Nouns DAO’s $27M Revolt Reveals Toxic Mix of Money-Hungry Traders and Blockchain Idealists

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Nouns DAO’s inside critics have lengthy chafed on the NFT undertaking’s reckless spending – like paying $90,000 to call a uncommon frog species after itself

The DAO designed a “fork” to offer dissenters an exit ramp, and itself an escape hatch if it ever got here underneath assault

However savvy arbitrage merchants performed the governance sport for revenue, elevating robust questions concerning the desirability of decentralization

Can you set a price ticket on decentralized governance? For Nouns DAO, the reply was $27 million in crypto.

DAOs are the cryptocurrency motion’s model of an organization – however with extra democracy and (ideally, theoretically) zero leaders. Anybody who buys a DAO’s crypto asset – in Nouns DAO’s case it’s an NFT – will get to vote on how the group spends its cash and makes choices. However the bylaws of those teams are ever-evolving, and might get messy actual quick.

Issues bought messy in Nouns DAO. The NFT experiment misplaced over half its $50 million treasury final week to a subset of its personal disgruntled buyers. They break up from Nouns DAO; to make use of the crypto time period, they took the “fork” within the highway.

The fork was the fruits of months of contentious discussions round operating Nouns DAO, a well known crypto membership with loads of inside drama. There was a heated dialogue whether or not to even enable forks; in the end the neighborhood made the choice to permit them on the bottom that the choice would enhance general governance – as a political innovation, a type of safety for any dissenting actions and a step towards higher decentralization. Its designers believed it could possibly be adopted by different DAOs too.

However what occurred subsequent – an especially costly fork – is now being characterised by some observers as a backfiring. As an alternative of defending Nouns DAO from 51% attackers – a core worry of each decentralized crypto undertaking – it attracted them. Savvy arbitrageurs got here round and have since performed Nouns DAO’s governance sport for revenue.

“This Nouns DAO fork might function a cautionary story,” mentioned Jillian Grennan, who research DAO design as a finance professor on the College of California, Berkeley, Haas Faculty of Enterprise.

The story presents classes for the way DAOs navigate dissenting opinions, a difficulty that’s sure to resurface with extra initiatives honest about pursuing radical decentralization. Few have achieved so with the dedication of Nouns DAO. On the very least the episode presents a case examine in what can go mistaken when money-management will get decentralized in a blockchain-enabled experiment.

The setup

A CoinDesk evaluation of Nouns neighborhood weblog posts, Discord messages, Twitter areas and interviews with greater than a dozen members revealed that the fork was the results of inside politics as a lot because the product of issues over safety and decentralization.

Nouns DAO raises cash to bankroll no matter its members need to fund by auctioning a colourful JPEG – the Nouns NFT – as soon as a day. Wednesday’s public sale netted almost $49,000 in ETH for the DAO, for instance. That’s how its not-tiny treasury got here to be.

The fork amounted to a divorce between two long-warring factions locally.

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“In Nouns there’s largely two camps of individuals: the e-book worth camp and the meme worth camp,” mentioned Hong Kim, co-founder of crypto funding firm Bitwise and a member of the Nouns Basis’s six-person board.

The meme worth camp, the unique impetus for Nouns DAO, sought to proliferate Nouns in standard tradition by funding tens of tens of millions of {dollars} value of guerilla-marketing campaigns, in addition to infrastructure to help the Nouns undertaking. Their extra colourful initiatives ranged from outlandish – $90,000 to call a uncommon species of frog found in Ecuador – to infamous – a failed $174,000 effort to launch a 3D printed Noun to the Worldwide Area Station.

“Nouns spent tens of millions of {dollars} on dumb s*** with unproven individuals,” the pseudonymous BigshotKlim informed CoinDesk in a Telegram message. He’s the artist behind Nouns’ outsized pink glasses, known as noggles, who himself has acquired tens of 1000’s of {dollars} by way of commissioned initiatives from the DAO.

All that spending angered the second group, who took a extra green-eyeshades strategy, undertaking members mentioned. The e-book worth camp believed the NFTs ought to no less than commerce equal to every one’s share of the treasury. To them, Nouns DAO’s prolific spending (CoinDesk estimated the DAO has spent over $26 million on advertising) was squandering. Some thought they may handle the undertaking higher – particularly amid the extended crypto bear market.

“The 2 sides have been very a lot existentially triggered by one another, assuming dangerous intent and every thing,” Kim, who is understood locally as Noun 40, mentioned. “We in the end felt, ‘How does crypto clear up this? How does Bitcoin and Ethereum handle this concern?’”

Fork it

The 2 largest, most dear and most essential public blockchains have a historical past of forking when totally different camps disagree on the blockchain’s future. Bitcoin’s multiyear civil warfare over block dimension spawned Bitcoin Money in 2017. And in Ethereum’s early days, the crippling DAO hack was primarily discarded by means of a controversial fork away from the unique chain, now often known as Ethereum Traditional.

Whereas political, blockchain forks are additionally technological: they occur when a community’s underlying computing energy splits between supporting two totally different histories. DAOs don’t have an equal means to handle a divorce.

Maybe the closest factor is “ragequit” proposed by MolochDAO in 2019. This mechanism permits DAO members who disagree with undertaking course to give up the unique membership and take their share of the cash into an offshoot.

Rage quitting was the discuss of Noun city on Dec. 20, 2022, when the undertaking’s two core engineers, Elad Mallel and David Brailovsky, launched the controversial mechanism in a Twitter Areas hosted by Noun Sq., a media collective funded by Nouns DAO. They pitched it as a safety backstop in opposition to a 51% assault, wherein evil-doers who’ve seized majority management can drive by means of malicious proposals, similar to sending themselves the whole treasury.

“If such an assault happens, everyone else that is not the attacker can give up. And never solely are they leaving with the property, they’re additionally making it approach much less profitable for the attacker,” Mallel mentioned within the Twitter Areas.

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He and Brailovsky positioned rage quitting as an alternative choice to Nouns DAO’s present protection in opposition to malicious proposals: a veto held by Nouns Basis board members.

Kim, who as a type of board members has a say in veto energy, mentioned the Nouns neighborhood wasn’t involved the muse may “go rogue” with its veto, however simply the likelihood was one thing to stress overA basis veto is seen as some extent of centralization in a DAO that flies the flag of decentralization. (Even now these closest to Nouns DAO mentioned they search to conquer the veto within the hopes of utilizing alternate options like forking as a substitute.)

The forking mechanism was carried out in August as a part of Nouns DAO’s V3 improve. An individual conversant in Nouns DAO’s technicals mentioned the design tried to maximise forking’s usefulness as a theoretical escape hatch whereas minimizing the chance for monetary exploitation.

Underneath the brand new guidelines, any Nouns NFT proprietor can name for a fork in response to a proposal they don’t like. Their name solely takes motion if 20% of community-held Nouns NFTs be part of them. As soon as the forkers clear this 20% threshold, all of Nouns DAO freezes for seven days of no spending, and solely debate – keep or go? The leavers then peel off with their share of the property right into a fork DAO that mimics Nouns DAO’s unique governance guidelines, albeit with an essential addition: a rage give up. Members of the fork DAO can give up and declare their funds at any time.

Not lengthy after the foundations took impact, a disgruntled Noun proprietor known as for a fork and shortly cleared the brink, placing all these presumptions to the take a look at. This was no 51% assault, however slightly a fruits of the political infighting between two warring tribes. The memers and the e-book worth believers have been about to separate methods.

It was additionally a second to rejoice for a 3rd group, one which obseverts mentioned was utterly unaligned with the long-term believers in Nouns DAO. After eight months of steadily accumulating energy and affect, it was time for the arbitrageurs to point out their may and exit Nouns DAO en masse.


“What makes this fork notably fascinating is the existence of two disparate factions: these genuinely dissatisfied with Noun DAO’s strategic decisions and a bunch of arbitrageurs who view the fork as a easy monetary trade-off,” mentioned Grennan, the professor.

For some buyers within the undertaking, rage quitting was the plan all alongside.

The arbitrageurs are crypto buyers who purchased Nouns NFTs under “e-book worth” on the wager that they could later redeem them at the next value in a rage give up. A few of them paid consideration to Nouns DAO across the time of final 12 months’s rage give up discuss. Then they began shopping for. Many of the Nouns NFTs auctioned in 2023 have been purchased by arbitrageurs, based on Kim.

“Talks of the fork gave extra energy” to the activist buyers, mentioned the pseudonymous Nouns DAO neighborhood member TheBower, who writes a publication about Nouns DAO governance. He mentioned the activists “began to have a big” maintain on Nouns DAO to the purpose that conducting a fork grew to become mandatory – if solely to shake them off.

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Nearly all of forkers had cashed out of their off-shoot group by press time, taking with them 62% of the $27 million treasury. Every Nouns NFT they give up netted them 35.5 ETH: about the identical as a 2024 BMW 5 Collection sedan. Some had purchased their NFTs at costs of 27 ETH or decrease.

Whereas rage quits have been new to Nouns DAO, they have been acquainted to most of the arbitrageurs. A few of them are prolific activist buyers who hunt the crypto house for alternatives to purchase DAO property which might be buying and selling under e-book worth. As soon as in, they strain the DAO’s energy brokers to supply a redemption mechanism – a rage give up – for disgruntled buyers.

The one-largest forker, a prolific, pseudonymous crypto dealer named Blurr, informed CoinDesk they’d watched Nouns DAO from “day 1” however solely launched into their 44 Noun acquisition spree in August, “when it was clear they’d need to” let a fork occur.

“It was all the time a sport of worth maximization from all events,” Blurr mentioned. Blurr rejected arguments that Nouns’ seven-figure NFTs have been ever something aside from an funding play, and blasted Nouns DAO’s aggressive spending. The dealer bought $4 million in varied cryptocurrencies from the fork DAO, based on blockchain information.

The arbitrageurs’ monetary gamesmanship levied costly penalties for the remaining members of Nouns DAO. Their pot for paying to sponsor films, donate to charities, fee kids’s coloring books, rename frogs, and even pay the builders, simply bought $27 million smaller.

Nouns DAO’s inside core will not be dissuaded by the treasury loss. One outstanding neighborhood member who requested to stay nameless mentioned the group knew there was a danger actors may play the fork for monetary acquire. That individual mentioned the chance was value it “to push the envelope” of DAO design.


The Nouns neighborhood – remainers and forkers alike – remains to be coming to phrases with what led as much as the mess and debating whether or not it was successful.

Kelly Werder, an teacher at Florida Gulf Coast College who teaches lessons on cryptocurrency and is lively in Nouns DAO, the place she stays, believes the group “didn’t spend sufficient” of the treasury to dissuade arbitrageurs from exploiting the e-book worth low cost and rage give up.

However the pseudonymous Toady Hawk, who stayed within the unique Nouns DAO and runs its Nouns Sq. media collective, was extra open to giving forkers who didn’t rage give up their likelihood to run “a extra fiscally prudent” model of the DAO.

Grennan, the Berkeley finance professor who research DAO design, mentioned Nouns DAO’s forking experiment “underscores the necessity for extra nuanced governance buildings to accommodate numerous stakeholder pursuits with out compromising the group’s long-term imaginative and prescient.”

“Within the massive image, this one-off instance demonstrates that whereas DAOs supply thrilling prospects for community-based governance and crowd knowledge, the group is simply generally right,” she mentioned.

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