Nouns DAO and its 2023 forks

Background

Nouns DAO is an on-chain collective launched on 8 August 2021. Its mechanism is simple and fixed in code: one Noun, a generative pixel-art character stored and rendered entirely on the Ethereum blockchain, is created and auctioned every 24 hours, forever. All auction proceeds go automatically to the DAO's treasury, and each Noun is a non-fungible token carrying one vote over that treasury. The founders ("Nounders") receive a share of Nouns during the first five years instead of a sale of tokens. Nouns is best known as a cultural and public-goods project that funds the spread of its logo-like glasses ("proliferation"), open-source tools, art and charitable causes; its first proposal, passed in September 2021, donated 5 ETH each to six charities.

How it is governed

Nouns governance contracts began as a fork of Compound's Governor Bravo system, with proposals that execute on-chain after a timelock. Later upgrades added a dynamic quorum and gas refunds for voters (version 2) and, in version 3, proposals backed by signatures, editable proposal candidates, an objection period and a built-in fork mechanism. One Noun equals one vote, and Nouns can be delegated. The founders retained a veto power as a safeguard against hostile proposals during the project's early years.

Smaller funding decisions were moved off the main governor into satellite processes: a Small Grants committee created by proposal in October 2021, and Prop House rounds in which the community votes on competing applications for a fixed pot. According to Nouns Center, small grants funded 84 projects with 167 ETH and Prop House 107 winners with 220 ETH, while larger proposals typically ranged from 10 to 1,000 ETH.

Economy and public goods

Because a new Noun is sold every day, the treasury grows continuously while demand lasts, and voters spend it on whatever they consider good for the project. This "perpetual auction" model differs from DAOs funded by one-off token sales. Its weakness is that treasury value per Noun can exceed the market price of a Noun, which turns the treasury into a target: buying Nouns and exiting with a share of the treasury may be more profitable than participating.

Conflict and disputes

This tension produced Nouns' defining conflict. In 2023 holders who argued that the treasury was being spent poorly, together with traders seeking to capture the gap between treasury value and Noun prices, pushed for a "rage-quit" right. The DAO adopted a fork mechanism: holders escrow their Nouns, and if enough join, a new DAO is deployed and receives a pro-rata share of the treasury, while forking Nouns are converted into tokens of the new DAO. On-chain records of the fork deployer contract show new DAOs created on 8 September, 7 October and 16 November 2023. Supporters saw forking as a strong minority protection and an honest exit option; critics saw it as an arbitrage that drained the treasury and rewarded short-term holders. Other disputes have concerned spending on high-profile marketing, compensation of contributors and the founders' veto.

Outcomes

Nouns demonstrated a self-funding, fully on-chain institution with transparent treasury votes and an unusual record of funding art, open-source software and community events. It also showed that a treasury governed by tradeable votes is exposed to financial arbitrage, and that a formal exit right, once created, will be used. After the 2023 forks the main DAO continued with a smaller treasury.

Lessons for institution design

• Continuous issuance creates continuous funding but also continuous dilution and a standing incentive to buy votes for the treasury they control.
• Exit rights protect minorities and discipline majorities, yet when exit pays more than voice, they become an arbitrage.
• Satellite processes (grants committees, contest-style rounds) reduce the load on the main vote.
• Founders' vetoes are a blunt safeguard that conflicts with claims of decentralisation and needs a clear end date.

Further reading

• Nouns contracts (nouns-monorepo)
• Nouns Center: history
• Nouns Center: funding
• Fork DAO deployer contract on Etherscan