NounsDAO investment in Verse

NounsDAO NounsDAO Proposals
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FYI: This is an update based on the previous Nouns x Verse proposal from May - focused on a slightly different investment structure & project focus

TLDR

This proposal is for a NounsDAO investment in Verse, a new protocol for autonomous NFTs on Ethereum.

Who is behind this proposal?

hey everyone! My name’s Kiran. I’m the founder of Verse, an autonomous NFT protocol on Ethereum. Previously, I worked on product design for PartyDAO, and in my web2 life I was a product engineer in the biotech space.

What is Verse?

Verse is a protocol for autonomous NFTs on Ethereum. What does that mean? Verse enables the creation of NFTs with an embedded market that operates autonomously without the need for a central marketplace. Here’s a quick overview of how the protocol mechanism works:

Through the protocol, a creator deploys a contract Pair consisting of an ERC-20 Exchange contract and an ERC-721 Hyperobject contract. The dynamic price and supply of the ERC-20 token is managed by a bonding curve acting as an AMM. Simply, this means that anyone can buy and sell the token at any time with instant liquidity, and the contract will programmatically adjust the price based on the circulating supply. Holders of at least 1 atomic unit of the ERC-20 token can then redeem their token. Redeeming a token transfers the holder’s ERC-20 to the paired Hyperobject contract, which mints a new NFT and transfers it to the redeemer in exchange.

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What is the status of Verse?

The contract for Verse V1 are live on mainnet, and the public beta interface to interact with the protocol is live at verse.xyz. Verse V2 is currently in development, with significant UX improvements and nounish mechanisms layered into the core protocol.

What can be built on Verse?

The Verse protocol represents a new medium for NFTs, and enables the creation of digital objects that have their own embedded microeconomy. Although the NFT space is still in its early infancy, we can observe some fundamental truths about the medium. Most notably, NFTs aren’t just assets or static files or jpegs. NFTs are programmable objects built to take advantage of the internet as a meme proliferation machine. In the long-term, skeuomorphic token representations like 1/1s will diminish in the market, and NFTs with programmable supply & pricing mechanisms will dominate. A significant sector of the NFT market will be represented by these types of objects, and are best suited to be exchanged via programmable markets powered by Verse. Think about it this way. Does it really make sense for a meme to exist as a static 1/1? Or does it make sense for its supply and value to dynamically change based on its demand in the market and its mindshare on the internet?

NounsDAO investment in the Verse Protocol

Verse is a new NFT protocol designed to catalyze the future development of programmable internet objects. Nouns is the prototype for meme proliferation and how to build a CC0 brand that permeates the internet. Ultimately, both entities are designed to build a more composable internet in which individuals build, own, and use digital objects that accrue value as they’re integrated across the web.

Specifically, Verse V2 is incorporating mechanisms into the core protocol which seek to standardize the meme-proliferation system (programmable treasury controlled by NFT holders) that Nouns has pioneered. Details of the exact mechanisms will be shared closer to V2’s testnet launch.

We’re closing a funding round for Verse, and firmly believe that the protocol shouldn’t only be owned by traditional venture or finance institutions - it should have ownership from decentralized groups actively advancing and building progressive technologies in the NFT ecosystem.

Thus, we’d like to propose an investment from NounsDAO in the Verse protocol.

We think that an investment/long-term partnership would be far more powerful than a grant in that an investment incentivizes both parties (NounsDAO & Verse) to ensure that the protocol builds for long-term success, and uses the Nouns brand as a playground for innovating on new NFT mechanisms.

There’s tremendous synergy between the goals of Nouns and Verse, and a long-term partnership would entail close collaborations to build future Nouns-related NFT projects on Verse, and the ability for the DAO to have a real hand in how the protocol evolves over time.

Investment Specifics

NounsDAO invests 150-200 ETH in exchange for ~0.5% equity into Verse Labs (the incorporated company building the Verse protocol) with an optional token warrant. These equity figures are consistent with the current terms we have with our lead investors for our most recent funding round.

This funding would go directly toward purchasing a Noun, either via the daily auction, or (more likely) purchasing from an existing Nouner on secondary. I want to align the interests of Nouns x Verse as long-term as possible, and believe that by essentially exchanging ownership in the Verse protocol for representation in NounsDAO, we’d create a truly symbiotic relationship. I like to think that Nouns is building the closest thing we’ve seen to an internet city, with a distinct community, culture, and economy. Much like the way tech companies in the past decade set up shop in the bay area and saw the valley as a playground for innovation, I want Verse to have a “campus” set up in the Nouns universe, and build with the Nouns brand as a launchpad for new types of NFT distribution & exchange experiments that help proliferate the meme. The key difference, though, is that while SF never received ownership and experienced upside in the success of major silicon valley companies, Nouns would directly have ownership in Verse.

If there are extra funds left over from the purchase of a Noun, there are a couple options. One option is to earmark the remaining money to specifically fund builders who want to build nounish projects on Verse. We have a team of 5 people currently working on a Verse project specifically focusing on a multiplayer noun o’clock experience, and are happy to fund contributors who want to help out on this project or another idea of their own. Option two is finding a seller who’d be willing to give us a package deal of 2 nouns for around the 200 ETH price, if we receive that higher amount from this proposal. Either way, we’d direct the funds specifically to increasing our involvement in the Nouns universe.

Overall, I’m excited to share this proposal with the Nouns community, and even more excited for the possibility to partner with the DAO on building fundamentally valuable NFT infrastructure with the Verse protocol.

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Wow. This is a really cool concept. While the technical aspect of this is somewhat over my head, I’d love to have some more examples of what a real world scenario would look like using this technology. I think your funding mechanism also makes a lot of sense considering most of the investment would return to the DAO immediately while not reducing the equity stake. Thanks for submitting. If you have time, feel free to give more examples for laymen like me.

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Sure thing! I think Verse can be used for pretty much any NFT that you’d describe today as an “edition”. So for example, NFTs that have a supply of 50, 10k, 250k, or even uncapped supply. Thus far, we’ve seen this structure used for art, membership passes, gaming items, photos, music, and more. And really, I think the 1/n supply structure could be used for any digital object you can think of. Verse is designed to be the protocol standard for these types of objects, where you can program the price curve, supply, and governance directly into the object itself.

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Hey Kiran, love this proposal. Feels very incentive aligned for Nouns to make this investment, especially when the ETH will be used to buy a noun.

Curious how the legal side is going to work. Does the DAO have an entity that can hold a SAFE and token warrant?

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Thanks for the thoughtful proposal!

One thing comes to mind - I like the idea of the proceeds being used to purchase a Noun, but I would really suggest you do commit to doing it in the daily auctions instead of in the secondary. That way, the ETH goes to the Nouns treasury instead of to a private seller (better for the DAO) and, importantly, it avoids any perceived conflicts of interest.

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I’ve explored a couple different options, and I’m flexible to finding one that works best with the DAO. I think the most straightforward option would be to spin up an LLC investment vehicle through Syndicate, and this vehicle can accept ETH from the DAO. Then that LLC would be on the cap table.

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Yeah fwiw, I’d prefer to buy the Noun via the auction and have proceeds go directly to the treasury. I just put forth the option to buy via secondary due to the variability of auction prices, but acquiring via auction would be my first choice.

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I might be the only one, but for those who had trouble understanding Verse and what it’s capable of, I found this post really helpful. Verse: The Hyperexchange Protocol — Kiran

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I like the idea because I’ve been looking at ways to (a) provide royalties downstream (b) maintain value in the NFTs we mint.

If you’d like, you’re free to take a look at our mockup site (more of a whiteboard). Once we’ve solved the tokenomics (and also come up with a method of NFT visualization) we will onboard more authors: Brave New Word.
Thanks.

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How do we feel about the DAO holding equity in a company? Imo, that’s the the biggest talking point in this prop.

I have mixed feelings but interested to hear what others think.

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would love to hear your thoughts and discuss! Personally, I always wanted to approach this proposal via an equity partnership (as opposed to a standard grant) for a couple of reasons:

  1. I believe that more protocol-focused companies should explore funding via community-owned vehicles instead of purely through VC. It’s important that crypto-native organizations are able to have a direct influence in the development of infrastructure that has the potential to shape the space for years to come (obv this is not a guarantee of success by any means. All startups have enormous risk, and Verse is still privy to the same challenges of any early company).

  2. Specifically, I want NounsDAO to have ownership in the company & protocol because the community of holders is distinctly high-caliber in terms of domain experience, technical expertise, thoughtfulness in governance, and quality of discourse regarding innovation in the NFT space. With an equity partnership, Verse and Nouns would be aligned long-term to build a protocol that creates 0-1 innovations in NFT infrastructure just like Nouns has done thus far.

  3. In particular, I think there are a lot of similarities between Nouns and Verse (particularly Verse V2) that would make sense to approach this from a long-term partnership perspective. Both Nouns & Verse are built on the ideals of meme propagation, autonomy, and NFT programmability. Nouns employs mechanisms like the daily auction & compound-style governance to achieve these ideals. Verse (v2) is built on mechanisms like programmable supply, embedded market, and a rolling treasury to achieve these same ideals. I don’t see Nouns just as a funder, but moreso as a playground where Verse can experiment with new mechanisms bootstrapped by the Nouns brand.

  4. I noticed the discussion recently in nouner-general about how Nouns can capture sufficient upside in projects it funds without relying solely on the recipient promising to buy back Nouns in the future. I think equity ownership is a great way to diversify treasury revenue/assets and also extend the Nouns brand further across the ecosystem.

These were my thoughts in approaching this proposal from an equity partnership mindset. Lmk if you have any follow-ups, happy to discuss!

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Hey Nouners, wanted to make this doc to address some of the feedback/questions about prop 107 & Verse.

Why should Nouns invest in Verse?

  1. First, I’ll talk a little more about the protocol itself and how it relates to Nouns. Nouns has built some important innovations related to NFTs having a “programmable supply”. In particular, Nouns has pioneered the concept of an infinite supply parameterized by a constant emissions rate & daily auction. After a ~year, it’s become clear that this mechanism is extremely powerful for the creation of sustainable avatar communities. Verse is built on the same ideal of NFTs having a “programmable supply”, but achieves this ideal via an AMM as opposed to a periodic auction. NFT contracts deployed through Verse have an uncapped supply, and programmatically adjust the unit price of each NFT based on the embedded AMM’s bonding curve. NFTs can be bought & sold anytime through the contract, thus eliminating the need for the NFT to depend on an external marketplace for exchanges. V2 of the protocol builds on this mechanism, adding the ability to route a portion of each transaction into an on-chain treasury managed by NFT holders. Overall, Verse is focused on creating NFT infrastructure around programmable, autonomous markets. In a sense, you can see Verse as one answer to the question “how can the Nounish mechanism be modified to fit different NFT use cases?”. For avatar communities, the original Nouns mechanism may be the perfect solution. But for semi-fungible objects, the Verse mechanism could be a more intuitive structure. Obviously, I’m not guaranteeing Verse will find instant PMF - it’ll definitely take iterations to fine-tune the mechanism. But I firmly believe that the NFT design space will only become more programmable over time, and like Nouns, Verse is building toward that long-term future.

  2. Verse (in particular V2) is designed as a hyperstructure - a public good that anyone can use to create NFTs with programmable, autonomous markets. In the ideal of supporting public goods, I think this proposal aligns with that core Nouns ethos. The difference in this proposal is that in the case of the public good (Verse) becoming a valuable piece of infrastructure, Nouns would experience a proportionate amount of upside in the value. Again, this is not a guarantee by any means that Verse will be successful (just like any other startup, there’s high risk and the probability of success is low). However, in the event of success, Nouns is guaranteed a share of value generated, as opposed to solely residual accrual in the form of brand equity.

  3. Verse is currently working on a Nouns project that directly accrues value to the brand. This project is still in development so can’t share a huge amount of details just yet, but project summary is here: Notion – The all-in-one workspace for your notes, tasks, wikis, and databases.

What are the legal/compliance implications of this proposal?
I’ve spoken to my legal counsel about this prop, and coincidentally they’re actually quite familiar with Nouns. I’ll share their overall guidance on DAO investments, and their response regarding Nouns specifically below (in respective order):

Legal correspondence on broader DAO investing:
“There are a few different ways to qualify as an accredited investor, but the primary way that venture investors qualify is by meeting the $5M assets requirement for entities, specifically: “any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, partnership, or limited liability company, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000.”

Circling back to the $5M assets definition, though – a partnership with $5M in assets qualifies as long as it also meets the “not formed for the specific purpose” requirement. In common law, an general partnership is a business that’s co-owned for profit and doesn’t need to have a formal statutory entity structure. If the DAO fits within this concept, then it’s very arguably a partnership and could very well meet the accredited investor definition without needing a formal legal entity structure.

This isn’t without risk – I don’t think that the SEC or courts have looked at whether or not a DAO is an accredited investor – but it seems that if the DAO is a common law partnership, has $5M in assets and is not formed for the specific purpose of acquiring the securities offered, it meets the spirit of the accredited investor requirement.”

Legal correspondence on Nouns specifically:
“We’d want to (1) reference the DAO appropriately in the docs, which I think we could do by (in part) referencing the current address of their treasury and/or another address that’s closely identified with the DAO (I see several on Etherscan) and (2) have someone sign for them (e.g. Docusign).

Could someone sign for them?”

Personal closing thoughts
It seems that the greatest point of concern for the DAO right now on Prop 107 is legal compliance, which is leading many Nouners to abstain. Based on the current trend I think it’s likely the prop doesn’t reach quorum, which is a perfectly legitimate - yet in my opinion suboptimal long-term - outcome because it only pushes the equity question further down the road. Personally, I’d be satisfied with the prop getting outright accepted or rejected because that indicates that the DAO has a firm collective view on the content of the proposal itself. However, if most voters either abstain or don’t vote, I think more than anything that points to a problem of organizational uncertainty, and is a telling point of concern that the DAO should figure out what a standard equity structure looks like and if it’s a model the DAO wants to adopt long-term.