Nouns DAO and the Philosophy of Governance

Building a JPEG World

Feb 27

Stanford Blockchain Review
Volume 1, Article No. 2

📚 Author: 0xBobateas – Harvard Blockchain Club
🌟 Difficulty: Level 1

Introduction

A philosophical approach to the contemporary problems of crypto governance warrants a word of explanation. Unlike many of our predecessors, philosophers no longer announce to the world what ideally should happen. We have grown modest. We no longer search for a universal determination of human events, and we realize full well that comprehension of the past, perhaps the past itself, changes reflexively with the philosopher’s point of view. But the problem remains: no innovation in consensus mechanisms or parallel execution engines can sway the hearts of men. To truly understand Web3’s impact, we must first understand humankind. And to understand humankind, we must first understand our past.

Granted, no prior experience, however rich, and no historical research, however thorough, can save the current metaverse-cruising generation the creative task of finding their own answers. However, intellectual history is more illuminating than many crypto purists give it credit for. Through engaging in a case-study of Nouns DAO’s principles and mechanisms of self-governance, I will attempt to use a philosophical perspective to investigate Nouns DAO’s ramifications for civil society, community, and governance in the Web3 era. I conclude that the task ahead for NFT projects is to engage in a painstaking process of world-building, placing meanings and symbolism behind these JPEGs that allow it to nurture a self-sustaining sense of unity, identity, and democratic responsibility. After all, governance is twofold art: there are both the governors and the governed. On top of an efficient governance structure, the governed must be incentivized enough to stay in the community. Ultimately, the aim of Nouns is to cultivate the dual mandate of promoting both the principle of democratic DAO governance and meaningful decentralization through leveraging the communicative and solidarity-giving power of iconography.

Background: The Value of NFTs

Before diving into the depths of Nouns DAO, we need to understand the value proposition of NFTs. Non-fungible tokens live on the blockchain and are used for many purposes, such as guaranteeing digital property rights. However, unlike fungible tokens, which capture value from underlying products but don’t engage in value creation, NFTs are often the products themselves—think Fidenzas, Ringers, or CryptoPunks. Although NFTs are usually pointers pointing to a JPEG hosted on IPFS, many NFT projects, including Nouns and Cyberbrokers, actually generate and then store the art directly on-chain.

For a long time, what many saw as NFT1.0 was no more than digital collectibles moved on-chain for ease of tracking. That was the era of NBA Topshot and Nakamoto cards. NFT 2.0, the era of the apes, which was touted by many to onboard the next billion users to crypto, meant introducing nothing more than the muddy concept of “utility,” or the ability to use your NFT as a ticket to some event or as a coupon for tacky merchandise. The takeaway is if you only see your NFTs as a series of discounted future cash flows, or just as digitally traded baseball cards, you will never understand why they are so expensive (or have low Sharpe ratios, God forbid). For me, NFTs are a new digital primitive that allows for the easy bootstrapping of ideologically aligned social networks. The Nouns DAO is one such network.

An Overview of Nouns DAO

The Nouns Project is a testament to the adage that beauty lies in simplicity. However, as is often the case with experimental endeavors, it has grown to become more than that. First and foremost, it is an NFT project and a DAO (decentralized autonomous organization).

Simply put, Nouns are generative art pieces in the form of non-fungible ERC-721 tokens. They are created by shuffling and recombining predefined traits that include heads like Sofa and Shark. Each Noun (except every tenth one, which is left for the founders) is auctioned to the highest bidder. The winner receives the Noun and his ETH is deposited in the Nouns treasury. The auctions settle every day, and the community gets to influence the characteristics of the next Noun for tomorrow.

This brings me to the other crucial part of Nouns: the DAO, which (like many other DAOs) uses a fork of Compound Governance. Personally, I joined the community by winning the public auction for Noun 55. Though I may be late to the party, as of August 8th, 2021, the Nouns protocol has been generating and auctioning one Noun every 24 hours, and we currently sit at Noun 591. This process is intended to continue until the eschatological end of the universe.

DAOs are first and foremost democracies—a decentralized way of deciding how communal resources are allocated. In Nouns DAO, as in the case of many NFT communities, the primary “communal resource” is the Treasury. Each individual Nouner, no matter how many NFTs they own, has only a fractional say in how the DAO spends its Treasury funds. Their voting power is proportional to the amount of NFTs they have (some prominent members have Nouns delegated to them, boosting their voting power proportionally). As of now, there are 341 Nouners (holders, with some owning more than one Noun), and 28176 ETH in the treasury—which amounts to a formidable $44.5M.

Just as there are different types of democracies around the world (presidential, parliamentary, etc.), there are also numerous on-chain governance variations. Curve protocol, for example, experiments with “Vote Escrow,” where you lock up CRV tokens in exchange for more voting power. All this, of course, comes with tradeoffs. With an escrowed system comes a more concentrated power that leads to more efficient governance, but at the same time, these concentrated power systems can breed monopolies of power that actually erode democracy (the more veCRV you have, the more you can turbocharge the CRV rewards flowing to your liquidity pool, giving you more CRV and more governance power). We must keep this in mind as we turn back to Nouns governance.

Nouns DAO Governance: Reimagining “Civil Society”

The governing mechanisms in Nouns DAO showcase an elegant yet robust democratic system that recognizes the variety of stakeholders and safeguards “the long-term growth and prosperity of the Nouns project” [2]. Any Nouner with 2+ nouns can submit a proposal, and each proposal is passed with a simple majority, subject to quorum. Furthermore, to ensure that the passed proposals do not violate community rules and interests, Nounders retain ultimate veto power.

This simple design has proved surprisingly robust in practice. The Nouns DAO has created 218 proposals, ranging from staking the treasury’s ETH to allocations of available financial resources. Of these proposals, 153 have passed and only 1 has been vetoed, that being proposal 60, aptly titled “Test Foundation's Ability to Veto a Proposal During Timelock.”

These results strike into the crux of what I believe to be Nouns DAO’s long-term ideological significance. On the surface level, Nouns DAO seems no more than a successful community-pooled hedge fund centered around goofy pixelated art. But in reality, the success of Nouns DAO re-imagines the idea of “civil society,” dragging dated democratic institutions towards a decentralized digital dimension.

With that in mind, let’s turn to the philosophy of democratic governance and the role of “civil society.” Niccolo Machiavelli, the pragmatic political philosopher of Renaissance Italy, believed that all societies were subject to degeneration. In his Discourses on Livy, he wrote that “Monarchy readily becomes a Tyranny, an Aristocracy, an Oligarchy, while a Democracy tends to degenerate into Anarchy. So that if the founder of a State should establish any one of these three forms of Government, he establishes it for a short time only, since no precaution he may take can prevent it from sliding into its contrary” [4]. He argued that all forms of government are harmful, and that governors can only stave off degeneration by systematically bringing a republic back to its beginning state prior to the degeneration taking place. “For all the beginnings of sects, republics, and kingdoms must have some goodness in them, by means of which they may regain their first reputation and their first increase,” writes Machiavelli [5].

Machiavelli believes that this renewal can be achieved both internally or externally. Externally, Rome was reborn after an external beating by the French; internally, it was rejuvenated by men of great virtù, like Haratius Coclus and Regulus Attilius. It is clear, however, that neither method of regeneration is reliable, and I believe Machiavelli was forced to endorse the brutal execution of the sons of Brutus and similar gruesome acts to combat corruption. If Rome was to have held similar purges “every ten years,” he wrote, it would “never have been corrupt”; it was only when death became more rare that men corrupted themselves and began to “transgress the laws” [6]. In sum, Machiavelli was forced to justify gruesome punishments like executions because he thought them necessary for the greater good. He studied closely the decline and fall of the Roman Empire, but he missed the one piece of puzzle that could have saved his theory, the critical regenerative force that has kept many democracies from degenerating: civil society, or free and voluntary associations among the people.

In his book Democracy in America, 19th-century French sociologist Alexis de Tocqueville defined civil society as the network of self-gathering organizations that express individual interests and resolve communal problems—or, “the sphere of intermediary organizations standing between the individual and the state” [7]. Barely 25 on the eve of his voyage to the new world, Tocqueville marveled at the provincial decentralization of the colonies, struck by how every township managed its own affairs and autonomously organized committees on every subject. Fast forward to the present day, scholars like Dana Villa similarly identify civil society with a newly born associational life—one “without the official sponsorship of the state … It came, in a word, to stand for a decentralized and pluralistic public realm, one capable of advancing society’s claims not only against the bureaucratic/authoritarian state, but also against large economic interests (such as multinational corporations)” [8]. Civil society must be embraced at the public-political dimension.

Of course, characteristics of a good civil society must include voluntary participation, a sense of community, and a shared purpose, but what is most innovative about Nouns is its ability to allow for the symbiotic flourishing of both democracy and meaningful decentralization. NFTs must move beyond being eccentric collectables to become the backbone of philosophically aligned social networks. You collect a Noun not only because you like the Noggles (noun goggles), but also because you subscribe to Nouns DAO’s ideological principles. Just like the self-constituting New England town halls that so moved Tocqueville on his journey to America in the 1830s, Nouns DAO must bring the local town meeting on-chain into the 21st century [9]. In the age of the metaverse, we develop our identities through the myriad of interconnections we forge with each other in an extra-familial but apolitical way—thus, NFTs have evolved into digital badges of citizenry for like-minded ideological communities, creating a cyber civil society that begins at the grassroots.

In practice, the ownership and voter structure of the Nouns governance model also attests to this decentralized and democratic process: there is a very well-distributed voting power, with nearly half of all votes held by individuals with just one Noun. Large whales hold less than 20% of voting power, thanks to the dilution effect of the daily auctions. As time marches onward, the number of single owners is expected to rise, reducing the risk of collusion commonly seen in other highly concentrated DAOs. Additionally, on-chain transparency ensures there is no hidden ownership or upcoming unlocks and makes it harder for voters to conceal their allegiances and intentions—the unique NFTs used for voting also establishes a track record for the holder, enabling zero-knowledge trust.

Growth by Cultural Capital: The Iconography-Liquidity Flywheel

Yet, despite the unique governance structure, the livelihood of Nouns depends on how well it is able to propagate its cultural value. Fundamentally, a Noun is just a fancy JPEG. For this JPEG to have liquidity, people must first value its iconography. In fact, iconography and liquidity are two sides of the same coin. Through permissionless DeFi protocols, cultural capital (iconography) has become frictionlessly interchangeable with tokens (liquidity). And thus, in the same way Rolexes churn out a million watches a year and retain their value simply due to its instantly recognizable panache and consensus as a good investment, fashion houses like Balenciaga and emerging Tiktok micro-celebrities rely on the viral nature of their icon. This is what I mean by the iconography-liquidity flywheel. Very broadly, NFTs work by capturing memetic value (the power of memes, signs, and social status) to become stores of cultural capital.

Thus, as liquidity increases, the potency of Nouns’ iconography also increases. By strengthening the iconography, more capital will flow into the project, giving more fire power to its viral spread. As Bourdieu and Baudrillard suggest, the value of such a cultural sign is based on its place in a hierarchical system of signs. The most expensive NFTs validate this theory; how else can an Azuki spirit sell for over a million? Yet, because Nouns are not fixed supply, the only way to keep up the price for nouns would be to spread its iconography, generating demand that will kickstart a “branding effect” virtuous cycle, where the more expensive these things are the more desirable they become. Once this begins to happen, just remember: demand is reflexive, but supply is linear ⌐◨-◨.

The DAO must therefore use the ETH in an efficient manner to attract attention and make Nouns desirable. The lil Nouns proposal (which led to the creation of a fork of Nouns DAO that owns 8 proper Nouns and has it’s own mini treasury used to bootstrap its own liquidity-iconography) was a step in the right direction, giving speculators a lower entry and thus erasing liquidity barriers. Similarly, I am closely following proposal 218, “Bring Nouns to 2m+ People over 15 Months at Japan’s Best Ski Resort and Integrate Nouns into the Alpine Subculture” [10]. In return for the 198K asked by the proposers, the DAO will get noggles distributed across the resort, features on their social media, posters in 247 gondolas, and many more. Though I look at this proposal with boyish enthusiasm (it will gradually roll out until Q2 of 2024), I also recognize that many other proposals have failed to gain traction. I am not too worried because my mental model for these proposals is very much akin to venture investments—most will fail, but the few that succeed will have an asymptotic, outsized impact. Combined with a reinvigorated market cycle, Nouns could prove to be the project that finally utilizes the trinity NFT technology, DeFi, and DAO governance to its full potential.

However, as I will discuss in later sections, Nouns art must extend beyond the sphere of aesthetics. The art has to be more than just quirky. In order to fully overcome the static friction of the flywheel, we must make sure that the art discloses a value system—a set of memes, ideas, and customs, that serve to organize a community and its practices. It needs to establish a way to engage with the world.

Death by Execution: Proposal 129

NOUNS1234 (1) — Nounify New York Fashion Week [11]

Whereas the “growth” of Nouns DAO is indigenous to its format as an NFT, the “death” of Nouns DAO is not. Like most other democracies, Nouns DAO’s governance model is most at risk from executional failure, and a subsequent loss in trust. This is an ideological and resource-allocation problem about broken promises that improvements in infra doesn’t solve.

This is something that is also personal for me. I am the proposer of “Nounify New York Fashion Week”, or proposal 129, which is now remembered for its broken promises. After speaking to my friends at 1Confirmation, an VC with deep ties to Stanford University, I was introduced to the Advsiry team, who promised to provide ‘Advisry X Nouns’ proof of attendance badges and Nouns gifts to guests, plaster Brand Nouns at the venue, host a Nounish after party, and have Nouns pieces designed by Keith Herron on the runway, and film a documentary all for nouns at the prestigious New York Fashion Week—an event amongst the major fashion shows of the world attended by many celebrities—all for 33ETH [12].

After using my connections to garner support, we passed the proposal 59 to 1. The date of the Fashion Week came and passed. I couldn’t make my way down to Oculus NYC, an artistic landmark located at The World Trade Center where the show took place, so had to rely on the other Nouns who went. To my dismay, there was in fact “almost 0 Nouns presence during the event” according to a fellow Nouner. I raced to watch the recording myself and immediately contacted Advisry. They apologized and blamed their poor planning and lack of “adequate time to fill out the proper paperwork” amongst other reasons. As for nouns branding, they “had rush-made the nouns trunk from Italy and got it delivered in time ... but on the day of the show for some reason it did not come out onto the runway” due to a “styling team mistake.” No refund was made.

I claim responsibility for the failure of this proposal and the loss of 33ETH, but clearly this shows a larger problem about the DAO: moving governance on-chain has failed to resolve any of the problems of democracy that the anti-majoritarian framers of the Constitution had to face. Trust between members of the Nouns community decayed and people brainstormed ways we could get the money back, including legal action. Notwithstanding, what is most highlighted here should be the execution risk that DAOs face in the real world, and the potential for sowing mistrust for both the novel art of on-chain governance and the community, along with its iconography and liquidity.

The Problems of Democracies: A Philosophical Lens

Ever since the Ancient Greeks, democracies have faced the perennial problems of execution and unity. In Plato’s Republic, Socrates held that democracy is not designed for inducing the non-philosophers to attempt to become as good as they possibly can. Rather than cultivate virtue, democracy cultivated freedom—the freedom to live however nobly or basely one desired. But it is this same freedom that is democracy’s greatest undoing: you have to trust that you are not the only person paying your taxes. More often than not, these democratic communities without a strongly shared identity fall prey to the prisoner’s dilemma.

To the crypto skeptic, it is easy to point out all the proposals that just want to get some quick money from the treasury. They can even find examples, like proposal 129, where the money was wasted without consequence by the wrongdoers. An analogy can be drawn to the Greeks who enjoyed their freedom but did not understand what allowed them to be free, and thus took no pride in their democratic system and didn’t care when it died. But both the skeptic and the flaneur are misguided: as decentralized, democratized entities, DAOs are fundamentally open societies part of the increasingly pluralistic public realm. Sure, there must be a great governing structure, but the governed must also be equally incentivized to want to be governed. Therein lies the rub: open societies have a powerful need for solidarity, which we have to have and which you do find in a workable democracy. Solidarity, in turn, needs a sense of the importance of common identity. It all comes back to the value of free associations and civil society.

In a way, Nouns highlights a very imminent problem: technology brings forth previously abstract and philosophical questions to the forefront of our attention. When Jean-François Lyotard first ranted about the postmodern loss of metanarratives, no one understood what he was on about. Now, with decentralized cybereconomies and virtual simulations detached from the spatio-temporal world becoming a reality, we are forced to confront this epistemic crisis. There is a collapse of “nearness” and a flattening of the pictorial space, and we become increasingly detached from the comfortable world we grew up in and thrusted into a world of cryptic signs, where each hour of labor no longer translates to $15 of value.

As a result, the biggest risk to the future of Nouns DAO is a sense of nihilistic exhaustion. There is a decaying of trust in democratic institutions and we no longer care about voting, as seen with the low turnout rate in most DAOs. We have lost the capacity to judge when it is that we should follow rules and when it is we should discard them. We have even lost the capacity to agree on what the rules are. We no longer inhabit a world where we recognize this capacity as the ultimate value. In a reality held together only by an equilibrium of evils, I hope the rehabilitation of our judging ability does not require public executions like the ones back in Rome. Machiavelli will be proud.

In the end, politics happens in small communities, just like when it happened in Greece. There are no universal rules, except for cultivating a capacity to make them. Like many others, Nouns is still suffering through the hangover that resulted from the black swans in the centralized crypto industry, first and foremost of which looms FTX. Thus, too often DAO proposals miss the forest for the trees. We shouldn’t spend time drafting plans to claw back ETH from failed proposals, distribute dividends from the Treasury, or even donate to charity and other public goods in a scatterbrained manner. Nouns DAO needs to re-establish its locus of solidarity and identity. We must reject the creeping nihilism that made our collective behavior both more lackadaisical and unhinged. In the end, a Nouner must realize and actualize himself in his identity as a member of this community—in his Noun.

The Future for Nouns DAO

So how do we reclaim our fate? How do we foster civil society?

Perhaps the answer lies in going back to leveraging Nouns’ value as a form of cultural capital in the first place by way of the iconography-liquidity flywheel. After all, iconography is influence, and with influence must come ideological responsibility. Behind these fancy JPEGs should be a mutually respectful community, which actively forms opinions, modifies passions and feelings, determines the goals pursued, the type of person admired, the language in use, and, ultimately, the character of the participants it encompasses.

While at first glance this may seem like a tall order, it is not an impossible task for an NFT community, which has its economic value grounded in its cultural capital. The key task here is to correctly leverage the right narrative and build the right backstories.

In fact, this is only possible with the advent of NFTs, DAO governance, and DeFi. In a world that is totally anonymous and encrypted, NFT DAOs are able to provide individuals with a sense of concrete social identity. It provides for subjective individual freedom by offering individuals a wide variety of vibes to pick from given that they have the capacity to judge which one they like. The NFT DAOs, however, must provide a recognized way of life, a tribe, that is systematically integrated into the differentiated unity of the metaverse, not all eccentric experiments that end in hyper-nihilism. This identity must be known to provide potential-fulfillment. Being a Nouner must help anons achieve a recognized status (boosted by its iconography), lest they become isolated from others, alienated from civil society, gauging their self worth only by the selfish pursuit of PNL.

Stories have an innate moral potency; this is why Tolstoy believes that literature’s value lies in its ability to morally improve and reform. Thus, perhaps the biggest task ahead for NFT communities such as Nouns DAO is to engage in a painstaking process of world-building, placing meanings and symbolism behind these JPEGs that allow it to nurture a sense of unity, identity, and democratic responsibility. Philosophical truths require no universal validity—only general communicability.

As a well-known, successful project, Nouns DAO’s democratic experiment must ultimately serve as an inspirational model: an exemplary wellspring of inspiration for the countless thousand smaller local DAOs in its image, that all have their own sense of collective identity. As one hundred flowers blossom, these micro-anon communities will emerge with their own particular and determinate principle. In their consciousness of this actuality and their preoccupation with their own interest, they become at the same time the unconscious instrument of that inner activity in which the shapes which they themselves assume pass away, and the new cyber-civil society works its way towards the transition to its next and higher stage. It is only through this way that both democracy and decentralization can survive into the crypto age.

So let’s build a world around our JPEGs.

About the Author

0xBobatea is a junior at Harvard University studying philosophy and economics. Like Karl Marx before him, Boba has devoted himself to changing the world with his armchair philosophizing as a research analyst at Dragonfly Capital. He bought dogecoin before Cryptokitties and began trading NFTs in 2020, when he served as a Community Ambassador for Axie Infinity. At Harvard, Boba helped found the research initiative at Harvard Blockchain Club, and you can find more of his work here and on his own mirror. He is a KOL in many NFT communities, including Azuki, Doodles, and Nouns. In his free time, he trades shitcoins by exploiting inelastic market dynamics and shitposts on Twitter.

References

[1] https://nouns.wtf/noun/500

[2] https://nouns.wtf/vote/129

[3] https://nouns.wtf/vote/227

[4] Niccolò Machiavelli, Discourses on the First Ten Books of Titus Livius, bk. 1, CH. 2

[5] Machiavelli, Discourses on Livy, bk. 3, CH. 1

[6] Ibid.

[7] Villa, Dana. “Tocqueville and Civil Society.” Chapter. In The Cambridge Companion to Tocqueville, edited by Cheryl B. Welch, 216–44. Cambridge Companions to Philosophy. Cambridge: Cambridge University Press, 2006. doi:10.1017/CCOL0521840643.010.

[8] Ibid.

[9] Alexis de Tocqueville, Democracy in America. University of Virginia American Studies Program, vol. 1, ch. 5

[10] https://nouns.wtf/vote/218

[11] https://discourse.nouns.wtf/t/nounify-new-york-fashion-week/1925

[12] https://nouns.wtf/vote/129