# Heal Noun O'Clock; Full Spec and Economic Audit of % Exit, An Arbitrage-Free Forking Mechanic

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[ added a summary at the bottom of the prop of the case for % exit ]


*TLDR; spec % exit (value determined by auction price +/- pro-rata treasury asset fluctuations) & other ideas if brought forth by the group and do a thorough economic audit as well as an analysis of status quo (book-value) exit for comparison. 
-$58k streamed 
-est time to complete is 9 weeks*

*my hope is this document can help relieve some of the tension surrounding the adoption of V3, offering a grounded perspective to help us decide whether we protocolize this/another design or focus on optimizing the current program via existing levers.* 

*below proposal shared from cryptecon.eth*
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### Problem Statement
Since last year, there has been a growing divide in the Nouns DAO community between those who see Nouns as collectibles with voting rights and those who see them as arbitrage opportunities. Several measures have been taken to address the growing number of arbitrageurs holding Nouns, including initiatives such as [burning](https://w.mirror.xyz/AmHOzH-FQZVO3IhGXHSvCRxRSf2MO6VCZdmMwNEIyKE) [and](https://mirror.xyz/verbsteam.eth/W4gaOrp6NC6jopc6vGsGuhz3o4ej0G_0TFhBlcLed94) [setting](https://nouns.wtf/vote/384) [thresholds](https://nouns.wtf/vote/439). Raising the threshold did not solve the problem. The disparity has sparked extensive debate within the community. Arbers aim to predict the book value of NFTs at the time of the next fork and buy them at auction for less to ensure a profit. This strategy distracts from the real demand for nouns, pushing their valuation toward a strictly financial viewpoint and overshadowing their communal and cultural value.

### Proposal Overview
We propose to commission a focused research project to explore possible alternative exit schemes specifically designed to incorporate the uniqueness of NFTs planning to exit a DAO. This project aims to investigate different models (such as compensation based on contributed Ether) to minimize the arbitrage opportunities that distort the Nouns ecosystem. By incorporating additional factors into the treasury allocation formula, the aim is to develop a more equitable valuation mechanism that aligns with genuine demand for individual NFTs.

### Research Objectives:
* Specify the exit scheme based on contributed ETH and additional ideas brought forth by community members and Cryptecon.
* Conduct a comparative analysis of exit mechanics' incentives and economic resilience to determine which will attract more valuable bidders for the Nouns DAO. 

### Menu Offer
The research project consists of the following two Work Streams: 
* **Work Stream 1: Full Specification of Exit Schemes**: We start by fully specifying the exit scheme based on contributed ETH and other mechanics proposed by the community. Additionally, we explore and propose alternative exit schemes, focusing on incentive compatibility and tractability. This specification will present a clear path to implement an alternative exit scheme if the analysis is favorable. 
* **Work Stream 2: In-depth Comparative Analysis and Scheme Evaluation**: This work stream examines the incentive structures and economic resilience of different exit mechanisms to determine their impact on auction engagement, focusing on attracting value-enhancing bidders to the Nouns ecosystem. We use advanced economic modeling and agent-based simulations to identify schemes that promote robust participation.
    * Using **economic modeling** and game theory, we assess how various mechanisms influence the behavior of Noun bidders. The objective is identifying which exit scheme optimizes bidder contribution, enhancing ecosystem value. This model aims to unravel agents' interactions within the Nouns ecosystem, providing actionable insights into economic behaviors under various mechanisms.
    * We employ an **agent-based simulation** to evaluate the performance of exit strategies under historical and hypothetical market conditions. This involves assessing price responses to market volatilities and identifying potential arbitrage risks. We perform a sequence of robustness tests using historical data to observe how these schemes would have historically performed. Additionally, hypothetical market conditions are put to the test. We evaluate the resulting prices of each exit scheme, scrutinizing how they respond to market volatilities, such as substantial fluctuations in ETH value. The objective is to surface any potential weaknesses and strengths in the schemes, ensuring they can mitigate risks associated with arbitrage opportunities. 


### Costs and Duration
The project spans nine weeks and will incur a total cost of USDC 58,000. The USDC funds will be transferred daily throughout the duration of the project.

### Proposed Research Group
[Cryptecon](https://cryptecon.org/home.html) brings a deep academic background in cryptoeconomics and extensive experience in designing and auditing protocols. Their game theory and ecosystem simulation expertise are critical to analyzing and optimizing participant behavior and systemic resilience within the Nouns ecosystem. Their track record makes us an ideal partner. Cryptecon's approach to solving complex decentralized system challenges aligns with Nouns DAO's vision for sustainable growth and innovation. 

### Past Relevant Projects (more on [cryptecon.org](https://[cry](https://cryptecon.org/home.html)))

- **[Synthetix](https://synthetix.io/)**: We supported the team in the design phase of their future contract project, using simulation and game-theoretic analysis. 
- **[Polkadex](https://polkadex.trade/)**: We helped during the design phase of the cryptocurrency exchange, designing the token economics and the automated market maker.
- **[Pact.fi](https://www.pact.fi/)**: Support designing efficient incentive mechanisms and setting a fair price for the exchange's assets.
- **[Folks Finance](https://folks.finance/)**: Long-time partner. We helped set up their lending platform with simulations for parameter setting and game-theoretic analysis.

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% Exit properties: 

-Arbitrage-free alternative to current design (likely ends the anon bidding era)

-durable layer of protection from contentious proposals in any context (due to superior compatibility with low forking thresholds), substantively reducing dependency on veto

-gives capital a way to gain exposure & exert influence on the DAO other than via vote-hoarding. the point is not that the incentive to accumulate votes is eliminated, but that if we decide to discourage it through other novel mechanisms we should still be able to raise funds effectively via Noun sales. 

-opens Nouns up to a new range of participants, such as non-profits, for whom periodic treasury drain may generally make Nouns investment/contribution a non-starter

-can accommodate rapid demand expansion (ie scaling) much more fluidly than now; currently entering at large premiums to BV badly exposes the buyer (and Nouns itself) to strong dao-wide forking incentives in the event of a sudden price contraction, which will always to some degree constrain the what one may pay to join. Under % exit there is no upper bound.   


(this summary is my take which cryptecon is not incentivized to echo. they will provide a neutral analysis which may undermine some or all of the above. thank you!)

Outcome: EXECUTED