1confirmation Founder: Why Do We Love Nouns?

Further Reading: 《Understanding "Noun" in Five Minutes: How to Play with the NFT Experiment of Daily Random Minting and Continuous Auction?》

Written by: Nick Tomaino, Founder of 1confirmation
Translated by: Perry Wang

What gives NFTs their value? Is it the aura? Is it the art that can be displayed online or the real-life (IRL) pieces framed in digital frames? Is it the utility of equipment in games or virtual worlds?

Nouns #17, #29, and #43

Value = Belief

Since Satoshi Nakamoto released Bitcoin in 2009, ordinary people have been puzzled by its value. The argument at the time was that the dollar has value because you can pay taxes with it, and there is a military backing its value; BTC has no intrinsic value, merely serving as a fake online currency used to purchase illegal firearms and drugs in anonymous markets. Twelve years later, BTC's market cap has surged to about $1 trillion, and the early arguments still linger, but people believe it has significant value :)

Currently, you might hear similar confusion from those who have never bought NFTs: Houses have value because you can live in them; a company has value because it generates cash flow; why would a JPG image that anyone can replicate have value?

Indeed, people have good reasons to believe that dollars, real estate, and companies have value. But aren't these all just beliefs? We must meet basic human needs (food, water, shelter) to survive. However, aside from these needs, doesn't the value of other things in the world exist only in our minds and is determined by our shared beliefs?

The internet and cryptocurrencies have begun to reveal this, accompanied by a surge of interest in meme stocks, meme tokens, and NFTs. Successful individuals from Wall Street, Washington, and Silicon Valley have told us for decades that assets have value for certain reasons, and we believed them. But not anymore. The absolute optimism on the internet has surged, and it is now clear that anything "people think has value" can potentially have immense value, whether it's the GameStop stock that was once driven up by retail investors, the Solana blockchain, or the Bored Apes NFTs.

Open Blockchains Turn Belief into True Ownership

Humans can always believe in anything we want, but open blockchains like Ethereum allow anyone to turn that belief into true ownership. Anyone on Earth with internet access can create a cryptocurrency or NFT and own it without needing permission from any gatekeepers, or distribute it to others. No matter who you are or where you are, you can now turn your beliefs into true ownership. It turns out that true ownership strongly enhances belief. When humans own something, even if it is trash in the long run, we still tend to believe it has great value in the present because we own it.

If you've been paying attention, this phenomenon is clearly visible. Trillions of dollars in value have been "created out of thin air," purely based on the beliefs of people randomly distributed around the world. In this new era where "value = belief," memes spread like wildfire, and global markets are highly interconnected, it is unclear how this value will sustain itself in the future.

In a world where value is widely understood to be purely based on belief, anyone on the internet with a loud enough voice who can meme it into concrete existence can create immense value, which is a very dangerous thing because human beliefs can be fleeting. Humans are fickle—today's belief can easily turn into hatred tomorrow. When it comes to money, people tend to be very emotional.

Our industry has seen countless examples of memes that were once hot but quickly faded away: Tron, EOS, Neo, Bitcoin Cash, just to name a few. It is certain that there are still thousands of people who believe these projects are worth hundreds of millions of dollars; I am not targeting them. But the brightest moments for these projects were when there was no belief, and retail investors were participating wildly.

Ordinary investors may be severely harmed by meme markets, so it is important to recognize that social media participation does not equal investment returns; how loudly someone shouts a slogan does not always equate to how strongly he/she believes in it. In fact, it is often a good counter-signal (see crypto countersignaling 101).

Nevertheless, for ordinary investors in this new world, the benefits far outweigh the drawbacks. We believe that a new investment reference framework will emerge for those who want to invest in meme markets with a long-term focus.

Here, I would like to introduce the valuation framework we recently used when investing in Nouns DAO. This is a framework that has been useful for us, but it certainly does not mean it is the only framework—many investment reference frameworks will undoubtedly thrive!

Our Investment in Nouns DAO

Our investment strategy for NFTs is similar to our approach to cryptocurrencies over the past decade: we buy assets that we believe more people will find valuable in five years. We consider what the current collective belief is and imagine what it will look like in the future.

For us, people's long-term beliefs are easier to map than short-term whims, and our fund has been quietly investing in NFTs we believe in for some time now. Our first NFT purchase was the genesis token from SuperRare, Robbie Barrat's AI Generated Nude Portrait #1. We loved the aura, we appreciated the genuine belief surrounding Robbie and the SuperRare community, and we valued the originality of the creators and their works. We simply believe that in five years, more people will believe in its value.

Today's Nouns are no different. We have been following the project since it launched 45 days ago and have purchased 3 Nouns so far: #17, #29, and #43.

Aura, Community, and Originality

We love the aura of "Nouns": its artwork is interesting and historically significant. We adore its community—the "nounders," including cryptoseneca, supergremplin, punk4156, eboyarts, punk4464, dhof, TimpersHD, lastpunk9999, etc.—who understand the NFT movement as well as anyone, and in less than two months, the community has already launched some interesting projects like Nouns Party and Verbs.

Some people measure community strength by social media engagement, but we have a completely different view on this. In fact, so far, Nouns' social engagement has cooled down. However, upon closer inspection, it is clear that there are a few true believers within the Nouns community. We believe that this is more valuable in the long run than social engagement.

We appreciate originality. Nouns is a pioneer among similar projects in several ways. Cryptopunks created the category of generative profile pictures (PFP) with a fixed supply of 10K (anyone could initially participate by minting NFTs on-chain). Now there are thousands of PFP projects with a supply of 10K that follow the original path of Cryptopunks.

Similarly, Nouns has also originated a new daily auction distribution mechanism that occurs every 24 hours and will continue indefinitely in the future. How this new mechanism will play out in the future is obviously unknown, but it is an experiment worth trying. The timing of Nouns is interesting—although it is a bit late for Americans to participate now, as the Coldie-style auctions have extended :)

Perhaps most importantly, Nouns has introduced a novel underlying organizational structure to the NFT space. In all previous PFP projects, the main sales proceeds belong to a team, which then uses the proceeds for themselves or comes up with ways to distribute the proceeds to accumulate more value for project owners. The proceeds from all sales of Nouns go directly into the Nouns DAO, where each Noun represents one vote. Its on-chain funds have exceeded $20 million, and we have deployed the funds into high-quality projects.

Compared to any previous PFP project, the Nouns ecosystem has enormous potential for faster growth.

Counter-Mimicking in an Industry of Super Mimicry

The crypto industry is one where super mimicry exists, and people often quickly follow and imitate what is currently popular. When you face fierce competition for large capital and thought leadership in the short term, you encounter dilemmas similar to the Loot project.

The Loot project is interesting ("Holy Robe" sounds cool, right?), and I would never take anything away from its creation. However, when many people are banging drums and shouting to impose something on others, while more belief-deficient individuals follow suit and shout loudly, it often indicates that the matter has overheated.

Such occurrences happen frequently in the crypto space. Super mimicry bubbles usually indicate that long-term macro trends are very real, but those who exploit hype to cut the grass may not capture true value in the short term.

However, there is no mimicry bubble surrounding Nouns DAO—it simply has a strong aura, a small community of true believers, and originality that introduces many new ideas to the space. I believe this type of NFT can capture higher long-term value. Ultimately, this is certainly just my personal belief, and the market will reveal the truth in due time.

That is the greatness of the market—it fairly and impartially records the truth over a long period. I firmly believe that in the short term, sticking to counter-mimicking and thinking from fundamental principles about what will have the greatest long-term impact is the best way to approach the crypto space (even though it attracts very little attention). Let’s wait and see. We love Nouns!

About 1confirmation: An investment firm with a strong belief in original projects: investment cases include Coinbase, OpenSea, SuperRare, dYdX, Nexus Mutual, and many others. 1confirmation was founded in 2017 with an original capital of $5 million and currently manages assets (AUM) of $800 million.

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