Original author:Teng Yan

secondary title

Compilation of the original text: The Way of DeFi

key points

• key points

• Nouns is an open source experiment on how to scale a brand the fastest way

• It has gained massive traction over the past year, with the treasury growing from 0 to 26,000 ETH

• Three key components underpin Nouns: (1) daily auctions, (2) NFT-driven governance, and (3) its embrace of CC0 (putting its IP in the public domain). These are all intertwined in a virtuous cycle between the Nouns brand culture and its funding

• Daily auctions are a powerful capital formation mechanism. As a distribution model, it is fairer and reduces the gap between NFT supply and brand value.

• NFT-driven governance improves upon the typical DAO structure that exists today: dilutes ownership to redistribute voting power over time, reducing collusion and corruption risks among highly centralized owners; greater transparency: no hidden ownership, Upcoming token unlock.

• Prop House is a new way to deploy DAO funds, more scalable than on-chain proposals.

• Capital allocation and coordination remain existential problems for Nouns. Fragmented efforts or wasting money on projects with low ROI is something it needs to avoid."Nouns are an open"protocol

, opening a path forward and allowing others to build on it. Many projects have forked or adopted the Nouns model, and many more will do so in the future.

In school, nouns are a fundamental structure in the English language. Likewise, the Web3 incarnation of Nouns is establishing important primitives for this space. It is an agreement on cultural growth and governance that will be a blueprint that future teams can follow and use. It's one of the most exciting projects right now.

• Think about it:

• Every day, someone buys a Noun with 6-figure funds, without exception

• 26,000+ETH ($36M) in the Nouns treasury, fully controlled by its membersNouns named after a newly discoveredfrog

speciespunk4156Nouns is an open source brand where anyone can build whatever they want. It was an experiment in how to scale a brand in the fastest way possible. Earlier this month, Nouns celebrated their one-year anniversary: ​​A year ago, Nouns were created by

Founded by 10 founders.

The Three Pillars of Nouns

• There are 3 key components underpinning Nouns:

• Daily Auction for Nouns

• NFT-driven governance

An open protocol: CC0 and public domain intellectual property (IP)

Each of these 3 components is critical to the magic behind Nouns, a virtuous cycle between the Nouns brand and the DAO treasury. The treasury funds initiatives that grow the cultural value of Nouns, which in turn generates demand and grows the treasury through daily auctions. When it works properly, it's a great mechanic.

A. Daily auctions and treasury

Brand value is intangible and hard to quantify, but I've included a simple model in the chart below. Here we assume that the brand growth curve of a successful project is exponential.

In a typical PFP distribution model (such as Bored Apes), all 10,000 NFTs are released to the market at once at the same price during minting. This rewards early entrants, and if the project takes off, they can resell to later buyers at a handsome profit. For a long time, there has been a huge gap between NFT supply and actual brand value. What is the result? Huge price fluctuations as most of the value is highly speculative. Teams need time to execute on their community, marketing and product roadmaps.

However, through the economic model of daily auctions, the supply of NFTs starts from a small base and expands at a predictable rate. In the daily auction of Nouns, a new Noun is auctioned every 24 hours, and 100% of the auction proceeds go to the treasury. 1 out of every 10 nouns will be given to the founding team as compensation.

This ties token inflation more closely to the long-term growth of the brand, reducing the supply-brand value gap. In addition, it provides breathing space for tight-knit communities to emerge. It will take 27 years for Nouns to reach the same supply of 10,000 Nouns as CryptoPunks or Bored Apes.

Additionally, the daily auction is also an experiment in a fair on-chain NFT distribution method. It allows everyone to have the same access to the ecosystem at any point in time -- whether you discovered the project a year ago or just heard about it today. In the Nouns ecosystem, whitelists and gas wars do not exist.

• In addition, other noteworthy features in the daily auction mode include:

• Constantly diluting the holder's % ownership. This is important because each Noun has governance over the DAO treasury. The dilution effect decreases over time as the total number of Nouns (denominator) increases.

• Difficult to implement a trait rarity system (which can be critical for some projects) because the rarity of traits changes over time.

A tiny initial community that takes time to grow. This can be a limiting factor in overall focus and interest.

Notably, daily demand for Nouns has remained strong and steady for over a year. During this period, though, the crypto market has seen significant volatility. The closing price of the daily auction has been slowly climbing over the past year and is now hovering around 100E.

This funds the treasury, which currently holds 27,100 E, equivalent to $52 million at today's prices. Since the treasury is held entirely in ETH and pledged ETH (stETH), it is significantly affected when the price of ETH falls. The treasury's historical peak was in April this year, when the treasury was worth nearly $80 million.

This can be regarded as a painful lesson. Financial management and diversification are fundamental areas to consider. This is especially important because many grants involve expenditures in US dollars.

B. NFT-Driven Governance

Daily auctions interact very closely with DAO governance. A major reason for the constant buyer demand in daily auctions is that each Noun represents an equal, proportional governance right to the treasury. 1 Noun = 1 vote. If you do a simple calculation, each Noun today controls about 66 E worth of treasury funds.

So what does Nouns plan to do with the treasury? It's about experimenting, taking risks, and funding initiatives that have a positive impact on brands.

Let's look at the ownership and voter structure. As shown in the graph above, voting power is well distributed, with almost half of the voting power belonging to holders who hold only one Noun. Additionally, there are 6 wallets with more than 10 Nouns, one of which is the treasury wallet of the Nouns DAO. If we exclude this, less than 20% of the voting power is concentrated in the large 'whale' owners. And that's the effect of daily auctions, a system that dilutes ownership over time. We expect the number of single owner properties to increase over time as daily auctions continue.

This can be seen as an improvement over other DAOs where governance power is highly concentrated among minority groups. In such circumstances, collusion and corruption become very likely, especially if there are financial incentives. Most token economic models are already established at the beginning of the project, making it difficult to redistribute governance power.

Additionally, on-chain transparency is another highlight of this governance model - no hidden ownership or imminent unlocking of tokens. It's much harder to hide your allegiance and intentions during the voting process with a small number of unique NFTs that don't change hands very often compared to fungible governance tokens. Your NFT's voting history is visible to all.

There are several ways to get funds from the Nouns treasury:

1. Proposals on the chain

All Noun holders can submit an on-chain proposal detailing plans and required funding. The proposal will be subject to a majority vote to determine whether it passes. If approved, the funds will be released directly. The criterion for passing is a quorum of at least 10% of the total votes.

So far, there have been 128 on-chain proposals, 102 of which have been successful (80% acceptance rate), with 13,843 ETH allocated and used.

Voting participation is very high, with 20-40% of owners voting on every on-chain proposal. This is 5x higher turnout than other DAOs (typically < 10% of votes). This metric can serve as a good indicator of the basic health of a DAO. Low participation rates are an important issue for DAOs because it means that a small percentage of votes (10 - 20%) can lead to major decisions.

• Reasons for the high participation rate in Nouns DAO include:

• Ownership of the NFT as a PFP gives the owner more sense of investment in the DAO

• tight-knit and cohesive community

A filtering mechanism ensures that proposals entering the voting stage meet a minimum quality threshold

1. Nouns Around TownHighlights of the top three funding proposals so far include:

2. Nouns x Fitz Frames Prescription Subscription(609 E): A comedy documentary that tells the story of Nouns DAO and the process of getting Nouns to appear in the 2023 Pasadena Rose Parade. The film is expected to reach 22 million viewers in the US and worldwide. Most of the funds will be used to build a float and 6 life-size Nouns costumes.

3. (550 E): The proposal includes school visits, eye exams, and glasses for children in need. The goal is to reach 3000 children within 1 year.Protocol Guild Pilot

(500 E): Fund Ethereum public products and protocol development through a collective of protocol contributors who maintain on-chain membership registration.

• As of July 22, there have been 31 large-scale on-chain proposals, and more than 100 E funding applications have been approved. They fit into one of the following categories:

• Branding and Marketing (36% of approved proposals > 100 E): Sponsorship of e-sports teams, animated videos, Nouns clothing, comics, etc.

• Internal operations and product (19%): Governance tools, perks for core contributors

• Charity and public goods (16%): Gitcoin grants, Ukrainian donations, Ethereum public projects

• Grant Funding (13%): Funding approval from the Smaller Nouns Grant Committee

• New Product Collection (13%): Nouns Luxury Sunglasses, Mental Health App, Nouns Coffee

Investment (3%): Equity investment in start-ups

Many grants utilize Nouns IP to create and commercialize new products (e.g. coffee, sunglasses), however interestingly, there is often no expectation of generating revenue back into the DAO. Nouns wants to be the go-to place for creative entrepreneurs: Any entrepreneur can consider taking advantage of Nouns' IP and getting seed funding. The core belief is that all of these projects will expand Nouns' brand value - which is the number one priority - and indirectly lead to more treasury revenue through daily auctions.

2. Prop House

As we have seen with other DAOs, there are significant challenges with on-chain proposals. They need committed and motivated contributors. Getting a proposal off the ground is a daunting task: ideation, finding a qualified proposer, canvassing. As the rate of proposal submissions increases, it is unreasonable to expect all members to read and participate. This is where scalability becomes an issue, which begs the..."Prop House is an experimental new way to deploy capital: conduct an ETH auction, allow anyone to bid, and submit proposals. At the end of each auction, Noun owners and designated communities vote on which proposal gets funded. This facilitates competition and prioritization of proposals over traditional"。

Yes or no

• Two key effects of Prop House include:

• Force the treasury to spend. With the treasury growing every day, there is an inertia of spending treasury funds.

Minimizes friction for proposals, allows the proliferation of new ideas not limited to Nouns owners, and makes it easier for anyone to propose an idea.

Prop House launches March 2022. It plays a key role in promoting ideas and spending. Since its inception less than 4 months ago, more than 350 proposals have been submitted for funding and voted on regularly. We expect this to continue growing rapidly.

Prop House represents a more scalable way to deploy capital, as it does not require a full vote of Nouns members, who may not have the time to look at every proposal. Instead, part of the responsibility is delegated to various Nounish communities. While it is primarily used for small grant requests, the scope of Prop House may expand as it becomes an effective capital deployment mechanism. Several other communities, such as Lil Nouns & mfers, are already using Prop Houses as a funding mechanism.

3. Small Grants Committee

This is a designated committee that manages the Small Grant Fund and makes decisions on smaller grant applications. No on-chain voting takes place. Most discussions about microgrants happen on Discord.

C. An Open Protocol: CC0 and Intellectual Property in the Public Domain

The third pillar supporting Nouns is that their art, as well as smart contracts, exist in the public domain. This means anyone can use and commercialize it without permission or authorization from Nouns DAO. Nouns DAO advocates public domain intellectual property using the CC0 (Creative Commons 0) framework. Therefore, we can think of Nouns as a protocol, which is open and can be used for reference by others.

Let's not forget the artistry. The essence of Nouns culture is distilled and captured in artistry, which makes it different from investing in DAOs. These are 32×32 pixel characters and are very easy to meme. Nouns have no defined scarcity, and the characteristics of each new Noun are completely random. The square-shaped Nouns glasses are the most visually recognizable feature of Nouns, and are a cultural artifact in their own right.Go Fork YourselfSince its inception, many projects have been modeled on Nouns, some as simple derivatives of works of art (like fast food restaurant Nouns), while others are more serious implementations of daily auctions and/or DAO governance mechanisms. Packy in his article"outlined in"DAO fork"the concept of:"Positive fork accrues value back to original token and brand

. If this holds true, the more forks there are, the more valuable Nouns will be.Today, in NounsAt least 85 relevant"fork"fork

• Lil Nouns. A few notable projects include:Brian Flynn: 15 minute auction with separate treasury and governance, but also contributes to Nouns. As noted Nouns contributor"That being said, this is one of the Nouns"。

• JokeDAOtestnet

• SharkDAO: What started as a Nouns fork has evolved into a platform for creating and running contests and minting voting tokens.

: A sub-community that collectively owns 5 Nouns and participates in Nouns governance.

way forward

Nouns are an evolving experiment in 2 main Web3 related concepts, DAO governance and CC0. It has achieved initial success. Every day, a Noun is sold for a 6-figure price. Nouns DAO also controls a very substantial treasury.

The mechanisms built into Nouns solve the problem of capital formation, but capital allocation and coordination remain a challenge. It's an existential problem for Nouns: Fragmentation of operational and project funding leads to mediocrity. Splurging money on projects with low or zero ROI is also a real risk.

• Therefore, measurement of results is crucial. There are two simple but important metrics that can provide an indicator of the success of a Nouns experiment:

• "Daily Auction Settlement Price: Prices fluctuate due to the tension between two opposing forces, downward pressure from inflation and dilution effects, and upward pressure from increased brand value and demand. The direction of price movement indicates which forces are winning."soft fork

Amount: A good fork will accumulate value into the original token and brand. The more the merrier.

• For Nouns, other challenges ahead include:

• As the DAO evolves, will the community members be able to align with their vision? Fragmentation can lead to paralysis and poor decision-making.

General apathy and limited public interest: Today's Nouns community is small and the barriers to entry are high. After another year of auctions, there will be at most 365 new Nouns owners.

Thoughts at the end of the article

Nouns sees itself as a playground, a sandbox where you can quickly test various ideas for brand growth without being limited by traditional ways of thinking; a big experiment on CC0 to see what the community can build with this IP, And how it proliferates the Nouns brand on the internet and in the world. Would this yield better results than a project focused on strategic direction and artistic vision led by an experienced "Chief Brand Officer"? I'm optimistic about how this opens up, although only time will tell.