Discussion: Membership token format - ERC-20 vs NFT

Currently, Fingerprints’ token (PRINTS) is used both for governance (Snapshot voting) as well as for membership verification (5,000 PRINTS required to join the DAO as a full member).

Many other DAOs follow this same model, but there have been an increasing number over the past year that have shifted to using an ERC-721/NFT as their main token. As a result, I think this is something we should talk through and explore at Fingerprints. This forum post is not meant to advocate for the idea, simply to bring it up as a discussion so we can get a variety of opinions in order to think through the concept and its pros and cons.

So - what would we be solving for by moving to an NFT? I can think of a few things:

  1. Liquidity - utilizing an NFT would allow us to remove the burden of liquidity from ourselves and essentially outsource liquidity to the main marketplaces - Opensea, Looksrare, x2y2, etc. We have some experience with ERC-20 liquidity via our Uniswap pool for RAW DAO, and it is not an easy thing to manage. In addition, with DEX liquidity, the DAO would effectively be selling the token cheap (as people tend to buy when it’s cheap), and repurchasing it when it’s expensive (again, as people tend to sell when it’s expensive).
  2. Brand recognition/association - this one feels a little less compelling to me, but I wanted to at least introduce the idea. Having a visual token as the representation for membership could help with brand recognition and association, assuming the NFT was well-designed. Do we think this would be a real benefit?

I’ve spoken with a few different dev teams to get a sense for scope and cost, and the impression I get is that it wouldn’t be a terribly difficult thing to achieve from a development standpoint. Contract work and quality-checks would take a few weeks, and the budget would likely be somewhere around ~$10k.

I’d love to get a diverse set of opinions exploring this topic!

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Picking up from discord, I definitely recognize the non-DAO examples such as proof, quantum, and more recently GMoney AdmitOne (not sure if this is a DAO) whose floor is currently 12 and has seen decent trading volumen

Two other examples of DAOs that utilize an NFT are Pixelvault FoundersDAO and ilumantiDAO

I would like to better understand the liquidity point because I think I’m our case where liquidity has been an area of opportunity to improve, an NFT seems like a more liquid assets because of availability of secondary markets like OS, LooksRare, etc…

Interesting idea. What would the relationship / interactions between the token and the NFTs be in case this was implemented? I can think of several possibilities but I’m curious about your considerations around this.

The idea is that with the NFT is that the existing obstacles to liquidity (having to tie up a material amount of capital, requirement to actively manage the liquidity position to ensure a stable trading environment, avoid the sub-optimal buying high and selling low) are basically removed by default, and the entire function gets outsourced to the marketplaces.

Right now, if you want to go sell PRINTS on-demand, there’s no easy way to do that. Whereas with the NFT you could go list, and you immediately have and audience of millions that can see that listing.

That said - I do think there are ways we can launch liquidity for the ERC-20, it’s just a problem that needs to be solved.

So that’s the basic question for me - is it worth exploring the NFT simply to fix liquidity? Are there other benefits that people can think of? Or should we focus attention on the ERC 20?

Nothing set in stone - could take any form. Could be staking tokens to receive an NFT…could be an open contract that allows anyone to swap 5k PRINTS for an NFT and vice versa at any time. I think when exploring the idea we should be as creative as possible.

The idea is certainly interesting -it would entail a sort of “sublimation” process, from NFT collection to a ERC20 that represents governance over that vault to a new NFT that abstracts all of that again… I’d need to think more about all the implications and also the pros and cons of keeping both Prints and NFT coexisting (through a transition period or permanently).

Also, the future of NFT marketplaces, specially top tier ones, might be migrating to project specific ones (à la LL’s for punks for instance), so that’s something else to keep in mind.

I like the idea of staking in exchange for an NFT. Could their potentially be other benefits of staking PRINTS? For instance earn more PRINTs?

I really like how proof incentivizes moonbird holder to “best” their birds to unlock “rewards.” Mind you to date these rewards have been small things like merch, however I like the idea of “rewarding” long term stakers because for me it’s a strong signal of conviction. We could also get creative here

I also think if done correctly, with the right artist, the FP NFT could directly help to build brand equity/value.

I think there is a bit of a false dichotomy of the firm split between erc-20 or nft… the right migration path IMO is to have a contract/ui where someone can mint a membership nft for 5000 prints and then can burn that nft and get the 5000 prints back. If a liquid market for the NFT emerges, then it will be much easier for people to also support liquidity in prints / arb the prints <> nft price.

Regarding the marketplace, reservoir.tools is a “easy” way to build our own marketplace in the future, fee-free. It’s worth noting that charging at 7.5% royalty for nft transfers is pretty accepted and could bring revenue to the DAO. The dao could also operate a storefront on the website which allows people to purchase a membership at any time for a fixed price.

The visibility of membership is much better than people holding $PRINTS:
(1) if the membership card looks good, people are less likely to store it in a random second wallet
(2) the dao is more interesting to NFT users vs. DeFi users, and the default wallet exploration app for NFT users (something like a deca or gallery or opensea) would surface this NFT instead of having to check Etherscan
(3) As others have mentioned, art could make it more interesting / a cool community benefit

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Your point about ongoing interchangeability between PRINTS and an NFT is one of the options that we’ve considered, and to your point, is probably the optimal way to do this.

I think the question if we have that structure is - what role does each play? Does the ERC 20 have a different function than the NFT? If not, why have both? If so, what benefits/features should each have? Who would be the natural holders of each? Etc etc - these are the questions I think we’d need to answer.

Without really following Nouns DAO / PROOF I don’t know the answer to this but it may exist:

How do those NFT based DAOs deal with stolen assets?

The liquidity provided by Opensea collection offers is great, but it makes it easier for stolen member tokens to be swapped to ETH vs the #otc channel.

Most of the approval for all attacks will just liquidate the OS offers and avoid ERC-20 tokens since their value isn’t as easily extracted.

i think it should be: “membership” in the community (i.e. discord, events, etc) is the NFT, where the FT just maps to economic interest + governance.

So for Proof, unfortunately when a Proof NFT has been stolen the stance of the Proof team is that it’s an unfortunate situation and there is nothing they can do on their end. What Proof does do really well is offer community support on how to create/utilize cold storage and security mechanisms to stay safe.

However question, if say I had a security incident couldn’t my PRINTS be compromised as well? Apologies for the perhaps basic question…

The topic of bringing Fingerprints membership to an NFT, from an erc-20 falls on a lump of big questions.

  1. What are we solving for?
  2. Does it make the difference we have inferred it will make?
  3. Security, contract building, etc.
  4. Cost - $ and reputational

(1) Solving for liquidity as glory mentioned, this is intriguing that we can move the platform from otc channel to Opensea for joining the DAO. As otc channel is a burden on many who wish to join. This would additionally solve other issues: bringing value to the members, making it easier to join, creating some exceptional art.

(2) If PRINTS are on Opensea (essentially) as a membership nft, will it change the amount of eyes on membership or will it be just another membership card nft?

(3) Security issues regarding the contract built by Fingerprints will need to be audited, this is a given, but the security issues regarding the user are on them. If someone loses their NFT or ERC-20, we can only provide so much help. If we see a large influx of members, I would suggest a security channel in Discord to provide technical help to each of our members.

(4) This is the largest issue. $10k is fine for the contract work, but what about the artist? Ideally this would be a donation from one of our collected artists or members, but this could get costly if done right. It should be a tier-1 artist who does the membership nft.
As far as reputation goes, an nft lasts forever, like our ERC-20, and it needs to be a monumental moment when FP releases one.

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I’m very skeptical that we could get an erc-721 implemented for 10k usdc including audit

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Thanks Dollar!

All really good points and agree with you on point 4, we would need a high tier artist to design the NFT. This is what PixelVault FoundersDAO token did with Fvckrender designing the NFT

https://opensea.io/collection/foundersdao

GmDAO did with their token and Rich Poole

https://opensea.io/collection/gm-token

Obviously I think FP artists are on a completely different level and precisely what our NFT can standout from all others

For those who dont know GMDAO here is a little write up on how their NFT token is used

“ The gmDAO is a community of NFT collectors, artists & investors created on September 2021 using a fair token distribution. The DAO was formed based on the principles of etiquette and mutual respect, making our community a haven within a typically hostile environment.

The DAO consists of members who are active within the NFT sector, with backgrounds ranging from accredited investors to renowned generative artists. Our primary goal is to foster & encourage the development of the NFT space.

The gm. token is our native governance token with artwork designed by legendary gen artist Rich Poole. These tokens entitle their owner to participate in the governance of the gmDAO, as well as granting additional benefits relating to ventures created by the DAO.”

there are many good points from this discussion!

Generally, I believe converting the membership into an NFT (maybe worth having some discussion around using an erc721 vs an erc1155) would 1) reduce the complexities of facilitating memberships, 2) add more visibility to the DAO, and 3) standardize DAO best practices.

  1. Token models, especially regarding governance for DAOs like FP, are still experimental. Using an NFT is more simple as the market continues to learn how exactly DAOs like FP should incorporate erc20s (in my opinion, erc20s are more suitable for defi protocols where liquidity is crucial). Plus, the advent and success of protocols like sudoswap and NFTX give us more innovative ways to distribute memberships and manage liquidity for them–there is room for interesting experimentation here. (In fact, sidenote, should we collect an 0xmon?)

  2. The DAO membership would have way more visibility (and likely trades) if trades are facilitated on OS as opposed to an OTC discord channel.

  3. I believe adopting similar governance models of similar DAOs, like Nouns and InfoToken, will help the space converge towards standardizing best practices for DAOs in this category as we iterate and learn together.

re security: I agree with dollar here. The DAO should not be expected to safeguard or provide insurance to members who get their tokens stolen. The most we can do here is make sure we have secure contracts and advocate best opsec practices.

re does erc20 have a different function than the NFT?: If the NFT is the governance token, then we would have to install reasons why an erc20 would be useful. Maybe the erc20 model becomes more useful if the market for it is big enough? Until then I can’t really think of any useful functions for the purposes of FP… but am curious what others think about this.

That would be just for development, excluding audit.

PRINTS buyback and DAO-managed OTC Desk - #22 by glory in lieu of this discussion regarding a prints buyback and DAO managted otc desk… if we were to convert the membership to an NFT, setting up a pool on sudoswap could be a great way for the DAO to ensure there is liquidity for sellers