Kerman Kohli

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What is NounsDAO!?
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What is NounsDAO!?

A Fascinating NFT Experiment

Kerman Kohli
Jun 10
6
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What is NounsDAO!?
kermankohli.substack.com

Introduction

I’m personally not someone super deep in the NFT space because quite frankly nothing has really inspired me or feels relatively unoriginal. However, after a good friend explained how NounsDAO works I became increasingly intrigued to the point that I wanted to write an article about it. For the record: I don’t own any Nouns (or MiniNouns) but I might buy some as some of the current hype dies down and we enter a more deeper bear market (since we’re still far from the bottom). Okay, so now that we’ve got the formalities out of the way let’s dive into it!

The Concept

Every 24 hours on https://nouns.wtf/, a new Noun is created which is a cute artwork like the ones shown below:

NFT art that actually doesn’t look ridiculously ugly for once - yay!

Currently one Noun sells for a minimum of 80-90 ETH ($150k+)! Whenever someone purchases the Noun of the day, all of the money goes to the Nouns Treasury which is over $50m+ large at the moment.

So what happens with the money in the treasury? Great question. Essentially, the holders of Nouns can then vote how to deploy the treasury to promote the cause of Nouns in any way it deems useful to help spread the word. Some key points on the mechanism:

  • No governance token. One NFT = one vote.

  • No rarity BS. All Nouns are created equal.

  • No copyright. All artwork is public domain.

  • Founders receive every 10th Noun (10 founders)

  • A new Noun is created in perpetuity. The price you pay today is the price to being early in this experiment

Why I find this interesting

Apart from being well thought and not a plain money grab, Nouns has some cool game theory mechanics going on behind it. Let’s lay out some of the truths about NounsDAO:

  • There is a new Noun every 24h forever

  • There is north of $50m+ in the treasury and constantly growing

  • There is no copyright on the artwork

With these 3 truths we can start to reason about the properties of Nouns.

  1. It’s hard for a Noun to be completely worthless given each Noun can be thought of as a share that has voting power with a treasury. Nouns are intrinsically backed by the total value of the treasury

  2. Each new Noun is effectively dilution of the network but effective because it allows new shareholders to enter the cap table (with a cute picture)

  3. Each dilution event increases the runway of the treasury that should be spent in order to increase the awareness of Nouns as a collective

  4. If the net awareness increase from each sold Noun is greater than the dilution event that produced it, Nouns is in a state of growth

  5. If the treasury accumulates but cannot be spent fast enough or in an effective way, then Nouns is in a state of contraction that will dilute all other shareholders

Okay, so through this logic pathway we have identified the fact that awareness is critical in order for the long term health of Nouns. So how is the treasury being deployed to achieve this goal? Well some pretty interesting ways.

Treasury Allocations

What I love about this is the absolute wholesomeness of these capital allocations <3 They have an amazing child-like curiosity and enthusiasm about it that I can’t help but point them out!

1. Children’s Book (https://nouns.wtf/vote/83)

Yes, you read that right! A childrens book that showcases all the cool nouns available in a cute and exciting way. The grantee requested $30k which seems very reasonable for the quality of artwork being demonstrated.

2. Luxury Sunglasses (https://nouns.wtf/vote/57)

Who would have thought? Obviously slightly controversial in the governance forums but overall a neat idea. Apart from the novelty, what I loved was the amount of detail in the governance proposal and the thoughtfulness with how to make this real. Here is the full Notion spec that includes a list of all the backers who support the glasses: https://ivory-pine-ebc.notion.site/Nouns-Proposal-29a658f763f74f958f7c6bd916533dbb

3. stETH Allocation (https://nouns.wtf/vote/52)

This one is way more vanilla but I still wanted to include it because it shows governance is not asleep and willing to put their money to work as intelligent capital allocators. I’m typically very bearish when those in power of an organisation are terrible or lazy capital allocators. Everything boils down to capital allocation whether you like it or not.

Closing

Obviously by now you can hopefully see how Nouns is different to a lot of the terrible NFT ideas we’ve seen in the past few months and years. 10,000 PFP collections are unimpressive and will trend to 0 while things like Nouns that employ much more unique game mechanics will thrive in the long term. I’m excited to see how people deepen their identities with Nouns and the universe of Nouns expands as the treasury is put to work in more intelligent ways..

ps: as I write this article I feel like I’ve given myself FOMO for Nouns 😂

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