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 650 auction this week, 65 NFTs were distributed to the nounders.eth wallet.

However, only 39 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 16 Nouns, investing ~U$2M.

By holding the 16 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 65 delegated votes from other addresses. 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 21 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. This is the strategy used by noun12 and noun40, the 2nd and 3rd most powerful nouners in Nouns DAO, respectively.

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 noun12, noun40 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 16 Nouns in its treasury. We will talk about it later.

The average participation in the Nouns DAO proposals, taking votes into account, is 30%. Source: Dune Analytics

With an average of 30% member participation in Nouns governance, 195 votes are enough to pass a proposal in the DAO. Needing only more than 50% to approve a proposal, the 3 Nouners with the most influence have enough power to decide any proposal submitted.

And it could be even worse.

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 70 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 almost 1 year of operation, subDAO has bought 16 Nouns and accumulated 327 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 24 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 U$284K, users could acquire 24 votes by buying NFTs from the subDAOs. Acquiring the same power in the Nouns DAO, costs U$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 754 tokens.

Will Price, 4th largest holder in the Nouns DAO, has 424 Lil Nouns and constantly uses his influence in voting on proposals.

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 179 delegations from 41 different addresses.

Source: Dune Analytics

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.

The market-leading decentralized exchange earns ~U$1M per day and manages a treasury of U$3.7B. For its members to submit proposals, they must strictly follow the internal procedure established by the DAO.

By inserting phases before the final proposal vote, the DAO is limited to approving on-chain governance validated previously via Snapshot and imposes barriers for bad faith agents to submit harmful proposals. However, this model brings trade-offs: if you don't have money or influence, you are unlikely to make it past Stage 1.

While 2.5M UNI seems like a lot, the minimum required by June 2021 was 10M UNI. A vote decreased this value, but the community is still discussing the risks of this reduction.

Among the governance token holders, 11-15 addresses control at least 10M UNI. Among them, 4 contain vesting tokens reserved for the treasury, 1 is the contract distributor of the UNI token, and 5-9 addresses belong to the team and investors. Binance is one of the largest holders, with ~24M UNI.

The concentration of governance tokens may be even higher, due to the distribution of UNI across multiple portfolios. According to Bubble Maps, Andreessen Horowitz may hold 4.15% of Uniswap's token, about 41.5M UNI. Oligopoly power is also found in the delegation of votes, a consequence of Uniswap's governance model.

Andreessen Horowitz leads the rank, with 15M UNI delegates to its portfolio, which are owned by venture capital itself. Reflecting the same centralization among delegates at Nouns DAO, the 5 delegates with the most influence at Uniswap hold ~48% of the voting power. Voting at Uniswap is done by few holders - only 1.24% of them have participated in any voting at the DAO.

Clearly, DEX is centralized, dominated by venture capitals and the developers at Uniswap Labs. In the forum, various users make pitches seeking to represent the interests of community members, in order to gain influence in the organization, build their reputation, and attract delegates. What we see on the exchange may be the prelude to the system adopted by the Maker DAO.

DAI's issuing lending protocol has years of experience in decentralized coordination. Its governance model has morphed in recent years to the current structure:

Its governance is predominantly on-chain and has two chambers for specific votes: Governance Polls: place for non-technical proposals to be submitted. DAO members vote on approval or disapproval for 2 weeks. Executive Votes: aimed at technical changes to the Maker system, such as oracle changes or adding new collateral. They are implemented only with the support of the participants of the organization, made through the stake of the voting power in the DAO. Its maintenance depends on the continuity of the deposit, that is, if a proposal arises aiming to compete with it, the DAO members can migrate their voting power to it and approve it, extinguishing the previous one.

Interestingly, the Maker DAO does not impose a quorum in its voting. According to its documentation, the measure is intended to encourage participation by the organization's members, to prevent proposals harmful to the DAO from being passed.

However, the protocol suffers from low participation in its governance, and the absence of a minimum amount of votes on proposals could be a risk to the DAO. But merely imposing a quorum would not solve this problem. Therefore, the Maker has been discussing a number of measures that forego decentralization to improve its efficiency.

One of them is the adoption of a system with 2 types of delegates: Recognized and Anonymous.

The Recognized must sign a Code of Conduct, record a video about their intentions as a delegate, and perform well representing other holders in the organization. Their performance is measured by checking their communication and participation in the DAO. After the approval of MIP-61, they receive periodic compensation for voting on proposals and discussing them in the forum. In July 2022, 14 delegates received $85,000.

Anonymous persons may represent MKR holders without fulfilling any requirements. However, they are not eligible to receive compensation for representing the interests of members of the organization.

This system, encourages the formalization of representatives in the DAO and the concentration of power in the hand of those interested in leading the decisions.

35.54% of the voting power in the organization resides with Recognized Delegates, while 48.2%4 lies with Anonymous Delegates.

Not good enough. Hasu, a delegate at Maker, put forward the idea of forming a Board of Directors and formalizing a constitution. According to him, the organization suffers an identity crisis.

Even with the criticism, the organization managed to increase the turnout of votes in Maker by adopting the system of Delegates. They are the ones responsible for defining the outcome of the proposals, showing the concentration of voting power... but also the success of the incentives for their participation in the organization.

Centralization may go against the ethos of some DAOs, but perhaps the homogeneous distribution of influence among disinterested holders is not the best answer for protocols to have successful governance processes.

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 650 auction this week, 65 NFTs were distributed to the nounders.eth wallet.

However, only 39 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 16 Nouns, investing ~U$2M.

By holding the 16 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 65 delegated votes from other addresses. 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 21 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. This is the strategy used by noun12 and noun40, the 2nd and 3rd most powerful nouners in Nouns DAO, respectively.

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 noun12, noun40 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 16 Nouns in its treasury. We will talk about it later.

The average participation in the Nouns DAO proposals, taking votes into account, is 30%. Source: Dune Analytics

With an average of 30% member participation in Nouns governance, 195 votes are enough to pass a proposal in the DAO. Needing only more than 50% to approve a proposal, the 3 Nouners with the most influence have enough power to decide any proposal submitted.

And it could be even worse.

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 70 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 almost 1 year of operation, subDAO has bought 16 Nouns and accumulated 327 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 24 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 U$284K, users could acquire 24 votes by buying NFTs from the subDAOs. Acquiring the same power in the Nouns DAO, costs U$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 754 tokens.

Will Price, 4th largest holder in the Nouns DAO, has 424 Lil Nouns and constantly uses his influence in voting on proposals.

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 179 delegations from 41 different addresses.

Source: Dune Analytics

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.

The market-leading decentralized exchange earns ~U$1M per day and manages a treasury of U$3.7B. For its members to submit proposals, they must strictly follow the internal procedure established by the DAO.

By inserting phases before the final proposal vote, the DAO is limited to approving on-chain governance validated previously via Snapshot and imposes barriers for bad faith agents to submit harmful proposals. However, this model brings trade-offs: if you don't have money or influence, you are unlikely to make it past Stage 1.

While 2.5M UNI seems like a lot, the minimum required by June 2021 was 10M UNI. A vote decreased this value, but the community is still discussing the risks of this reduction.

Among the governance token holders, 11-15 addresses control at least 10M UNI. Among them, 4 contain vesting tokens reserved for the treasury, 1 is the contract distributor of the UNI token, and 5-9 addresses belong to the team and investors. Binance is one of the largest holders, with ~24M UNI.

The concentration of governance tokens may be even higher, due to the distribution of UNI across multiple portfolios. According to Bubble Maps, Andreessen Horowitz may hold 4.15% of Uniswap's token, about 41.5M UNI. Oligopoly power is also found in the delegation of votes, a consequence of Uniswap's governance model.

Andreessen Horowitz leads the rank, with 15M UNI delegates to its portfolio, which are owned by venture capital itself. Reflecting the same centralization among delegates at Nouns DAO, the 5 delegates with the most influence at Uniswap hold ~48% of the voting power. Voting at Uniswap is done by few holders - only 1.24% of them have participated in any voting at the DAO.

Clearly, DEX is centralized, dominated by venture capitals and the developers at Uniswap Labs. In the forum, various users make pitches seeking to represent the interests of community members, in order to gain influence in the organization, build their reputation, and attract delegates. What we see on the exchange may be the prelude to the system adopted by the Maker DAO.

DAI's issuing lending protocol has years of experience in decentralized coordination. Its governance model has morphed in recent years to the current structure:

Its governance is predominantly on-chain and has two chambers for specific votes: Governance Polls: place for non-technical proposals to be submitted. DAO members vote on approval or disapproval for 2 weeks. Executive Votes: aimed at technical changes to the Maker system, such as oracle changes or adding new collateral. They are implemented only with the support of the participants of the organization, made through the stake of the voting power in the DAO. Its maintenance depends on the continuity of the deposit, that is, if a proposal arises aiming to compete with it, the DAO members can migrate their voting power to it and approve it, extinguishing the previous one.

Interestingly, the Maker DAO does not impose a quorum in its voting. According to its documentation, the measure is intended to encourage participation by the organization's members, to prevent proposals harmful to the DAO from being passed.

However, the protocol suffers from low participation in its governance, and the absence of a minimum amount of votes on proposals could be a risk to the DAO. But merely imposing a quorum would not solve this problem. Therefore, the Maker has been discussing a number of measures that forego decentralization to improve its efficiency.

One of them is the adoption of a system with 2 types of delegates: Recognized and Anonymous.

The Recognized must sign a Code of Conduct, record a video about their intentions as a delegate, and perform well representing other holders in the organization. Their performance is measured by checking their communication and participation in the DAO. After the approval of MIP-61, they receive periodic compensation for voting on proposals and discussing them in the forum. In July 2022, 14 delegates received $85,000.

Anonymous persons may represent MKR holders without fulfilling any requirements. However, they are not eligible to receive compensation for representing the interests of members of the organization.

This system, encourages the formalization of representatives in the DAO and the concentration of power in the hand of those interested in leading the decisions.

35.54% of the voting power in the organization resides with Recognized Delegates, while 48.2%4 lies with Anonymous Delegates.

Not good enough. Hasu, a delegate at Maker, put forward the idea of forming a Board of Directors and formalizing a constitution. According to him, the organization suffers an identity crisis.

Even with the criticism, the organization managed to increase the turnout of votes in Maker by adopting the system of Delegates. They are the ones responsible for defining the outcome of the proposals, showing the concentration of voting power... but also the success of the incentives for their participation in the organization.

Centralization may go against the ethos of some DAOs, but perhaps the homogeneous distribution of influence among disinterested holders is not the best answer for protocols to have successful governance processes.