Understanding Nouns.

reify. verb. the turning of something abstract into a concrete thing or object

Nouns is a model of decentralized brand creation. But what does that really mean?

It’s about creating a reification loop. In the beginning, there is nothing but an idea. What if we made a decentralized brand? The idea has an image - the Nouns glasses. ⌐◨-◨

So people contribute money to this idea. Where could it go? And after a certain period of time, the DAO begins to grow a treasury.

What do you do with a treasury? You invest it. What would you invest it in? In furthering the idea, the brand.

People propose ideas on how to further the Nouns meme. And the DAO votes on them, funding the ones which they believe will further the brand. What does this do? It decreases the treasury, but it increases the brand’s reach, and hopefully value.

What happens when Rihanna gets a tattoo of a Noun? What happens to the price of the collection, does it go up?

How can we understand this?

Looking at the Nouns mechanism.

In a balance sheet, you have two main categories of assets:

  • Tangibles - like capital.

  • Intangibles - like brand.

The core idea behind this distinction - is that the tangibles are generally fungible and liquid assets. You can quickly use money to buy machines, but selling machines for cash is much slower. The most intangible thing is brand.

Nouns is quite similar. You have your tangible assets (the treasury of $ETH) and the intangible assets (the brand). But you also have the NFT’s. These represent something both tangible and intangile - NFT’s are widely known to be harder to buy/sell, but they are still liquid. So what does this create?

It creates the ability to speculate, on the brand itself. After all, there is an arbitrage here - if you see Rihanna apport a Noun on live TV, what would you do?

There are two ways to buy Nouns - the first is on secondary markets, and the second is through the daily auction. Each Nouns holder naturally has vested interest to keep track of these things too, and is unlikely to sell at a lower price if they know the project is picking up. And so instead, buyers may find a better deal on the daily auction. And so the market arbitrages these two venues for us.

This creates a sort of flywheel effect, a reification cycle. The more the brand is able to capture interest and attention, the more people are likely to speculate. The core utility of these NFT’s is that their holders decide how to further the brand itself, capturing more interest and attention, thus perpetuating the flywheel.

The perverse incentive is for Nouns holders to fund bad proposals, and sell their equity before the value of the brand drops. The natural counterweight to this is the DAO’s governance - as a living organism, it can vote for/against proposals with a configurable threshold, and even change this threshold in the wake of risk.

The balance sheet.

Unlike in most businesses, where you allocate all your equity in the beginning, Nouns equity is constantly distributed. Every day, the existing Nouns NFT holders are diluted by a sale of a new NFT - and every day, the treasury increases in size from the sales proceeds.

We can imagine the Nouns balance sheet looks like this:

  • Tangibles - the treasury ($ETH).

  • Intangibles - equity (current NFT’s)

  • Intangibles - future equity (future NFT sales).

  • Intangibles - the brand.

The core of the Nounish DAO mechanism is as so:

  1. Sell equity (NFT’s)

  2. Increase tangibles (treasury)

  3. Invest tangibles (treasury) into increasing intangibles (brand → NFT’s)

In the beginning, the equity is the idea itself. After a while, the equity becomes the brand, accruing to the NFT’s. And in the end…well, who knows yet?

Decentralizing the brand, or an idea?

At its core, the Nouns mechanism is Bitcoin’s mechanism, in a different shape.

In the beginning of bitcoin, we sold BTC for energy. It probably wasn’t a very good exchange, because BTC was illiquid.

But people invested energy, to get bitcoins. And bitcoin represented an idea - a P2P money free of any nation state. Open to anyone to use. Open to anyone to inspect. A monetary policy set in code.

After a while, BTC turned from being equity in this idea, to actually reifying into the idea itself. The more miners that joined the network, the more it became genuinely a competitor to nation state fiat currency. From the first transaction of 10,000 BTC for a pizza, to now where it is at a >$500B market cap.

You can imagine the Bitcoin block reward as a daily auction, where each miner bids the energy they invest, in exchange for one bitcoin coinbase NFT - a UXTO.


The conclusion here is - Nouns is something interesting. I agree with Jacob - it really is the most interesting thing since Bitcoin itself. It’s not a technical achievement, moreso a psychological one - understanding how rational self-interested agents, combined with verifiable value (whether it’s hashcash for energy, or $ETH for money) and mechanisms (the bitcoin protocol, the Nouns DAO protocol), can build a self-sustaining reification loop for an idea that eventually becomes money. Or something like that anyways.

Further reading.

And the many Nounish DAO’s on Nouns Builder.

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