The Opportunities and Limitations of Nounish DAOs
Nounish DAOs represent a groundbreaking development in the DAO landscape, melding technical advancements with a distinct cultural foundation.
By Chris Carella - May 3, 2023
Nounish DAOs represent a groundbreaking development in the DAO landscape, melding technical advancements with a distinct cultural foundation. These DAOs are underpinned by five smart contracts and operate under the guiding principles of goodwill, positive impact, absurdity, education, and fun. The smart contracts define how the organization operates with 100% of the NFT auction proceeds being stored in an onchain Treasury that is only accessible via Proposals made via the onchain Governor contract.
Moreover, Nounish DAOs exhibit a high degree of decentralization. United by a shared vision, members collectively vote to financially support individuals and small teams with innovative ideas that contribute to the organization's vision.
In contrast to traditional organizations, Nounish DAOs do not typically employ full-time staff or maintain a dedicated operational capacity. Instead, they rely on the collective efforts of their decentralized membership and greater community to drive progress and achieve their mission.
The launch of Nouns Builder on October 25, 2022, has democratized the process of creating a Nounish DAO, allowing anyone to set up the infrastructure for their own Nounish DAO in a few clicks, without any coding. This essay explores the opportunities and limitations of Nounish DAOs, providing insight and guidance on how to navigate and balance these aspects, while promoting the establishment of additional Nounish DAOs in the broader ecosystem.
Opportunities of Nounish DAOs
One of the most significant advantages of Nounish DAOs is their regular auction cadence, which generates consistent funding for the organization's treasury and provides for controlled expansion of its governing membership. The frequency can be set to any time interval but those who follow the lead of Nouns will set it to once per day. In the example of Nouns, everyday a new NFT is generated that any ethereum user can permissionlessly bid on; the highest bidder gets the NFT and 100% of the proceeds go towards the community Treasury.
This consistent influx of funds can be channeled into creative projects, public goods, and other initiatives that stimulate growth and innovation within the community. In contrast to DAOs that issue a large number of token to quickly fundraise but then have challenges in creating additional revenue over the life of the DAO, the Daily Auction of Nounish DAOs have a perpetual funding mechanism. This same mechanism is also the source of consistent and methodical growth of the DAOs membership and governance; adding one new voter token each day. While not every auction is won by a new member, it provides an opportunity for one new members to join daily.
This slow expansion helps in establishing the culture and norms of the DAO. It benefits new members who get to onboard onto a slower growing DAO which is less overwhelming then joining one that has had dozens to hundreds of new members in the last week.
Alignment around a Shared Mission
Nounish DAOs are built upon a common cultural ethos, fostering a sense of unity and collaboration among members. This alignment facilitates effective decision-making and resource allocation, propelling the organization towards achieving its vision. A shared mission also contributes to a robust and vibrant community, which attracts new members and bolsters the DAO's overall influence.
Nounish DAOs rely on a decentralized community funding model, which ensures transparency and minimizes the influence of centralized power structures. In this model, any DAO member with the required number of NFTs can create a Proposal for funding and include the Transaction required to transfer the funds. The DAO’s members votes on Proposals and if they pass the transaction is executed sending the funds to the proposer’s stated wallet address.
This approach democratizes resource allocation and encourages member engagement. There is no central leadership team determining the direction or proposing a quarterly budget to vote on. Community funding also enables a more diverse range of projects to receive support, fostering innovation within the Nounish DAO ecosystem.
Nounish DAOs don’t employ Operational capacity but instead fund Proposals from anyone, members and non-members alike, who have a plan to help the DAO make progress towards its Mission. Nounish DAOs operate on the principles of per project funding.
The thriving ecosystem surrounding Nounish DAOs is driven by an ever-growing community of passionate supporters in the intersection of innovation, blockchain technology, cryptography, art and storytelling. This supportive environment empowers new community members to contribute and participate in the DAO's activities, reinforcing a sense of camaraderie and collective effort. Tools created to support one Nounish DAO is quickly exported to all of them.
Promising Applications of Nounish DAOs
As the Nounish DAO landscape continues to evolve, several promising use cases have emerged that showcase the potential of this innovative approach. Two such use cases worth exploring are Protocol DAOs and Creative DAOs.
Protocol DAOs, exemplified by Purple, a Farcaster Public Goods DAO, serve to support builders and community members contributing to a specific protocol ecosystem. With a vision to "proliferate and expand the Farcaster Protocol and Ecosystem," Purple provides funding for public goods, apps, bug bounties, protocol contributors, and community events that bolster the Farcaster user base. Purple operates independently from the organization developing the protocol and was established permissionlessly. Due to members' passion for using and building apps on the protocol, they are highly aligned around the vision of expanding Farcasters. As the protocol's usage grows, new individuals join the Farcaster ecosystem daily, discover Purple, and compete at auction to get more involved in the protocol, resulting in a constant stream of new members.
Creative collectives represent another compelling use case, as demonstrated by The Park DAO, an experiment in supporting on-chain music creation, curation, collection, and engaging social experiences. The DAO's members are collaborators and fans of a band called The Park, and together, they curate a unique on-chain music experience. The Park hosts "Fridays at The Park," a recurring event that brings together music collaborators and web3 thinkers to create music in the studio and engage in dinner discussions, often centered around web3. DAO members gain access to a token-gated live stream of the event. The recorded sessions are expertly edited and subsequently released as NFTs through DAO Proposals. The Park's members, being both fans and collaborators, are highly aligned around the vision and eager to participate in shaping the future of music. Creative DAOs enjoy the advantage of releasing art and music, which expands the fan base and attracts a steady influx of new members eager to join the DAO.
Limitations of Nounish DAOs
By participating in a Nounish DAO, founders and members relinquish control over the organization's direction. While this fosters decentralization and diversity of thought, it may lead to suboptimal decisions or conflicts within the group. Additionally, it may be challenging to reach consensus on critical matters, potentially impeding the organization's progress.
Nounish DAOs present unique liquidity challenges due to the Auction frequency, which guarantees there is always an NFT available for sale on the primary market and its inflationary mechanics. This may not align with the investment preferences of some participants.
Pace of Fundraising
The fundraising process in Nounish DAOs is limited by the auction epochs, potentially slowing down the organization's startup capital. This constraint can be particularly challenging for DAOs requiring immediate funding to capitalize on time-sensitive opportunities or to address pressing needs.
Non-Tiered Membership & Token-Based Voting
Nounish DAOs offer no tiered membership, restricting flexibility in Member roles. There is only one Membership type which is that of a person holding one or more of the DAO's NFTs. While holding multiple NFTs increases ones voting power, everyone who holds at least one NFT is the same kind of Member. If you wish to have different classes of membership, Nounish DAOs are not a good fit.
Additionally Nouns employs a onchain Token-Based Voting mechanic, meaning each token from the NFT Contract equals one vote. These means you can't have multiple classes of NFTs or different voting strategies such as Quadratic Voting, ranked choice voting or others.
Less Suitable Applications of Nounish DAOs
Although experimentation is encouraged for projects interested in creating a Nounish DAO, certain use cases appear to be less compatible with this organizational structure.
PFP projects led by centralized teams present a difficult fit for Nounish DAOs. These teams often seek guaranteed compensation from a successful PFP project and desire the flexibility to manage the funds as they see fit. In a Nounish DAO, however, the treasury is owned by the NFT holders, and the team would need to submit a proposal for community approval to receive compensation, without any guarantee of its approval. New PFP projects that embrace decentralization and share a common vision and purpose could be worth exploring within the Nounish DAO framework.
Rapid Fundraising Investor and Impact DAOs that need to raise a lot of money quickly may find greater success through ERC-20 tokens and NFTs, rather than relying solely on selling NFTs at a timed auction cadence. ConstitutionDAO and UkraineDAO, for example, would not have been able to raise funds as quickly as they did within a Nounish DAO format for their respective missions. Nounish DAOs might be better suited for impact organizations with a more extended time horizon.
Balancing Opportunities and Limitations
To make the most of the opportunities and mitigate the limitations of Nounish DAOs, organizations should focus on the following strategies:
Have a Clear Vision
A well-defined mission statement can help to clarify the DAO's objectives and provide an opportunity for member alignment. A clear vision ensures that all members are working towards the same goals and can make more informed decisions regarding resource allocation, project selection, and other critical aspects of the organization's operations. As an example, Purple’s missions statement of “proliferating and expand the Farcaster protocol and ecosystem” is a clear mission to align members around and can be a litmus test around how one should vote on Proposals.
Have an Aligned Community and Culture
An aligned community is crucial for navigating the challenges posed by decentralization and ceding control. By fostering an environment of collaboration, communication, and mutual respect, DAO members can work together to overcome obstacles and make collective decisions that benefit the entire organization. The Park boasts a membership comprised of individuals who are passionate about their artistic talent, onchain music, and the future of the music industry. The community has also developed its own unique culture, complete with rituals such as greeting one another with "Happy Friday," regardless of the actual day of the week.
Deploy Your Capital to Build Excitement for Your DAO
Nounish DAOs should strategically deploy their capital to generate enthusiasm and attract new members. This can be achieved through innovative projects, public goods, community outreach, and other initiatives that demonstrate the DAO's commitment to its mission and values. Gnars, a community-owned extreme sports club, strategically allocates its capital to sponsor athletes, support and organize events, and fund software development within the DAO, including an NFT platform called That’s Gnarly, which showcases photos and videos of their members gnarly achievements. Through their thoughtful use of capital, Gnars has garnered the attention of extreme sports enthusiasts and athletes, including skateboarding legend and Gnars member, Bob Burnquist.
In summary, Nounish DAOs present a unique fusion of technical and cultural elements, offering numerous opportunities to maximize an Organization's impact against their vision but not without certain limitations. These organizations benefit from a consistent auction frequency, a shared mission, community funding, and a passionate community. However, they also face challenges related to control, liquidity, fundraising pace, non-tiered membership and token-based voting strategy.
To balance these opportunities and limitations, Nounish DAOs should focus on having a clear vision, fostering an aligned community, and deploying their capital in ways that generate excitement and interest. By adopting these principles, Nounish DAOs can harness the potential of their innovative approach, maximize the impact towards their vision and contribute to the growth of the wider Nounish ecosystem.
As a final thought, the continued development and success of Nounish DAOs will undoubtedly reshape the landscape of decentralized organizations, fostering innovation and empowering individuals to participate in the governance and operation of these DAOs. I encourage those interested in the future of decentralized organizations to explore the creation of their own Nounish DAOs and join this movement of building onchain socieities.
Forefront is deeply invested in the development and proliferation of Nounish DAOs. If you're interested in joining the conversation and exploring how this model can evolve, grab a Membership NFT and join the Forefront community.