Goals of Analysis

Our team conducted an analysis of Lil Nouns DAO to understand how well Lil Nouns is functioning as a DAO and to use information to inform governance and community recommendations and tooling development. To answer these questions we needed to understand the purpose of Lil Nouns DAO, the motivations of its members, and the success of its proposals thus far.

This audit is not shining light on anything new. Rather, it is gathering information that has been the topic of discussion in the Discord and beyond for many months, in hopes the community can take tangible steps forward in solving these problems. Our team is open to supporting however the Lil Nouns community sees fit.

A final version of this report will be developed and shared widely after receiving feedback from the community.

Summary of Analysis

• DAO resource allocation is misaligned with the stated values and goals of the DAO. Assuming that Lil Nouns is meant to be an entryway into the Nouns world for new builders and creators, we would assume that over half of capital is allocated toward funding proposals for members and creators. Instead, over half of ETH has been spent on acquiring new Nouns.

• The reserve price for Lil Nouns auctions has not helped build sustainable auction activity. Since setting the reserve price to 0.15 ETH, auction activity has fallen drastically.

• Lil Nouns are increasingly moving into the hands of existing buyers.
  1-3 whales control DAO governance and are pushing the DAO in the direction of acquiring more Nouns.

DAO Rules and Norms

DAO Rules

Lil Nouns is a fork of Nouns, where one Lil Noun is auctioned off every 15 minutes. The auction mechanism was inspired by Nouns DAO, which auctions 1 Noun every 24 hours. Lil Nouns auction mechanism is highly dilutive as – theoretically – 96 Lil Nouns could be auctioned in a 24 hour period. However, due to settlement and reserve price requirements, the number is much lower today.

100% of the proceeds from the auction are sent to the treasury (0xd5f279ff9EB21c6D40C8f345a66f2751C4eeA1fB), which currently holds 327 ETH ($509k USD) and 15 Nouns (~$400k at market). Lil Noun holders can submit proposals (a minimum of 7 Lil Nouns is required to submit a proposal) to the DAO to be voted on (1 Lil Noun required to vote). Holders may also delegate their vote to a third party.

While proposals can be submitted directly onchain with no prior review, most proposers seek feedback on Discord and write their idea to be emoji voted on in a private Lil Nouner (Lil Nouns holders) channel or use tools like Prop Lot for token-weighted temp checks. If an idea is well received, then the proposal is submitted on-chain here. Proposals transition from Voting Delay (2 days) to voting active (3 days) to timelock (2 days).

Lil Nouns also leverages Prop House to incentivize people to “build and proliferate Lil Nouns,” in a similar fashion to how Nouns runs its own Prop House rounds. Prop House effectively acts as a way for the DAO to distribute small grants across specific themes.

Values, Mission and Goals

Generally speaking, the Values, Mission and Goals of Lil Nouns is unclear. By looking at the documentation, Lil Nouns exists to expose the world to all things Nounish. It provides members exposure to Nouns DAO (by purchasing Nouns) and access to a treasury, with the high level goal of exposing the world to all things Nounish in a more accessible way. Ways to do this include:

• propagating the meme and Nouns-pilling the world through Lil Nouns

• educating the world about Nounish culture, on-chain governance, art and more

• reducing the friction of on-chain governance and tokenized communities

• enriching the ecosystem with tools that improve DAO-to-DAO interactivity

Resource Allocation

By far, the vast majority of Lil Nouns funding has been allocated toward acquiring Nouns on behalf of the DAO. 969 ETH has been approved across 10 proposals to acquire 15 Nouns (so far). This is well over half of all ETH that has been allocated by the DAO in its existence.

Small Grants and Prop House round out the next largest category, with 326 ETH being allocated toward various rounds and grants programs. These projects cover a wide range of categories, but a cursory view makes clear that much of this funding goes toward DAO marketing and “meme proliferation.”

151 ETH has been allocated toward residencies for three active DAO contributors: Al, Dot, and Brook. Each of these members has a wide range of responsibilities across the DAO, including development and protocol upgrades, running community calls, stewarding Lil Reps, and more.

96 ETH has been spent on media and events, including the Lil Nouns newsletter and the Lil Nouns Show Twitter Spaces. Nouns101.wtf was the largest individual expense in this category, implying a focus on education and onboarding by Lil Nouns.

81 ETH was spent on DAO infrastructure, specifically four projects: Prop Lot v2, Lil Sandbox, Federation, and Lil House of Nouns.

Finally, Philanthropy rounds out the list as the final category, with 34 ETH allocated toward two philanthropic projects with Nounish branding.

Allocation Alignment

Based on the DAO’s spending so far, it is clear that the expressed priority of the DAO is increasing influence over Nouns governance by acquiring more Nouns. The DAO has spent more ETH on acquiring Nouns than it currently has in the treasury.

Value Accrual

How does the DAO make money?

Lil Nouns generates revenue primarily through their perpetual on-chain auctions. The DAO treasury holds 324.50ETH ($542.02k).

The DAO also generates revenue through seeding liquidity of Lil Nouns on an NFTX vault (prop link). To date, the DAO has generated a total of 31.905 $LIL tokens.

Analysis of Auction Activity

The NFT auction is denominated in ETH and at birth was set a minimum bid amount of 0. This was then changed via proposal to a minimum bid of 0.15ETH, which slowed down the rate of auctions.

The DAO has minted a total of 7502 Lil Noun tokens generating a little over 1000ETH. The top 10 holders hold 3346 Lil Nouns (45% of total supply).

Most Active Bidders

The most active bidder is address (0x4754b7e3dede42d71d6c92978f25f306176ec7e9), which sends tokens to (0x5606B493c51316A9e65c9b2A00BbF7Ff92515A3E):

• This address has spent 164 ETH on bids with a total of 1961 bids;

• Won 600 tokens

• Sold over 100 tokens

• 3rd largest owner (after Nouns DAO and Lil Nouns DAO)

• 4 proposals submitted (all related to “Extend Nouns Acquisition Committee Mandate”) - clearly interested in accumulating more Nouns

• Active voter across both Nouns + Lil Nouns (41+ votes)

Auction Trends

• Thursdays and Fridays see the most auction activity – weekends are generally least active

• Auction participants, unique bidders, and bid amount trending down.

This analysis was conducted by Infinity, a Forefront x 1kx working group focused on helping tokenized communities become more sustainable.

Forefront is a tokenized community that builds for tokenized communities. In addition to their research and media output, they built Terminal, the premier dashboard helping community members and tokenholders maintain context and make great decisions. Lil Nouns DAO was one of the first supported DAOs on Terminal.  

1kx is a token-native investment firm whose team is active throughout the DAO ecosystem. They developed OBRA, an accountability framework for DAO projects, first implemented within Safe DAO, and have been working with ecosystem partners on DAO audits to ensure healthy organizational development.