The next wave of Crypto Music
The dominant trends that will likely shape the next phase of development
To start this off I want to first state that the title of this piece is not meant to imply that the current wave of Crypto Music is in any way dead.
Despite a general downturn in the wider markets, music NFTs and DAOs are going strong. Water and Music represents what can be built through clear concise and thoughtful development. The “headless band”, Chaos, brought together by Songcamp, is such a feat of organisation and execution that’s hard to believe it was pulled off. NFTs are becoming increasingly established as a viable business model for artists.
NY:NFT last month was a perfect example of how far we’ve come over the past few years. Unlike before, there is now a genuine community of builders and artists. It feels like a local scene, small and cosy, where everyone is involved with everything in some regard. But it’s a start. All new interesting things begin with a dedicated group of explorers.
Still, with the slowing of the general Crypto market, it’s important to take stock and ask “what’s next”. Often Crypto winters serve as a reset on narratives and memes and are the time when the seeds that are planted grow in earnest when the good times return.
As a side-note, this tweet thread from Rafa is useful context to view alongside the ideas detailed below. It focuses more on features rather than the general trends of development that I seek to highlight here.
Identity and Trust.
Allowing for pseudonymity is a core requirement of any Crypto platform; we should enable anyone to represent themselves however they want to on the internet. However, we also need to be able to derive trust against someone’s identity in a way that does not curtail personal privacy.
In “Web2” this tends to represent somewhat of a dichotomy. Trust is outsourced to 3rd parties, who charge the price of privacy to users. “Self-sovereign identity” puts control back in the hands of users… but we need mechanisms that provide context.
NFTs represent an interesting solution space, proactive cookies / digital stamps in a passport, that users can collect to shape the internet around themselves. Where cookies were collected against our activity, often without consent, NFTs could provide an opt-in alternative.
However, where NFTs can be traded and sold their value in this regard is somewhat lessoned. Buterin, Weyl et al. suggested in Decentralized Society: Finding Web3's Soul that “Soulbound”, aka non-trade-able, tokens could provide the basis for a “decentralised society” through the active building up of an individual’s on-chain reputation and CV. There is a lot of development on-going in this regard currently, led in part by my friend Tim through (EIP-4973 and EIP-5192).
I anticipate that there will be significant activity in this area in the coming year. For example, the development of wallets from being simple token storage devices to something with further functionality, web-of-trust based networks that enable community-supported reputation, industry-specific modules for identity solutions that build on top of composable primitives with the capacity for specific complexities.
Strong identity mechanisms are critical to making this a more trusted and reliable space. In a wave of many memes, probably the strongest has been the “rug pull”. As we continue to grow up as an ecosystem we need to fight this, but in a way that does not sacrifice our core morals.
Curation and Risk.
Every movement needs its selectors. From John Peel to Ben Klock, music fans have always looked towards tastemakers to direct where they should be looking to seek out gems.
Streaming has somewhat killed this for a lot of the music-consuming population, especially since major label-dominated, platform monopolised playlists have become the go-to signposts. But we’re a long way away from that in our own nascent area of Crypto Music right now, and with a growing catalogue of content, there is a huge opportunity for the development of human-led curation.
That said, it’s something of a chicken and egg situation, more content drives the need for more curation while leaning into curation only makes sense if there’s enough content out there. But it feels as though we are fast approaching a point where this will make sense, especially as more and more Web3 Music experience platforms are launched. The growing communities within Crypto Music are likely to play a key role here, as tribes are being formed around genre, identity, and theme, it is logical that curation will play a part in their collective output.
When I think about curation though, it isn’t purely about playlists and recommendations. Curation is to outsource the job and knowledge required to collect the right records together, and so I think the concept should be applied to the equally or more important role of risk management within the growing crypto music stack.
The role that many “middle men” play in the traditional music industry is to take on risk for a fee; they provide insurance that what is being served in and out is correct. Take, for example, a distributor. They are providing a service, the distribution of music to DSPs, but really the value that they provide to both artist and DSP is that they assume the risk that they have a certain level of confidence that the artist is who they say they are, and that they have the processes in place if the situation needs to be rectified. There is a reason that Spotify dropped its Artist Direct service very quickly, it wasn’t worth the risk. Better to let someone else take up that role and focus on their core product.
Within the music NFT space at the moment there are roughly two camps of NFT marketplace, those that are open to all, and those that curate who can mint through them. The two leading platforms in the latter camp, Sound and Catalog, have built up a trusted base of released music, at the cost of scaling their user base. This in turn has given confidence to platforms integrating those releases that they are what they say they are. However, scaling will likely be a key area of development going forwards and so mechanisms that allow for lower barriers to mint but provide assurance to developers will be a key hurdle to overcome.
In the wider Crypto market, we have seen the impact of insufficient risk processes over the past few months, leading to the market-wide wipe-out of many leading actors in the space. And while the value at play within the Crypto Music industry is of course much lower, the threat of legal engagement on behalf of Rightsholders due to infringing rights or fraudulent uploads is something that would pour tar on an emerging ecosystem. We will need solutions, and it’s important to think about what they could look like before it’s too late.
Rights and Licensing.
Whenever I talk about this area I’m usually met with blank bored stares. But honestly, it is super important, so give me a few paragraphs and then I’ll get back to more interesting things. There’s been a lot of hype around CC0 “no rights reserved” licences as the preferred method for releasing Crypto Media over the last wave of development. However, I’d argue it’s a bad fit for music in many cases due to the lack of requirement of attribution. We need more nuanced CC licenses for those that want to encourage the propagation of their work, and there is a whole suite to choose from, based on what the artist is looking to achieve.
Furthermore, we need greater interoperability and standardisation for NFTs to express what licence they are being minted under. This is in many ways a solved problem within the open-source software community, and honestly the creative commons community, and so is more an NFT standards question than anything else. Maybe we need an EIP to accommodate this. I might try and suggest one unless one of you guys does it first.
For the avoidance of doubt, pulling Crypto Music platforms into traditional licensing schemes would kill the speed of development and experimentation. It’s hard enough for startups to understand and afford licenses when they are building in the already defined streaming era (which is why I designed Licensr in my ICE Services days), let alone projects that are operating in an environment that is moving as quickly as this one. My hope is that in good time Crypto/Web3 will be defined as a different exploitation type as licensing and rights foundations adapt to it. But we’re a ways off from that, and so until then, empowering teams to act with knowledge around the rights that they’re integrating into their platforms will be a great help.
Engaging and growing communities.
Bull markets tend to top when engagement shifts from new entrants to value-transfer across the existing community. Bear markets are defined by exits from the community. Bull markets are re-marked by the ecosystem growing again.
I mentioned in the opening section that Crypto Music feels analogous to a local scene at the moment. And that is fantastic. But to move to the next wave we’re going to have to get some fresh blood in here and a likely route to scale is to start bridging the gap to pre-existing music communities as well as continuing to organically grow our own.
I’ve had a number of conversations with people that lead successful “Web2” platforms over the past few months, who are themselves very interested in how Web3 could be integrated into their ecosystems but fearful of the inevitable backlash. The risk to explore and experiment with Crypto is low when starting fresh, but if you’ve already got a vibrant community then it is a completely different question.
As the visibility of Crypto, NFTs, and DAOs grows, so does the counter-voice. It’s kinda always been like this, to be honest, it’s a feature not a bug of a growing market. And so premature movement for many pre-existing communities will be the wrong move until tangible value is proven along specific lines that make sense for that group.
The reaction to this point has been “we need more education” for pretty much the entire I’ve been involved in this space. And yes, there is some validity in that statement. But in reality, the biggest educating factor of all is when the point of it all becomes understood, rather than what it is or could be. And that’s something that needs to be proven rather than dictated.
Within music, we have an incredibly successful use case in this regard, Water & Music. Cherie and the team at Water & Music have shown how a community can be taken along the ride, thoughtfully, to show why Web3 is worth exploring for their needs, and how it can make a more effective and vibrant environment. It provides an example of how this can be done well, and a lot can be learned about their journey, though other existing communities will need to explore what will work best for them rather than simply attempt to replicate.
Bridging Live and Online.
During Covid everyone got very excited about the “Metaverse”, I mean, Zuck went so far as to pivot his entire company around it. As with “Web3”, there are differing definitions of what the Metaverse is, or could be, but my personal preference is that it is the merging of IRL and online experiences, rather than the dystopic vision of humanity sitting in headsets.
Linked to the section above around proving value to communities that are not yet sold on Web3, this feels to me like a key area where progress could be made in the next wave. Live experiences that enable further online value (digital twins, live gig enhancement, further engagement, etc.) on an opt-in basis could well provide a jumping-on opportunity.
One element that we’ve all felt as we go back to a normal-ish life is just how important real-life experiences are, which is true for artists more than anyone. This presents a challenge for artists that have accelerated their careers in the online world, where often they are playing catch-up in the live arena. Web3 Music showcases festivals and tours will be an important element of our development, and I’m really excited to see how digital-first artists can capitalise on these settings by merging online and real-life worlds. So far we’ve seen things like IRL minting at gigs, but there is so much more opportunity for experimentation.
For further context on this topic, since starting to write this piece the Water & Music guys have begun to roll out their “season 2” set of collaborative research based on this exact topic, Music and the Metaverse. Go read the reports as they drop.
Bridging Crypto and Streaming.
While Web3 can provide an outsized financial reward for an artist that engages it successfully, the audience is still relatively very small compared to the reach that can be achieved through traditional streaming means. When I wrote The case for a post-royalties music industry back in October last year my focus was on how hard it is to make a valid business model in the current industry’s financial dynamics for a new creator. However, core to this idea was also the idea of freeing up an artist’s rights so that they can gain the maximum value of attention that streaming can provide.
Engaging in streaming, and the wider “traditional” industry, strikes at an important factor that artists that succeed in the next wave will execute well on. Namely finding good partners to grow their brand with. Web3 allows artists to be relatively self-serving, but the traditional industry is built on processes and systems that mean that they need help.
And so, I believe that we will see the emergence of representatives that are sympathetic to artists seeking to explore this new way. The best labels will carve out NFTs and the wider Web3 sector as something that an artist is free to explore, without the usual contractual restrictions, but be in a position to provide the service set that they excel at within “Web2”. The best managers will understand Web3 and help their artists engage in the growing community while making sure that they are well represented in other areas. The best lawyers will proactively seek to carve out Web3 from deals but in front of artists to support the above. And so on.
Working well, Crypto and Streaming should be a symbiotic feedback loop in the next wave. If Crypto means anything, it is user-owned optionality, and so building out a suite of engagement for your fans with clear value for those that want to lean in further, but not excluding those that simply want to listen to your music, will be the key.
Composability and Open Source.
Joel Monegro wrote a post called Thin Applications in 2020, building off of Fat Protocols in 2016, which for me sums up how this ecosystem is building better than any other thought piece. In it, he describes how the composability of the growing Crypto industries provides a fundamentally different proposition to projects that are building applications. “Platform-lock” is gone, and in its place is a vibrant and ever-changing open stack that does the back-end work allowing for faster discovery of utility at the application/interface layer.
From the perspective of a team that is building applications, this is a fairly intimidating proposition. The lean start-up model is kinda gone; no longer are you racing to find product-market fit and then building a moat around it. Instead, the model is more in line with building a brand, you’re in a constant battle for attention. The projects that win will be those that constantly keep moving forwards and build a community like a snowball. That’s your “moat”.
However, from the macro perspective of developing the ecosystem as a whole, this is incredibly exciting. No longer will we get into nadirs of innovation where mega-platforms have become unassailable and shift into profit maximisation. At least, that’s the theory.
We’re taking an active part at HIFI Labs in this regard at two levels, through neume we are building open source infrastructure, “work & data”, that will commoditise everything that it takes to build an application on Web3 Music, and with musicOS we are building a thin application to pull it all together in a user-owned “operating system” where the artist and fan is the platform themselves (lots more on this very soon).
In many ways, the Crypto Music industry is lagging behind other sectors in this area. We’ve had great success in terms of bringing a point to Web3 to a number of artists, but everything is still quite spread out and disparate. This is going to change. What the future looks like is a greater importance placed on tooling development, interoperability, and protocols.
Clearly, the above list of ideas that I’m excited about is not everything that will matter in the next wave, but it’s a start. Despite sectioning each into areas, the most important thing to understand is that each is related and creates a function that will transform the current state into state’.
One further issue that could have been its own section, though kinda rests across everything, is the requirement to find sustainable business models. Everything from how an artist can find long-term value from an NFT drop, to how a platform can make money with minimal to no moat, will be explored as we move from the Ponzi-mania of this last wave and into the next.
I mean, we may end up back at Ponzis all the way down again, but I feel like the expected greater focus on risk management in the macro-environment highlighted above will set the tone and more mature models will follow.
That said, degens gonna degen in the grand casino.
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Such a good read. Thank you so much for putting this together!
As I continue to go down the rabbit hole that is Music NFTs, this article provides a clear viewpoint of the overarching web3 music infrastructure. Massively helpful and incredibly insightful. Banger article Dan!
Some key takeaways for me are the rights and licensing issues and building successful business models in an industry that is catering to increased rev for artists. Big challenges to be faced head on, but massive rewards to those that figure it out. Thanks again
Very interesting Dan. Regarding the "rights and licensing" part, we have been exploring the use of Semantic NFTs, NFTs whose metadata is based on semantic web standards like JSON-LD. This way, it is possible to use existing vocabularies like the Copyright Ontology to model licensing terms. More details: https://copyrightly.rhizomik.net