In a market that values rarity above all else, Nounders Noun NFTs stand out. So Rally decided to break one into pieces.
Rally, a firm that creates fractional shares of valuable physical and digital assets, announced August 19 that it will sell Noun #160, a Nounders Noun non-fungible token (NFT).
What makes a Nounders Noun so special? Unlike other projects which mint 10,000 items at once, the Nouns project says it will mint and auction off one NFT every day for forever.
Anyone with enough money can buy a Noun, which often sell for around 80 ETH (about $150,000). Every 10th Noun goes directly to the 10 Nounders — the project founders — and is not available for public auction.
It’s this rarity that made Rally interested in a Nounder’s Noun over a regular one, says Fitz Tepper, the vice president of operations at Rally. So the firm decided to acquire one.
Nounders have occasionally sold these rare artifacts to friends, strategic partners and to cover the group’s expenses, says Punk 4156, one of the founding members of NounsDAO.
"Fitz Tepper reached out at the end of March and proposed adding a Noun to the Rally platform and we thought it was an interesting idea,” Punk 4156 says. “We're always looking for new ways to democratize Noun ownership.”
Breaking the token into pieces dramatically lowers the barrier of entry to ownership of one of these rare tokens. Buying a Noun could easily cost more than $100,000; through Rally, the price for one of the 13,000 shares on offer for Noun #160 starts at $15.
Fractional ownership over this Noun also gives holders the ability to vote in the Nouns governance process, which determines how to use the more than $50 million in its treasury.
Noun #160, an NFT previously reserved only for the 10 Nounders of NounsDAO, to be offered in fractionalized shares on August 19.
But fractionalizing an NFT is not a straightforward process, and there are many details — including legal ones — that Rally had to work out behind the scenes to make this possible.
From fractions to securities
The impulse to break up valuable NFTs into cost-effective fractions emerged amid the market mania of 2021. Similar projects to Rally include Fractional.art, which allows users to purchase portions of popular NFTs such as CryptoPunks and items from Bored Ape Yacht Club.
NFTs are generally not considered securities, but Rally has decided to avoid the question altogether. It went to great lengths to ensure all its NFT fractions are registered as securities with the United States Securities Exchange Commission (SEC).
Rally does this through the Jumpstart Our Business Startups Act (JOBS) Act and a provision in that act called Regulation A+, or RegA+. The provision allows anyone to participate in private investments, not just accredited investors with a net worth of over $1 million or income of over $300,000.
To create fractionalized shares of an asset as an SEC-registered security, Rally forms an LLC specifically for that asset. The LLCs of these assets are not subsidiary to Rally itself but another company Rally set up; — Rally is the startup building a Robinhood-like app to track the LLCs’ securitized assets. s the the assets it has securitized assets.
The SEC reviews every offering from these LLCs, such as asset information and risk disclosure, to ensure investors are protected. Once approved, Rally users then buy shares in the company that owns the asset.
Rally expanded into digital assets in July of 2021. The platform first started with CryptoPunk #9670, one of 3,840 female Punks with rarer features of crazy hair (1 in 414) and nerd glasses (1 in 572). Rally then included Bored Apes, Azuki, Cool Cats — and now it has a Noun on its roster.
"Our thesis for getting an asset on the platform is like always to get the best of the best, especially if it's going to be seen as a long-term hold,” Tepper says, adding that this should not be read as investment advice. The Nounders Noun fits Rally’s preference for the rare, the same as a Bored Ape which has laser vision, Tepper says.
Rally’s Noun comes with an a twist, though: holders get to participate in Nouns DAO’s decision making. So how does that work with fractional shares?
Despite Nounders NFTs going specifically to Nounders, they still have the same voting power of other Nouns. One Noun equals one vote, Punk 4156 says. It’s up to Rally to figure out how that one vote will be split up among fractional holders.
“We understand that Rally intends to build a mechanism for fractional owners to proxy vote their Noun, which is an exciting addition to the Nouns DAO governance model — and a stepping stone to wider awareness of the project and adoption of the Nouns DAO model,” Punk 4156 says.
Rally is working on building a new voting mechanism for the fractionalized Nounders owners to participate in NounsDAO, says Tepper
“Since the launch of the project, we've understood that most Nouns could eventually be owned and governed by more than one individual,” says Punk 4156.
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