5 whales control NounsDAO governance
NounsDAO is an organization that auctions off 1 NFT daily, which represents 1 vote in its organization. For every 10 tokens sold, 1 of them goes to the Nounders, the name given to the founders of the organization. Those interested in gaining influence in the management of their treasury need to buy NFTs, or gain reputation in the organization to receive voting delegation. With the Nouns 400 auction this week, 40 NFTs were distributed to the nounders.eth wallet.
However, only 15 NFTs reside in the main Nounders wallet. The other tokens have been distributed among other addresses, some belonging to Nouns DAO founders, others completely new, containing as their only interaction the receipt of Nouns in the wallet. It is unclear whether the interest is to mask centralization in the governance of the organization or to lessen the damage to an attack on the wallets.
Even holding 10% of the supply of tokens, the founders continue to increase their influence in governance. punk4156 has already acquired 11 Nouns, investing ~U$1.7M.
By holding the 11 NFTs, the Nouns DAO co-founder can delegate it to the Nounders' wallet, maximizing the founders' voting power in Nouns. Pooling all delegated votes to nouders.eth, they have 46 delegated votes from other addresses. The majority are made up of wallet containing Nouns from the founders and punk4156.
With the recurring acquisition of NFTs by the founders and the distribution of tokens in clean wallets, there are chances that the power of the Nounders will be even greater. With just one click being enough to increase their influence in the voting of the organization.
But the battle for power will not be won easily. Other DAO whales vie daily for the NFTs' auctions, aiming to increase their influence.
Will Price is a Nouns DAO member with high voting power, counting 19 Nouns in his wallet. zorb.eth, beautiful-nfts and Patricio Worthalter - the founder of POAP - also make up the select group who own more than 10 Nouns.
However, acquiring NFTs is not the only way to gain influence in the DAO. Active and reputable members of the organization receive delegated votes, aimed at representing the interests of DAO participants.
There are delegates who receive votes from their own wallets, accumulating their power in a single address. This strategy is used by Nounders, Will Price and zorb.eth.
However, there are members who have become influential in DAO without needing to buy bags of NFTs, as is the case with swiftjones.eth, joshuafisher.eth, toadyhawk.eth and noun22.eth. All have built reputations in the organization and have received delegations from other Nouns DAO participants. The address leagueoflils.eth represents the Lil Nouns DAO, a subDAO with 6 Nouns in its treasury. We will talk about it later.
The average participation in the Nouns DAO proposals, taking votes into account, is 30%.
With an average of 30% member participation in Nouns governance, 120 votes are enough to pass a proposal in the DAO. Together, the top 5 delegates have 125 votes, which means they have enough power to decide on any proposal presented.
The lack of transparency in the delegation of votes makes it difficult to measure centralization, but the data points to a systemic risk for Nouns DAO. And it could be even worse.
A vote is cheaper if bought through sub-DAOs
Aware of the value of influence on the governance of the Nouns DAO, communities began building subDAOs to make collective purchases of NFTs at prices more affordable to users - not everyone has 100 ETH to spare -.
Each one adopted a strategy, which proved to be fundamental to its success or failure.
Of all those created, 3 have been remarkably successful: Shark DAO, GOOP TROOP and Lil Nouns.
Shark DAO was the 1st subDAO developed. It raised funds by selling its governance token, SHARK. Within a few months, 6 Nouns were acquired. Its goal was to buy NFTs regularly, increasing voting power in DAO governance. The absence of steady revenue and the sole goal of acquiring Nouns did not allow Shark DAO to continue its expansion. Even so, the subDAO maintains a Snapshot for SHARK holders to vote on using influence in the Nouns DAO.
GOOP TROOP is a derivative collection of Nouns from 10,000 PFPs. The money raised from the sales of the NFTs was used to buy 2 Nouns. Similar to Shark DAO, it lacked a sustainable model and failed to gain traction. However, GOOP holders can decide how the votes in the Nouns DAO will be used.
Lil Nouns is considered the most successful subDAO to date. It auctions baby versions of the Nouns every 15 minutes. Its creators replicated the model of rewarding founders with voting power in governance, sending one for every 10 NFTs sold to Nounders, and one for every 11 to Lil Nouns founders.
In less than 3 months, subDAO has bought 6 Nouns and accumulated 810 ETH to fund proposals.
Some reasons given for its success are: the adoption of the NFT auction, the synergy with the Nouns DAO, and the building of a community to develop projects for the subDAO.
Together, the 3 subDAOs accumulate 14 Nouns. The people with the most voting power in each will decide how the influence in the Nouns DAO will be used. Note that the "cost of a vote" is much lower in the subDAOs than in the NounsDAO:
For the calculation, the last votes of the subDAOs and the largest holders of their NFTs were considered.
With $273,700, users could acquire 14 votes by buying NFTs from the subDAOs. Acquiring the same power in the Nouns DAO, costs $2.3M. Sounds like a great opportunity, doesn't it?
The problem lies in the lack of liquidity to buy Shark DAO and GOOP TROOP tokens. Their concentration in certain wallets also prevents whales from dominating subDAOs.
However, Lil Nouns continues to auction off its NFTs and distribute governance power, becoming a "gold mine". Not coincidentally, influential members in Nouns DAO are equally powerful in Lil Nouns DAO.
The recurring transfer of NFTs to the Nounders has made them the most influential members in the subDAO, counting 448 tokens.
Will Price, 2nd largest holder in the Nouns DAO, has 165 Lil Nouns and constantly uses his influence in voting on proposals. Patricio Worthalter and wahoo.eth also have their bags of baby NFTs, but much smaller compared to other members of the organization.
In contrast to the Nouns DAO, Lil Nouns delegates are predominantly holders of NFTs, evidencing the practice of self-delegation. The only exception found is al409, a fixed contributor in the subDAO and an active member in the community: his address received 100 delegations from 13 different addresses.
Member participation in the Lil Nouns DAO is even lower than in Nouns: only 15% of the votes are used for voting. The low interest of the holders in the proposals allows the 2 major holders to direct the future of the subDAO, putting the Lil Nouns DAO's treasure and community at risk.
The nuances of the Nouns DAO and its subDAOs create a complex system of influence... Vote buying and lobbying for delegations are some tools to speed up the approval of proposals.
The issue is not unique to the Nouns ecosystem. Looking at other DAOs, we find similar concentration of power, but additional barriers to avoid political problems.