We Like the Nouns. Meme markets in the 2020s

What gives an NFT value? Is it the vibe? Is it the artwork that can be displayed online or IRL in a digital frame? Is it the utility offered within a game or virtual world?

Nouns 17, 29, and 43

Normies have been getting tripped up on the value question ever since 2009 when Satoshi released Bitcoin. Back then the narrative was the US dollar was valuable because you pay your taxes with it and there’s a military that backs it. BTC had no underlying value and was nothing more than fake internet money used to buy illegal guns and drugs on anonymous online marketplaces. 12 years later BTC has a ~$1T market cap because people believed it is valuable despite that early narrative :)

You hear similar confusion today from people who don’t get NFTs. A house has value because you can live in it. A company has value because it produces cash flows. Why should a JPEG that anyone can copy have any value at all?

It’s true there are well established reasons people believe the US dollar, real estate, and companies have value. But aren’t those all just beliefs too? There are basic human needs (food, water, shelter) that must be met for us to live. But outside of those needs isn’t the rest of the value in the world just in our head and determined by what we collectively believe?

The internet + crypto is starting to reveal this with the explosion of interest in meme stocks, meme coins, and NFTs. The Wall Street, DC and Silicon Valley establishments have told us there are certain reasons that assets should have value for decades and we’ve believed them. But not anymore. There’s been an explosion in definitive optimism on the internet and now it’s clear that whatever people believe has value can have massive value, whether it’s Gamestop, Solana, or Bored Apes.

It’s always been possible for humans to believe whatever we want, but open blockchains like Ethereum made it possible for anyone to convert belief into true ownership. Anyone on the planet with an internet connection can create a cryptocurrency or NFT and own or distribute it to others without permission from any gatekeepers. It doesn’t matter who you are or where you are, you can now convert your belief into true ownership. And it turns out true ownership strongly intensifies belief. When humans own something, even if it is garbage in the long run, we tend to believe it has a lot of value in the present just because we own it.

If you’ve been paying attention, this is now obvious. Trillions of dollars has been created “out of thin air” based purely on the belief of random people from around the world. What may not be obvious is how that value will persist over time in this new era where value = belief, memes spread like wildfire and global markets are hyperconnected.

A world where value is widely understood to be based purely on beliefs and anyone on the internet can create massive value if they yell loud enough and meme it into existence is dangerous because human belief can be fleeting. Humans are fickle — belief one day can easily turn into hate the next day. And people tend to be especially emotional when it comes to their money.

Our industry has seen countless examples of memes that were red hot for a moment in time but then faded fast: Tron, EOS, Neo, Bitcoin Cash are just a few. To be sure these all still have thousands of people who believe they are worth hundreds of million of dollars. I’m not knocking them. But the time when they shined brightest was the time most low conviction retail investors got involved. The average investor can get hurt badly by meme markets, so it’s important to recognize that social media engagement does not equal investment returns and how loud one is about their belief is not always indicative of how strongly they believe in it. In fact, it’s often a good counter signal (see crypto countersignaling 101).

The good greatly outweighs the bad for the average investor in this new world though and we believe there will be new frameworks that emerge for longterm focused people who want to invest in meme markets. Here’s our framework within the context of a recent investment we’ve made into Nouns DAO. This is just one framework that’s worked for us, but by no means suggesting this is the only framework — many will thrive no doubt!

Our investment approach to NFTs is similar to our approach to cryptocurrencies for the past 10+ years — we buy assets that we believe more people are going to believe are valuable 5+ years from now. We consider what collective belief is in the present and imagine what it may look like in the future.

For us, the longterm beliefs of people are much easier to project than short-term whims and our fund has been quietly investing in NFTs that we believe in for a while now. Our first NFT purchase was the SuperRare genesis mint, Robbie Barrat’s AI Generated Nude Portrait #1. We liked the vibes, we liked the true belief of the community around Robbie and SuperRare, we liked the authenticity of the creator and creation. We simply believed that in 5+ years many more people would believe in its value.

The same is true for Nouns today. We’ve been following the project since its inception 45 days ago and have purchased 3 nouns so far: #17, #29 and #43.

We love the vibe of Nouns — the artwork is fun and feels historically significant. We love the community — the nounders (cryptoseneca, supergremplin, punk4156, eboyarts, punk4464, dhof, TimpersHD, lastpunk9999) understand the NFT movement as well as anybody and less than two months in there’s already interesting projects launching within the community like Nouns Party and Verbs. Some measure community strength by social media engagement, but that’s not how we view it at all. In fact, to date the Nouns social engagement has been tempered. But what’s clear about the Nouns community if you watch closely is there’s a small number of true believers. We think that’s more valuable than social engagement in the long-term.

We love the authenticity. Nouns is a first of its kind project in several respects. Cryptopunks created the generative PFP category with a fixed supply of 10K (which anyone could initially participate in by minting on-chain). Now there are thousands of 10K PFP projects that have followed Cryptopunks authentic creation.

Similarly, Nouns introduced a new distribution mechanism with daily auctions which will occur every 24 hours infinitely into the future. How this new mechanic plays out over time is obviously unknown, but it’s an experiment worth trying. Noun o’clock is a lot of fun - although quite late for U.S. people now because of the Coldie style auctions getting extended :)

Perhaps most importantly, Nouns also introduced a novel underlying organizational structure to the NFT space. In the case of all PFP projects prior, the primary sales went to a team who then took the proceeds for themselves or figured out how to deploy the proceeds to accrue more value to the projects owners. The proceeds of all Nouns sales goes directly to the Nouns DAO and each Noun represents one vote. There’s already $20M+ in the on-chain treasury and we’re already deploying into high quality projects. There’s tremendous potential to grow the Nouns ecosystem at a much faster rate than any PFP project has done before.

Crypto is a hyper-mimetic industry where people tend to follow fast and imitate what’s en vogue in the moment. When you have a bunch of capital and thought leadership competing in the short term you have situations like Loot. Loot is interesting (don’t divine robes sound awesome?) and I’m by no means taking anything away from the creation. But when a lot of people are shouting about something and trying to force it onto others and more low conviction people are following and shouting louder, it’s often an indication that things are overheated. This happens a lot in crypto. Hyper-mimetic bubbles often indicate the long-term macro trend is very real, but the people/projects capturing the hype in the short-run may not be.

There’s no mimetic bubble around Nouns DAO — it’s just got a great vibe, a small community of true believers, and an authentic creation that’s introducing many new ideas to the space. I believe these are the types of NFTs that will capture the most value long-term. Ultimately this is just my belief of course and the market will reveal the truth in time.

That’s the great thing about the market — it serves as an unbiased record of truth over long periods of time. I strongly believe that being anti-mimetic in the short-term and thinking from first principles about what will have the largest impact long term is the best way to approach our space (even though it attracts far less attention). We’ll see. We like the Nouns!

About 1confirmation: High conviction investors in authentic projects like Coinbase, OpenSea, SuperRare, dYdX, Nexus Mutual and more. Started in 2017 with ~$5M, now $800M+ in AUM.