One Big IdeaWho Can We Trust on Social Media?
Humans are hierarchical by nature. Our instinct is to classify out of self-preservation. We are status-seeking. We look for indicators of where we stand on the totem pole of life by comparing our position to others. We are influenced and subconsciously (or consciously) mirror those we believe to be of high status. In Robert B. Caldini’s Influence, The Psychology of Persuasion, the author breaks down the six principles of influence. They are:**Reciprocation - **we hate feeling indebted. If som...
One Big IdeaA Beginner's Guide to Cosmos 2.0
The Scalability Trilemma & Cosmos The perfect blockchain would be decentralized, scalable, and secure. It is decentralized to be credibly fair and censorship-resistant, scalable to handle the masses, and safe from exploitation. Unfortunately, the perfect blockchain does not exist. Instead, what we have is the scalability trilemma. The tradeoffs required to develop a blockchain necessitate deprioritizing one of these pillars to benefit the other two.Bitcoin and Ethereum have prioritized decent...
One Big Idea1D = 1B
Last December, I escaped the freezing cold of Austin, Texas to venture down south to the land of Tropicana. Miami, Florida. It was Art Basel week. Fine art and culture were set to collide. This year with a twist. NFTs had taken over South Beach. Brands like Doodles, Heart Project, Cool Cats, and Poolsuite had descended on the sandy shores to show their wares to the world. From murals of Blue Cat and Letters to parties with (#free)Gunna and Amine. It was an extravaganza. Yet, it’s not the pomp...
One Big IdeaWho Can We Trust on Social Media?
Humans are hierarchical by nature. Our instinct is to classify out of self-preservation. We are status-seeking. We look for indicators of where we stand on the totem pole of life by comparing our position to others. We are influenced and subconsciously (or consciously) mirror those we believe to be of high status. In Robert B. Caldini’s Influence, The Psychology of Persuasion, the author breaks down the six principles of influence. They are:**Reciprocation - **we hate feeling indebted. If som...
One Big IdeaA Beginner's Guide to Cosmos 2.0
The Scalability Trilemma & Cosmos The perfect blockchain would be decentralized, scalable, and secure. It is decentralized to be credibly fair and censorship-resistant, scalable to handle the masses, and safe from exploitation. Unfortunately, the perfect blockchain does not exist. Instead, what we have is the scalability trilemma. The tradeoffs required to develop a blockchain necessitate deprioritizing one of these pillars to benefit the other two.Bitcoin and Ethereum have prioritized decent...
One Big Idea1D = 1B
Last December, I escaped the freezing cold of Austin, Texas to venture down south to the land of Tropicana. Miami, Florida. It was Art Basel week. Fine art and culture were set to collide. This year with a twist. NFTs had taken over South Beach. Brands like Doodles, Heart Project, Cool Cats, and Poolsuite had descended on the sandy shores to show their wares to the world. From murals of Blue Cat and Letters to parties with (#free)Gunna and Amine. It was an extravaganza. Yet, it’s not the pomp...
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DAOs. If you’ve spent enough time in or around someone in the space, you’ve heard the acronym thrown around. During the bull market, it seemed the “solution” to every problem was to just DAO it (you can have this one for free, Nike). DAOs, or Decentralized Autonomous Organizations, promised a future in which entities became unstoppable. Governed by smart contracts. All you had to do was set up some initial rules and let Ethereum take the wheel.
DAOs infamously entered the crypto mainstream in 2016 when the creatively named The DAO exploded dramatically. A critical code exploit enabled hackers to drain 60 million dollars from *The DAO’s *treasury. It was an existential crisis so severe that it resulted in Ethereum’s first hard fork (migrating and moving to a new blockchain) to save funds. Thus, Ethereum Classic was born.
In the years since, DAOs have recovered to become some of the most vital organizations in crypto today. Their recovery journey started in decentralized finance (DeFi), where financial incentives supercharged participation, growth, and outcomes for holders. Protocols like Compound were the first to introduce growth incentives. Rewarding users with governance tokens for providing liquidity for lending. This gave rise to yield farming, where individuals borrowed, lent, and staked to earn the maximum yield of governance tokens. These tokens could then be used for voting power or sold on the open market.
More recently, we have seen the rise of airdrops or vampire attacks. Retroactive token disbursements reward past behavior aligned with the protocol or coin’s mission. In each instance, power accrued to individuals helping to proliferate the DAO. It was then in their best financial interest to see the DAO continue to succeed. Uniswap’s UNI token and Ethereum Name Service’s ENS utilized airdrops to kickstart their DAOs with individuals already participating in their ecosystems.
The success of DeFi DAOs has given rise to the DAOfication of all industries. From media companies to venture capital to JPEG Apes, it feels like everyone is trying to catch the wave.
The marketing narrative is palpable. You are putting control in the hands of the community. Fight the centralized corporate shill and take control of your future. It’s your money. You get to decide what to do with it!'
But here is the ugly truth. Most of these new-wave DAOs…are shit (sorry, mom).
The worst of the bunch are DAOs created by NFT projects. These DAOs often fail because:
Fail to Figure Out Incentives: Lacking clear benefit to holders.
**Not Core to the Project’s Mission: **No north star to orient development.
Decentralize Too Quickly: Resulting in a prison run by the inmates.
Expect Uniform Interest From Holders: When most holders are inactive or don’t care.
Inefficient Budgeting & Deployment of Capital: Taking a “wait and see” approach to proposals from the community
The exception to the NFT DAOs are terrible rule is Nouns DAO, which has found a way to address each failure point through careful consideration and iteration. Let’s dive into each below.
NFT DAOs often resemble their DeFi counterparts' derivatives without considering how an organization gated by illiquid tokens needs to differ from their fungible predecessors. Value accrual transitions from direct (I accrue more tokens) to indirect (I hope my token goes up in value). As a result, the community often questions what participation will do for them as holders. These may be collectibles, but we are investors. Why vote or build proposals if it doesn’t drive our bottom line or give some other tangible benefit? Why would we give up our most valuable resource, time, without understanding how it benefits us?
Nouns DAO solves for incentives by self-selecting holders who believe in their thesis: proliferating the Nouns meme will drive interest in Nouns. You do not buy a Noun unless you believe in this thesis. It’s core to the project’s founding and has driven how the DAO operates.
Speaking of core…
DAOs fail when they are not central to the success of the project. What typically occurs is an NFT project views its DAO as a utility for the holders. A way to keep them involved and invested in the project. A sandbox for toddlers to play around in while the parents are busy at work.
Play with your toys. The adults are busy.
As a result, proposals lack substance and support. The community put forth ideas without understanding the broader mission of the project and how these funds could be used to accelerate it.
Compare this approach with Nouns, where the DAO is the project's growth engine. All proceeds from each Noun auction are sent to the DAO treasury with the explicit mission of proliferating the Noun meme.
Founders, holders, and potential collaborators align with the DAO serving as the vehicle to service the project’s mission.
DAOs are communities. Communities are delicate flowers. In the beginning, they must be looked after with extreme care. They must have the proper soil. Be watered appropriately and trimmed when their leaves get too big. This “seedling” phase is critical.
NFT DAOs get into trouble when the founding team too quickly passes the buck of responsibility to the community. Most decentralized projects today were at once centralized. Only after the operating framework and roles were established would the central team begin to unwind from the day-to-day operations.
Again, Nouns provide a perfect example. While the central team of Nounders (Noun founders) always envisioned the DAO being community-driven, they intentionally developed the foundational building blocks centrally. This included the first DAO hub on nouns.wtf. An interface where people could see the daily Noun auction, read the DAO’s vision, vote on proposals, and engage in discourse. The initial actions and support of the DAO were highly centralized out of necessity. Five of the first seven proposals came from the founding team.
Proposal 1,2,4,5,7 were proposed by Nounders
Most individuals did not get into NFT brand projects for the DAO. They came for an opportunity to get in on the ground floor of the next big brand. Or to acquire a desirable collectible they expect to appreciate over time. They did not come in with the expectation of reviewing proposals and participating in governance. They want an excellent way to display identity while watching their stonks go up.
So why do NFT brands set up DAOs as direct participation models? Participation in any community occurs in concentric circles. In general, you can split up involvement as follows:
**Leaders: **These community members create for the brand. They set up events, draft proposals, and generally participate in everything.
**Power Users: **Like leaders without creation. These community members participate in everything.
**Active: **Like Power Users but more infrequent. Anywhere from once a week to once a month.
**Lurkers: **These community members may stalk forums and socials but are unlikely to interact in any “active” meaningful way.
**Inactive: **As the name implies, these members picked up shop and left for greener pastures.
Watch out - I know how to use Canva.
Engagement and cohort size are inversely related. Meaning your most prominent group of stakeholders are likely to be inactive. They bought their collectible and are on a beach in Hawaii. They are not scrolling Discord to hear about the latest proposal. Yet, most projects assume everyone wants to participate actively and then throw up their hands when votes fail to hit quorum. “We gave the community this awesome war chest; why is no one using it”?
Again we go to our friends at Nouns. Direct participation worked for them initially because their holders were mission-aligned and incentivized. Noun auctions, which occur once daily, allowed the community to grow methodically. Instead of managing 5,000 holders, the first year of Nouns brought in under 365 people. Even at that size, Nouns have begun to introduce delegation because, surprise, not everyone wants to prioritize reviewing each Noun proposal.
If you have worked any corporate job or managed your finances (which I hope you have), you’ve likely used a budget as a decision framework. You have a finite amount you can spend, so weighing the return on investment against the opportunity cost is essential.
For example, grabbing another Tequila + Soda at last call is likely a low expected value. The night is about to end, and your buzz will have nowhere to go but into a sad piece of pizza or texts to your ex-girlfriend (I’m sorry, Kayla). Instead, evaluating your budget against your goals, you may decide to hold on the drink and spend on the Bumble super swipes you have been eyeing.
NFT DAOs rarely “budget”. Every proposal is reviewed in isolation. What is needed is a standardized evaluation scale. How much value is being returned to the project and holders? Some success metrics would be projected revenues, impressions on a campaign, notable press, and consumer sentiment scores.
Coupled with poor budgeting are inadequate capital deployment frameworks. Most DAOs rely on organic inbound proposals from the community. These ideas could come in all at once or likely be few and far between. This has a throttling impact on a DAO’s proposal pipeline, and as a result, DAO funds often go months without deployment. This may be fine if you are trying to build up a war chest, but if the DAO’s goal is to propagate, it should use capital as a present investment in future value.
To solve this capital inefficiency, NounsDAO funded Prop House. Rather than wait for ideas to come in, this public infrastructure forum mandates auctions of ETH at set intervals. These auctions can be open (i.e., submit an idea for X ETH) or targeted (e.g., Noun’s current auction sourcing ideas to build on GraphQL API). This request for a proposal model works well if the community is teeming with ideas but lacks clarity on incentives to execute. Further, it enables the DAO to flag ideas they would like built but may not have the time or resources to prioritize internally. In this way, mandated, directed rounds create leverage and direction.
Except for Nouns DAO, most NFT brand DAOs are graveyards. Inactive, devoid of purpose, structure, and incentives. To right the ship, these projects need to invest upfront heavily. The initial infrastructure and proposals often need to be built before the community can take the baton. NFT DAOs must be designed differently than their DeFi counterparts and find governance models that reflect participation in their communities.
The knowledge center and resource hub for Nouns DAO. Learn about the project, the community and ways to get involved and funded.
Governing the decentralized protocols associated with DeFI and NFT communities requires significant coordination costs which can be reduced by decentralized autonomous organizations.
Today characters are owned by corporations, but NFTs and DAOs enable communities to bring new characters and culture to the world.
Thanks for reading the Monday edition of this week’s One Big Idea. Be back on Friday for Web3 Week In Review.
Have a great week!
austin
DAOs. If you’ve spent enough time in or around someone in the space, you’ve heard the acronym thrown around. During the bull market, it seemed the “solution” to every problem was to just DAO it (you can have this one for free, Nike). DAOs, or Decentralized Autonomous Organizations, promised a future in which entities became unstoppable. Governed by smart contracts. All you had to do was set up some initial rules and let Ethereum take the wheel.
DAOs infamously entered the crypto mainstream in 2016 when the creatively named The DAO exploded dramatically. A critical code exploit enabled hackers to drain 60 million dollars from *The DAO’s *treasury. It was an existential crisis so severe that it resulted in Ethereum’s first hard fork (migrating and moving to a new blockchain) to save funds. Thus, Ethereum Classic was born.
In the years since, DAOs have recovered to become some of the most vital organizations in crypto today. Their recovery journey started in decentralized finance (DeFi), where financial incentives supercharged participation, growth, and outcomes for holders. Protocols like Compound were the first to introduce growth incentives. Rewarding users with governance tokens for providing liquidity for lending. This gave rise to yield farming, where individuals borrowed, lent, and staked to earn the maximum yield of governance tokens. These tokens could then be used for voting power or sold on the open market.
More recently, we have seen the rise of airdrops or vampire attacks. Retroactive token disbursements reward past behavior aligned with the protocol or coin’s mission. In each instance, power accrued to individuals helping to proliferate the DAO. It was then in their best financial interest to see the DAO continue to succeed. Uniswap’s UNI token and Ethereum Name Service’s ENS utilized airdrops to kickstart their DAOs with individuals already participating in their ecosystems.
The success of DeFi DAOs has given rise to the DAOfication of all industries. From media companies to venture capital to JPEG Apes, it feels like everyone is trying to catch the wave.
The marketing narrative is palpable. You are putting control in the hands of the community. Fight the centralized corporate shill and take control of your future. It’s your money. You get to decide what to do with it!'
But here is the ugly truth. Most of these new-wave DAOs…are shit (sorry, mom).
The worst of the bunch are DAOs created by NFT projects. These DAOs often fail because:
Fail to Figure Out Incentives: Lacking clear benefit to holders.
**Not Core to the Project’s Mission: **No north star to orient development.
Decentralize Too Quickly: Resulting in a prison run by the inmates.
Expect Uniform Interest From Holders: When most holders are inactive or don’t care.
Inefficient Budgeting & Deployment of Capital: Taking a “wait and see” approach to proposals from the community
The exception to the NFT DAOs are terrible rule is Nouns DAO, which has found a way to address each failure point through careful consideration and iteration. Let’s dive into each below.
NFT DAOs often resemble their DeFi counterparts' derivatives without considering how an organization gated by illiquid tokens needs to differ from their fungible predecessors. Value accrual transitions from direct (I accrue more tokens) to indirect (I hope my token goes up in value). As a result, the community often questions what participation will do for them as holders. These may be collectibles, but we are investors. Why vote or build proposals if it doesn’t drive our bottom line or give some other tangible benefit? Why would we give up our most valuable resource, time, without understanding how it benefits us?
Nouns DAO solves for incentives by self-selecting holders who believe in their thesis: proliferating the Nouns meme will drive interest in Nouns. You do not buy a Noun unless you believe in this thesis. It’s core to the project’s founding and has driven how the DAO operates.
Speaking of core…
DAOs fail when they are not central to the success of the project. What typically occurs is an NFT project views its DAO as a utility for the holders. A way to keep them involved and invested in the project. A sandbox for toddlers to play around in while the parents are busy at work.
Play with your toys. The adults are busy.
As a result, proposals lack substance and support. The community put forth ideas without understanding the broader mission of the project and how these funds could be used to accelerate it.
Compare this approach with Nouns, where the DAO is the project's growth engine. All proceeds from each Noun auction are sent to the DAO treasury with the explicit mission of proliferating the Noun meme.
Founders, holders, and potential collaborators align with the DAO serving as the vehicle to service the project’s mission.
DAOs are communities. Communities are delicate flowers. In the beginning, they must be looked after with extreme care. They must have the proper soil. Be watered appropriately and trimmed when their leaves get too big. This “seedling” phase is critical.
NFT DAOs get into trouble when the founding team too quickly passes the buck of responsibility to the community. Most decentralized projects today were at once centralized. Only after the operating framework and roles were established would the central team begin to unwind from the day-to-day operations.
Again, Nouns provide a perfect example. While the central team of Nounders (Noun founders) always envisioned the DAO being community-driven, they intentionally developed the foundational building blocks centrally. This included the first DAO hub on nouns.wtf. An interface where people could see the daily Noun auction, read the DAO’s vision, vote on proposals, and engage in discourse. The initial actions and support of the DAO were highly centralized out of necessity. Five of the first seven proposals came from the founding team.
Proposal 1,2,4,5,7 were proposed by Nounders
Most individuals did not get into NFT brand projects for the DAO. They came for an opportunity to get in on the ground floor of the next big brand. Or to acquire a desirable collectible they expect to appreciate over time. They did not come in with the expectation of reviewing proposals and participating in governance. They want an excellent way to display identity while watching their stonks go up.
So why do NFT brands set up DAOs as direct participation models? Participation in any community occurs in concentric circles. In general, you can split up involvement as follows:
**Leaders: **These community members create for the brand. They set up events, draft proposals, and generally participate in everything.
**Power Users: **Like leaders without creation. These community members participate in everything.
**Active: **Like Power Users but more infrequent. Anywhere from once a week to once a month.
**Lurkers: **These community members may stalk forums and socials but are unlikely to interact in any “active” meaningful way.
**Inactive: **As the name implies, these members picked up shop and left for greener pastures.
Watch out - I know how to use Canva.
Engagement and cohort size are inversely related. Meaning your most prominent group of stakeholders are likely to be inactive. They bought their collectible and are on a beach in Hawaii. They are not scrolling Discord to hear about the latest proposal. Yet, most projects assume everyone wants to participate actively and then throw up their hands when votes fail to hit quorum. “We gave the community this awesome war chest; why is no one using it”?
Again we go to our friends at Nouns. Direct participation worked for them initially because their holders were mission-aligned and incentivized. Noun auctions, which occur once daily, allowed the community to grow methodically. Instead of managing 5,000 holders, the first year of Nouns brought in under 365 people. Even at that size, Nouns have begun to introduce delegation because, surprise, not everyone wants to prioritize reviewing each Noun proposal.
If you have worked any corporate job or managed your finances (which I hope you have), you’ve likely used a budget as a decision framework. You have a finite amount you can spend, so weighing the return on investment against the opportunity cost is essential.
For example, grabbing another Tequila + Soda at last call is likely a low expected value. The night is about to end, and your buzz will have nowhere to go but into a sad piece of pizza or texts to your ex-girlfriend (I’m sorry, Kayla). Instead, evaluating your budget against your goals, you may decide to hold on the drink and spend on the Bumble super swipes you have been eyeing.
NFT DAOs rarely “budget”. Every proposal is reviewed in isolation. What is needed is a standardized evaluation scale. How much value is being returned to the project and holders? Some success metrics would be projected revenues, impressions on a campaign, notable press, and consumer sentiment scores.
Coupled with poor budgeting are inadequate capital deployment frameworks. Most DAOs rely on organic inbound proposals from the community. These ideas could come in all at once or likely be few and far between. This has a throttling impact on a DAO’s proposal pipeline, and as a result, DAO funds often go months without deployment. This may be fine if you are trying to build up a war chest, but if the DAO’s goal is to propagate, it should use capital as a present investment in future value.
To solve this capital inefficiency, NounsDAO funded Prop House. Rather than wait for ideas to come in, this public infrastructure forum mandates auctions of ETH at set intervals. These auctions can be open (i.e., submit an idea for X ETH) or targeted (e.g., Noun’s current auction sourcing ideas to build on GraphQL API). This request for a proposal model works well if the community is teeming with ideas but lacks clarity on incentives to execute. Further, it enables the DAO to flag ideas they would like built but may not have the time or resources to prioritize internally. In this way, mandated, directed rounds create leverage and direction.
Except for Nouns DAO, most NFT brand DAOs are graveyards. Inactive, devoid of purpose, structure, and incentives. To right the ship, these projects need to invest upfront heavily. The initial infrastructure and proposals often need to be built before the community can take the baton. NFT DAOs must be designed differently than their DeFi counterparts and find governance models that reflect participation in their communities.
The knowledge center and resource hub for Nouns DAO. Learn about the project, the community and ways to get involved and funded.
Governing the decentralized protocols associated with DeFI and NFT communities requires significant coordination costs which can be reduced by decentralized autonomous organizations.
Today characters are owned by corporations, but NFTs and DAOs enable communities to bring new characters and culture to the world.
Thanks for reading the Monday edition of this week’s One Big Idea. Be back on Friday for Web3 Week In Review.
Have a great week!
austin
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