What Are Nouns? The Ethereum NFT DAO Building Open-Source IP – Decrypt
Pixel art NFTs are nothing new—one of the first NFT collections, CryptoPunks, pioneered the blocky 8-bit design style.
But Nouns is shaking things up with a novel distribution method and open-source IP that has led to the collection's signature pixelated specs popping up everywhere from beer cans to movies.
Here’s how Nouns works, and how it has built a multimillion-dollar decentralized brand.
First and foremost, Nouns is an NFT collection, whose owners are part of Nouns DAO, a decentralized autonomous organization.
Non-fungible tokens (NFTs) are cryptographically unique crypto tokens that are often used to represent a piece of digital art. Nouns are an example of a profile picture (PFP) collection, a set of NFTs that are typically used as a user’s profile image on social media platforms.
Nouns are also a creative experiment on Ethereum designed to improve how on-chain communities interact. The Nouns DAO does this by using its treasury to build and support public goods.
A little over a year has passed since the first Nouns NFT (a pixel art character with a fox head and pink glasses) was auctioned on Ethereum. In that time, the Nouns DAO has steadily grown and now holds just over 29,000 ETH (about $45 million) in its treasury—a war chest used to fund a diverse range of initiatives from charity donations to naming a new species of frog.
The Nouns concept was inspired by a Twitter prompt from an anonymous founding member, Punk 4156. After interest grew for the idea, he followed it up with a series of tweets outlining the framework that would invariably become Nouns.
Shortly after, a group of ten Nounders (what Nouns calls its co-founders), including Vine founder Dom Hofmann, began working through a shared Discord and created the DAO, using Punk 4156’s outline as a guide to solidify the concept.
Each Noun NFT is a little picture of a humanoid that has been algorithmically generated to order, then stored as a 32-pixel by 32-pixel picture directly on the Ethereum blockchain.
The fact that Nouns are stored directly on Ethereum’s scarce blockspace, rather than containing a link to an image hosted elsewhere (for instance on decentralized web hosting service IPFS), is a notable difference between Nouns and many other NFT projects.
The algorithm that underlies the Nouns protocol forges these NFTs from a random combination of backgrounds, body types and clothes. Some of these Nouns have flipbook calendars for heads. Others sport jumpers with geometric shapes.
You can play around with potential Nouns in the Nouns Playground, a tool that lets you combine various traits stored in the protocol.
Unlike the limited supply and exclusive nature of PFP NFTs like CryptoPunks or Bored Ape Yacht Club, a new Noun is generated randomly every 24 hours and put up for auction. Once each auction closes, another unique Noun is minted (based on a series of predefined traits), and the process repeats, forever. The Nouns smart contract automatically sends 100% of the proceeds directly to the DAO Treasury.
Every Nouns owner can join the Nouns DAO to help shape and govern the project by voting on proposals funded by the Treasury. The DAO, which uses a fork of Compound Governance, gives all members one vote per Nouns NFT. Although these votes are non-transferrable, as with using proxies for board meetings, members of the DAO can delegate other people to vote on their behalf should the person or entity delegating still own the Noun used to vote.
Although there's no cap on the number of Nouns a single entity or person can own, a minimum of two Nouns are required to submit proposals. And the founding members receive rewards in the form of Nouns (10% of the supply, or every tenth Noun, for the first five years).
Every Noun holder can sponsor and vote on proposals for the treasury to fund. The idea is that the more unique and interesting said projects are, the more brand awareness Nouns gains, and the more people will want to join.
To date, the Nouns DAO has funded proposals including:
Nouns are offered at auction on the Nouns website, with a new Noun generated and offered for sale every 24 hours. They are also available on secondary markets such as OpenSea and Rarible.
As of October 30, 2022, the Nouns floor price is over 60 ETH (about $93,000). One reason for the big sticker price is that the supply of Nouns is very limited, because just one Nouns NFT is released a day. Where NFT collections like Bored Ape Yacht Club and CryptoPunks typically number in the thousands of units, there are just 491 Nouns at the time of writing.
Despite its high floor price, Nouns is just the 232nd largest NFT project with $23.3 million in secondary market sales, according to data from CryptoSlam. By comparison, Axie Infinity, the largest NFT project, has generated about $4 billion in secondary market sales.
Nouns is open-source and is released under a Creative Commons CC0 “No Rights Reserved” license. This means that anyone can use the Nouns name and imagery to create anything, as it’s in the public domain.
Even if you don’t own a Nouns NFT, you can create Nouns merchandise, and people have created derivative NFT collections such as Noundles, Lil’ Nouns, 3D Nouns, and NounPunks.
You’re also free to add new traits for future Nouns. The only caveat is that the Nouns codebase, including the art within it, is principally governed by the Nouns DAO, which votes on which traits are included in the collection. The DAO receives all of the ETH used to buy Nouns.
As of this writing, the treasury holds about $45 million. This money is used for “the long-term growth and prosperity of the Nouns project.” Nouns holders can vote on proposals submitted by other Nouns holders.
Discussion for Nouns takes place on Discord and the forum site Discourse. The latter is where intense discussion around protocol governance takes place.
Successful votes on the governance protocol, which is modeled after Compound Governance, include a motion to establish brand presence in Brazil (expect merch) and design and distribute a monthly Nouns comic for distribution across the U.S. (expect anthropomorphic Nouns). Nouns DAO is also one of the crowdfunding backers of feature film "Calladita," in what’s thought to be the first on-chain proposal for a DAO to fund a feature film; the deal will see a Nouns NFT featured on-screen in the film.
Despite its name, the Nouns DAO is not entirely decentralized—yet. The Nouns Foundation, an “ownerless” Cayman Foundation Company set up by the Nounders, has the ability to veto proposals it doesn’t like, such as those that “introduce non-trivial legal or existential risks to the Nouns DAO or the Nouns Foundation.” This refers to treasury raids, bribes, unwanted updates to the Nouns smart contracts, or attempts to control the Nouns auction process to get a voting majority.
It remains to be seen whether handing intellectual property rights to a community straight away, and focusing on the governance of a brand, makes a material difference to its value.
But so far, Nouns NFTs have become a recognizable part of the NFT ecosystem, and the Nouns governance structure has worked impressively well, taking the project beyond little pixellated blobs with tacos and airplanes for heads.
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