems for managing the stablecoin and associated financial products. The plan seeks to remove unnecessary variability in governance and create a more structured approach to decision-making.

How do subdaos work in Maker's new governance model?

Subdaos in Maker's new governance model are nested, smaller-scale structures within the larger DAO. Each subdao has its own token and focuses on specific areas or functions within the Maker ecosystem. Users can participate in these subdaos through yield farming, which not only provides returns but also acts as a form of micro-governance. The system uses signals from user participation to allocate resources and adjust strategies, creating a more dynamic and responsive governance structure.

Why is Maker exploring Solana's technology stack?

Maker is exploring Solana's technology stack for its backend architecture due to the need for high efficiency and low transaction costs. This exploration is driven by the requirements of Maker's advanced tokenomics and governance systems, which benefit from very low friction and the ability to recapture transaction costs. However, this does not mean Maker is leaving Ethereum; rather, it's about creating a standalone backend that can deliver the best possible version of Maker's system to users across multiple blockchains.

How does Maker plan to improve user engagement in its ecosystem?

Maker plans to improve user engagement through several strategies. First, they're implementing a gamified experience where users can farm subdao tokens, making personal finance more fun and engaging. Second, they're creating a smooth onboarding process that gradually introduces users to the complexities of the system, similar to progression in an RPG game. Additionally, they're exploring the use of AI and other tools to streamline processes and make participation less frustrating for community members.

What is Rune's vision for the future of blockchain interoperability?

Rune envisions greater cooperation and interoperability between different blockchain ecosystems. He draws an analogy to the formation of the European Union, suggesting that blockchains like Ethereum and Solana could benefit from closer collaboration and resource sharing. Rune believes that creating robust "trade routes" between different blockchain economies is crucial for the growth of the entire ecosystem. He sees Maker's new chain potentially facilitating these connections, leading to more efficient and innovative financial products that leverage the strengths of multiple networks.