In this week’s deep-dive, we’re going to talk about Nouns. This post is co-authored with Peter Yang, founder of OdysseyDAO.
Nouns is one of the most interesting NFT projects out there:
- One Noun NFT is sold every day, forever
- Nouns have been selling for 80 eth ($100K) (in a bear market!)
- These sales have generated 26K eth ($34M) for the Nouns treasury
The project is operated by the community using a DAO (i.e. Nouns DAO). If you’re unfamiliar with DAOs, I recommend reading this.
So what is Nouns DAO? We did our research and spoke to Vapeape, a founding member of Nouns. Let’s dive into:
- How Nouns DAO works
- The wacky world of Nouns projects
- Is Nouns DAO actually sustainable?
How does Nouns DAO work?
Most NFT projects launch with a limited number of NFTs (e.g., 10,000). Nouns DAO is different - every 24 hours, a new Noun NFT is auctioned to the public:
So far, over 300 NFTs have been auctioned. Barring a few instances, the winning bid has consistently stayed above 60 eth ($75K).
100% of the sale goes to the DAO treasury which is now at 26K eth ($34M). The founding team (10 “Nounders”) don’t get a cut of sales. Instead, they get every 10th Noun for free for the first 5 years.
“The founding team started talking after this tweet from Punk4156. Our initial spec was essentially this tweet thread from June 2021” - Vapeape
The founding team is made up of 10 individuals that include both top NFT collectors (e.g., Punk4156) and founders (e.g., dom, co-founder of Vine). They continue to maintain the infrastructure (website, discord) and help the DAO execute on proposals.
So why are people paying $150K for a Nouns NFT?
Joining a community of top collectors and founders certainly plays a role. But the other aspect is CC0, a form of copyright.
CC0 means “no rights reserved.” That means that anyone can use your Noun NFT to make stuff and spread the word about the project.
Which brings us to…
The wacky world of Nouns projects
“Ultimately, it would be culture that takes crypto mainstream.” - Punk4464
The core utility of Nouns DAO is that every Nounder (Noun holder) can sponsor and vote on proposals for the Nouns treasury to fund. That 26K eth ($34M) treasury has been used to fund all types of projects:
- Super Bowl ad with Budweiser (1 noun): Give Budweiser a noun to showcase in their Super Bowl ad.
- Nouns documentary film (609 eth): Produce a documentary on Nouns with a feature in the Rose Parade.
- Nouns coffee (105 eth): Create a coffee brand for Nouns.
- Ukraine aid (100 eth): Send ETH to UNICEF to help victims from the Ukraine conflict.
- eSports team sponsor (35 eth): Sponsor a DOTA2 (a multiplayer game) esports team.
These projects seem random but all help build the Nouns brand. The more brand awareness Nouns has, the more people want to be part of Nouns.
Here’s how a project gets funded, using Nouns Coffee as an example:
“User Brkfstsndwch has a reputation of having built a coffee brand through his Nouns derivative project, Brkfst World. He has built a good reputation in the Nouns community by helping out on other proposals.” - Vapeape
- Brkfstsndwch shared the coffee proposal and timeline in Nouns discussion forum.
- After reaching some consensus, the proposal was submitted for an on-chain vote that only those who hold a Noun can vote on (1 Noun = 1 vote).
- The vote passed. The DAO transferred 105 eth to Brkfstsndwch and team to execute on the project. The team is expected to provide regular updates to the Nouns community.
105 eth is a lot of money, so there’s some risk involved:
“There is technically nothing stopping them from running off with the eth. However, we expect that people won’t want to burn their reputation and further access to funding.” - Vapeape
But wait, is this actually sustainable?
The core loop for Nouns DAO is: Fund great projects, grow nouns brand, more demand for nouns.
Let’s recap the pros and cons of this loop:
Pros
- Huge treasury: 26K eth ($34M)
- Decentralised governance: Any holder can sponsor and vote for a proposal
- Innovation engine: Nouns feels like a hotbed for innovation - funding a wide variety of projects.
Cons
- Cost of entry is high: Since it costs 80 eth ($100K+) to buy a Noun, the cynical view is that Nouns is an investment club for 300+ rich people. However, anybody can get their proposal funded if they can find a holder to sponsor it. Furthermore, derivative projects like Lil Nouns are lowering the cost of entry.
- Project ROI is unclear: It’s unclear if the DAO rigorously measures ROI for the projects that it funds.
- Supply is unlimited: It’s unclear if the unlimited supply (“one noun everyday, forever”) will put downward pressure on the price or make governance votes harder.
To the latter point, Vapeape’s view is:
“It will take nearly 30 years to reach the typical 10K supply. Besides that the protocol is upgradable and able to change the emission rate if the DAO chooses to.” - Vapeape
What’s next for Nouns DAO?
Nouns is one of the few NFT projects that feels truly decentralised, so the best way to get a sense of what the DAO is planning next is to check out the list of active proposals.
It’s incredible how much Nouns has accomplished in a year, from sponsoring eSports teams and pro athletes to starting luxury clothing and sunglasses brands.
If this pace continues, it’s not a stretch to imagine Nouns being one of the first NFT projects to become a household brand.