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Nouns DAO—the pioneering project that lost $27M but remains in good health
Profiteers invade unique organization that's exploring the power of community
This week we’re looking at Nouns DAO, a unique Web3 organization that is pushing barriers with a decentralized and free-spending approach to building a community that’s entirely open source..
“Nouns is a community-owned brand that makes a positive impact by funding ideas and fostering collaboration. From collectors and technologists, to non-profits and brands, Nouns is for everyone,” to quote the project itself.
Confused, well, things get stranger.
This month, Nouns DAO ‘lost’ US$27 million from its treasury, but that’s actually a healthy development for this highly idealistic project.
Read on and we’ll explain why.
What’s going on?
Can you imagine an organization designed solely to grow its brand and community at any cost? Oh and without worrying about profitability or enforcing IP and copyright.
That is Nouns DAO, a high-profile decentralized autonomous organization that’s trying to do all of the above.
The project is known for funky voxel-based characters with oversized, red glasses. The DAO is funded through the sale of one new NFT each day. The resulting income (around $50,000) goes straight into a treasury that’s designed to grow awareness of Nouns and raise the value of the community and NFTs. Members vote on proposals using a decentralized leadership structure.
This month, though, the project split—known as a fork—to allow some disgruntled owners to move their NFTs into an entirely new DAO with a very different mission: profit.
The fork attracted more than half of all NFT holders, removing US$27 million from the treasury and highlighting the stark contrast between those who want to pioneer this new model and those who simply want to profit.
1. Bold and well-funded experiment
Nouns might just be the most fascinating DAO given its scale and ambition.
The treasury—which was around US$50 million prior to the fork—has been used to fund all manner of activities from developer projects and a media business to a toy line, clothes, a comic book series, a feature film and even naming a new species of frog for US$90,000. These are just the proposals that passed.
The decentralized approach of Nouns means NFT holders (members) vote on how to use the treasury to advance the DAO and NFTs, all while allowing anyone—individuals or companies—to make use of the IP for free. In fact, the treasury funds many of these creative pursuits such as artwork and accessories.
Last week, a proposal passed to give an independent beer brand from Brazil US$45,800 for a partnership that can be a “catalyst for wider influence and regular integration of Nouns into everyday culture.”
2. Money talks
Web3 media outlet Coindesk estimates that Nouns DAO has spent more than US$26 million on promotional activities to date.
That makes the project very unique but the huge treasury has also attracted a very different type of community member: those out to make profit. These members increased after Nouns DAO introduced a fork option late last year in response to the threat of a 51% attack—a situation in which anyone with more than half of the voting rights can force through their own agenda.
The fork, activated with 20% of voting support, allowed members to sell their NFT back to Nouns DAO for a set price against the treasury, ensuring that it couldn’t go to zero. They would then get a new NFT in the duplicate Nouns DAO.
This all meant that, as Noun NFT prices dropped below their ‘bookprice’ this year, they attracted speculators—one trader alone bought 44 NFTs in August. The fork option allowed these arbitrageurs to sell their assets for a set price of 35.5 ETH, around US$56,000. Profit is estimated to be as much as $13,500 per NFT for some.
This was no attack, though. Nouns DAO members saw the fork as wholly necessary to remove the speculators from the project in order to refocus on its mission. In fact, remaining members of this idealistic believe that the treasury spending must increase as a result. A large treasury will, after all, attract speculators who want a piece of it.
3. Changes worth tracking
DAOs are re-inventing governance structures for organizations in very unfamiliar and perhaps uncomfortable ways.
Initially an experiment, DAOs like Nouns are now impossible to ignore given the size of their treasuries and their potential impact. DAOs have begun to resemble community banks and credit unions, and their influence will only continue to grow regardless of crypto market prices.
Most DAOs today focus on Web3 communities, investments, charitable donations or developer engagement, but it is entirely possible that one day we will see a DAO scale to the size and power of a large corporation, changing how traditional industries operate and compete.
Until then, there are still plenty of issues to be ironed out, and we should all be paying attention to these developments in real time.
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That’s all for this week!
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