Nouns DAO and Meta DAOs

Its DAOs All The Way Down

Disclaimer: I am a member of SharkDAO and own a portion of Noun #2 and Noun #5.

Noun #2

On August 8th the Nouns Project went public on Ethereum Mainnet with xaix.eth (Twitter) winning the auction for Noun #1 at a staggering price of 613.37 ETH! The project was created with truly innovative tech and has an amazing team. It’s a project that I’m personally invested in and one that I think we should all watch as the NFT landscape evolves.

WTF Are Nouns

At its foundation, Nouns is an NFT project, but it combines various properties in a unique way that makes the project both exciting and, in my opinion, a league above any other project in the space right now. The factors at play have simple premises but come together in complex ways. I could probably write a whole series of articles on the different combinations that could play out, but I want to focus on what I see as a new governance primitive: a DAO that can have DAOs as members.

If you’re unfamiliar with the NFT space, 2021 has seen an explosion of avatar projects with nearly every project following some variation of the following formula:

1. Release a large, but limited, number of NFTs at once

2. Have different traits with some being extremely rare and others common

3. Have a road map that the creators of the project promise to deliver

4. Optionally: Give IP rights to the individual that owns the NFT

Some projects add unique twists and extra features, but the structure is relatively the same. What's been fascinating about these projects is how quickly they form online communities. When I changed my profile picture to a Bored Ape in May, I was met with an immediate following from other Apes on Twitter, each of us taking the #ApeFollowApe ethos and meme to heart. Other NFT projects have active online communities as well, with each having its own culture and values and using Twitter and Discord as the medium for communication.

Nouns, however, take the formula and flip it on its head:

1. Nouns are released one at a time, with an auction ending every 24 hours

2. Every Noun is equally rare

3. There is no road map from the Nounders (Noun founders)

4. All IP around the Nouns is licensed under CC0, making it completely open-source and free to copy and modify

And then there is the most important part of the project, the DAO. For those unfamiliar, DAO is an acronym that stands for a Decentralized Autonomous Organization that allows groups of pseudonymous people to control money and assets using Ethereum smart contracts without relying on a centralized person or party. You can read more about them on ethereum.org and Wikipedia.

5. Every Noun is a single vote in the Noun DAO, which gets to decide how to use the funds that come from the sales.

The building blocks seem simple but there's a lot at play here, so I'll go through them one-by-one.

One Noun a Day

Most projects decide to release a batch of NFTs at once, usually following the precedent Cryptopunks set by limiting the drop to 10,000. Nouns decide to take a different approach by only letting one Noun get released a day. To put that into comparison, the 10,000th Noun won’t be sold until December 25th, 2048 (a lovely Christmas gift for whoever wins). This type of slow-release cadence comes with different properties. On one hand, there is almost no liquidity for a Noun right now, and trying to buy one to flip for a profit wouldn't make sense. Since the DAO controls the funds used to purchase the Noun, buyers are incentivized to be active in the DAO unless they want to see their money go towards projects they have no interest in. The one-a-day release also makes it so that demand will be high to own an entire Noun, which limits who can own a Noun to either a whale, as we saw with Noun #1, or a group of buyers, as we saw with Noun #2. It also means that each Noun loses voting power in the DAO as each day passes. After the end of the first auction, the first Noun had 50% of the vote (Nounders own Noun #0), but by the end of the first month, each Noun will have just about 3% of the vote. Early Nouns will feel this dilution of voting power more than later Nouns since with each additional Noun the amount of dilution decreases (by the end of the second month, each Noun will have about 1.6% voting power). Early Noun DAO members are incentivized to submit proposals they wish to see passed sooner rather than later because waiting too long could mean you lose the threshold you need to get the proposal passed.

Equal Rarity

The equal rarity aspect is probably the most simple. If there were some Nouns that were rarer than others, it would lead to a weird bidding game where potential buyers wait until a rare Noun appears before bidding. The focus then shifts towards aesthetics, making value entirely subjective. Interestingly, the lack of rarity makes it so that if any Noun looks sufficiently similar to a previous Noun, it might be deemed to be more desirable since the probability of clones is really small. Given this model of equal rarity, the market will likely value lower mint numbers over higher mint numbers if the project becomes successful.

No Road Map

Almost every NFT project released this year comes with a road map, a set of projects that the creators promise they will deliver to token holders. Nouns DAO makes no such promises. The DAO format means that all of the proceeds that come from the auctions are in full control of the community. While this lack of structure may make some folks feel uneasy, it allows for the project to be more decentralized. It’s up to the Noun owners (Nowners?) to shape the community. Plus, the Nounders have allowed themselves to have veto power over any potentially malicious proposals. For example, a proposal that attempts to withdraw all of the funds will be vetoed. The veto acts as a safeguard until the project is established enough to be fully decentralized. The Nounders have stated that they will renounce the veto power once they deem it safe to do so.

Open Source

Intellectual property around NFTs is a tricky thing. No one can truly DMCA or censor the blockchain, but interfaces like OpenSea can hide projects from their website. We've already seen NFT projects file DMCAs against other NFT projects in an attempt to protect IP. I've written about why it doesn't make sense to try to file DMCAs, but Nouns gets rid of this problem by making the project open-source. All Nouns are free to remix, make derivatives of, and commercialize without permission and without fear of getting a DMCA takedown.

Consider what this means for building a media organization. Legacy media companies like Disney and Sony believe that their value comes in the form of the media they produce. They create characters, give them stories, and control marketing, distribution, and press releases. They protect their work using copyright laws and DMCA filings to prevent others from using their materials without permission. Nouns DAO is betting against that model. So where does value come from? Since Nouns live on the blockchain, they are secured by cryptographic truth and their provenance is easily verifiable. Rather than having value come from specific instantiations of media, like a Spiderman movie, the value lies in the underlying asset itself—the equivalent to owning the character Spiderman. It’s unrealistic to try to enforce copyright on the blockchain and Nouns is betting that we don’t even need to. By having a community of builders working on open source material, any reference to a Noun makes the token that represents the Noun more valuable. If we consider different types of media entities and how they might be placed on a centralized-to-decentralized scale, legacy media like Disney and Sony would be far to the left and NFT projects like Nouns would be far to the right.

And Now, The DAO

What makes Nouns unique is how much they embrace decentralization. Most projects in the space retain some degree of centralization, and Nouns does as well with the Nounder veto and 10% of the total Noun supply going to the Nounders for the first 5 years, but there is a clear path towards full decentralization once the culture has been established. Plus, the DAO format of governance ensures that every Noun owner is equally represented in deciding the future of the DAO.

All of these properties work together in synergistic ways to make Nouns DAO something more than just a DAO. As I mentioned earlier, the low supply of Nouns means that your best shot of owning a Noun is through a group of people, either as a DAO or through something like PartyBid¹. But why would anyone want to do this? What benefits come from owning a fraction of a fraction of a DAO?

Let’s speculate. Imagine you're a derivative artist. Since Nouns IP is open source, you can just create derivatives however you want, but if you're a small creator you might not have all of the resources to bring your vision to life. You could join a Sub DAO that caters to derivative creators. By joining this DAO, you now get a voice in a larger ecosystem that's well funded. You can propose your idea to the Sub DAO, which will then bubble up to Nouns DAO and hopefully fund your project. In addition, since every Noun is unique, you have an incentive to make the derivative around your Sub DAO's Noun. If your project gains popularity, you drive value back to the Sub DAO and value back to Nouns DAO.

At the time of writing, the Nouns DAO treasury has a massive 1024 ETH. The DAO can get much more ambitious than funding derivatives. Imagine funding a Sub DAO that wants to create an educational series on NFTs and Crypto using their Noun as a character, or small gaming team, or even something in the physical world like a Noun Pop-Up experience that allows the general public to experience Nouns in VR all around the world. The projects wouldn't need to be directly related to Nouns either. One of the Nounders, 4156, has expressed his concern over the ongoing climate crisis.

4156 @punk4156

1/ this is dark, but i'm of the opinion that we have very little time left to save the planet. as ecosystems begin to unravel, and we are forced to spend more of our resources averting short-term crises, we won't have anything left in the tank to fix the underlying problem

Nouns DAO could fund initiatives that place the environment at the forefront of their considerations and shape the way our culture views sustainable projects. Since the fund is owned by holders of Nouns tokens, anything that gets approval from the DAO via a proposal is fair game. This is a contrast from even other NFT projects like BAYC and Cryptopunks where the project creators work in silence. While the creators for these projects grant some rights to owners of the NFT, the project direction is closed off to owners. Suggestions may be welcomed and encouraged, but decisions ultimately happen within centralized teams.

In addition to getting funds added every day after an auction, Nouns DAO could also ask the big projects they fund to give them a small share of their tokens/stock. If the funded projects do well, Nouns DAO directly benefits and is able to fund even more projects. If the DAO decides to do something like this, it could shift the way we think about venture capital and open the doors for anyone to get exposure to potentially huge upsides. Of course, all projects will indirectly benefit Nouns DAO. As Nouns infiltrate themselves into the metaverse zeitgeist, they become an object of desirability. And since there will be a Noun every day, someone will always be able to ape in, add to the treasury, and contribute to the proposals in place. While the project is open source, the power of the tokens is protected by cryptographic truth and provenance. The value of Nouns lies not in the images, but in the ability to be a part of Nouns DAO.

Nouns took inspiration from Cryptopunks to serve as profile pictures and identity in the metaverse, but I think their scarcity makes them much more likely to be used as a mascot-like figure for groups of people. Rather than everyone sporting a Noun as their identity, we will rally around a given Noun as a group. What arises is a confederation of DAOs with different interests that can interact with each other and tap into a large treasury. Nouns DAO then becomes a Meta DAO, where it serves as the liaison and binding factor between Sub DAOs, which in turn will have much more concrete goals. In fact, there's nothing stopping a Sub DAO from joining another Sub DAO, and so on. It's DAOs all the way down.

The Nouns project starts with simple rules but the synergy between them and the human dynamics at play make the project incredibly complex. As with all projects, time will tell how things play out.

The possibilities, like the Nouns, are infinite.

-Rayo.

1. Functionality for PartyBid is available as of August 18, 2021