Nouns DAO fork loses half its treasury in 3 days

The novel DAO split mechanism promised minority protection but saw traders exploit an NFT arbitrage opportunity


More than half of Nouns DAO defected to a “forked” version of the project last week in a novel attempt to duplicate the concept with fresh leadership. But the days following the split saw little apparent interest in governance — and a lot of selling.

Nouns, a DAO-run NFT project, instituted what it calls DAO forking as an escape hatch for disillusioned members, and Nouns DAO Fork #0 was executed on Friday. But the DAO’s first fork resulted in a massive outflow of from the DAO treasury, followed by a sell-off. Instead of being used to rebuild Nouns with a different spending vision, most of the forked assets have left the project altogether.

Nouns DAO mints and sells one pixelated Noun NFT every day. The income from each NFT flows into the DAO’s treasury and is spent on sometimes-outlandish initiatives meant to raise Nouns’ profile — proposals have passed putting on a 32-foot donut in Los Angeles and selling a Noun for 69.420 ether.

In May, Nouns introduced a means for DAO members to “fork” Nouns, allowing a 20% quorum of users to create a new version of the same project. Users who participated in the split would transfer their NFTs to the new DAO and have the option to “ragequit” — cashing out on the proportional value of their Nouns. 

The Nouns fork doesn’t create a new blockchain, but the spirit of the DAO split is similar to that of a real fork — allowing disgruntled users to strike out on their own with the original project’s social capital and code. In an ecosystem that can tend to live and die by the whims of a few whales, “DAO forking” theoretically provides better protection to minority token holders.

The first Nouns fork was ostensibly carried out by a fiscally conservative group of so-called Nouners upset with the DAO’s spending from its treasury. Kelly Werder, a longtime Nouns DAO participant and instructor at Florida Gulf Coast University’s school of entrepreneurship, said she expected 30-40% of Nouns’ treasury to exit via the fork — and much of that to leave via ragequit. 

By the time the fork executed on Sept. 15, more than half of all Nouns left the original DAO — an outflow of more than $27 million. 

Some have likened the majority exit to a vote of no confidence in the project’s founders, and at least some of the DAO’s forkers insist that forked Nouns is the genuine Nouns DAO. But forked Nouns’ treasury fell from 16,750 to 7,700 ether (ETH) in just three days as Nouns holders “ragequit” — each taking 35.5 ether, or around $58,000, with them. The Nouns price floor has hovered around 35 ether in recent days but ducked under 30 ether in mid-August — allowing savvy buyers to profit off the difference.

“There was an [arbitrage] opportunity and I was disappointed that that played out in the way you’d imagine,” Sasquatch, the pseudonymous founder of Nouns Esports, said. 

Past forks in crypto have tended towards one prong earning legitimacy while the unlucky prong is dumped by investors. The real Nouns DAO will be decided by social consensus — and Werder believes the original Nouns, which retained the project’s founders and sub-DAOs, will come out on top. But she still believes the idea behind the Nouns fork is useful. 

“I didn’t for one second think, ‘Oh my God, [Nouns’ treasury was split], so that means [DAO forking] doesn’t work.’ That’s like saying ‘Oh, your friend got a divorce, therefore marriage doesn’t work for anyone,’” Werder said.

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