Building The Future of Music Ownership On-Chain

3LAU
10 min readNov 1, 2021

--

Last Week 333 winners started minting the first royal assets. The collection of 333 unique artworks also represents 50% ownership in the streaming royalty rights of my newest song Worst Case.

THE ROYAL RECAP

In conjunction with the royal.io soft-launch, we ran a contest that ranked the top 333 users based on their number of successfully converted referrals to our platform. The royal team hadn’t announced a prize just yet, but users could track their position & monitor their influence on our leaderboard, generating enormous hype around joining the movement. Our team’s goal was to test a principle that rings true to all creativity — most people today can only invest with their attention, but are rarely compensated for providing their time or their social distribution & consequent positive network effects.

A few weeks later, as a reward for the community’s support in helping royal gain 120,000 unique accounts, we announced a surprise for those 333 users who made the top cut: the first royal LDA— Worst Case (free to mint / distributed to self-hosted wallets of winners). Things got pretty crazy at that point, as fraudulent accounts began to pump referral numbers to the hundreds of thousands! Quick shout out to the royal team for quickly correcting the rankings, wiping fraudulent bots, and making sure all 333 editions of Worst Case were awarded to deserving users.

As the contest ran, the royal engineering team fine-tuned the genesis architecture of a royal asset. Our goal was simple: how can we leverage tokens to grant music rights on-chain, aligning incentives between fans & artists through co-ownership? How might that give artists more independence and help them capture more of the emotional value that music inherently creates?

Before royal, I had been caught in a winding idea maze of this vision for a long time, but manifesting it would require a strong team. In January I published a short piece on The Defiant called: Building The Investible Layer of Music — it was a great way to solicit feedback from the crypto community and returned lots of high-level thoughts on how music should be tokenized from friends & credible minds of the web3 world. I began experimenting with all types of music NFTs as a way to beta test the market and gauge interest; I feel lucky & honored that those experiments yielded enormously positive results that proved an important thesis: music creates outsized value in our world relative to the ways in which it is currently monetized.

The success of my earlier NFT drops (Summer of 2020 through March of 2021) inspired me to take things a step further, which would inevitably introduce new challenges. Accordingly, I sought advice from a few members of the tech community who I deeply respect & admire; I wanted to take a moment to thank them for building the foundation of royal. First, special thanks to Fred Ehrsam & Keith Rabois (both friends & royal investors) who encouraged me to push the limits of possibility in bridging music & distributed ledger technology. And finally JD Ross, my cofounder, secret talent-buyer of my first DJ gig ever in the Sig Nu Basement at Wash U (he paid in Crown Royale Whiskey), and my college best friend for 11 years. JD has built and founded many companies including Opendoor (which has grown to be a $14bn public company) and I’m honored he decided to join me in launching royal.

This past May, royal was born, and 4 months later we’ve launched our first product: the LDA, which stands for Limited Digital Asset. This week marks a special moment, as it’s the first time we can observe how an open market prices ownership in music as art, and ownership of rights in that music.

The “Worst Case” LDAs were not sold, but instead gifted to users who invested with their attention. Community participation and the corresponding reward genesis mint created a new type of market organically, one that will continue to scale with the web3 tools we’re actively building @ royal.

I am proud to say the results have exceeded our expectations! You can check out the implied value of the song here with some simple floor price x supply math. The secondary sales volume is particularly exciting, as the corresponding commissions alone have exceeded a typical record label advance for a single, less than a week after the initial mint. The power of community is truly incredible, as holders are already building tools around our first LDA — special shout out to @michaelwpersall for creating this Worst Case tracker.

It’s pretty clear: the value of music ownership is vastly misrepresented & undervalued today, but it won’t be for too much longer, as more musicians embrace the web3 ecosystem.

WHAT’S AN LDA?

The popularized acronym NFT (non-fungible token) is the consensus method of classifying what are more easily understood as Limited Digital Assets. Keeping it super simple, NFTs are just certificates of authenticity on a blockchain. NFTs originate from a smart contract (that mints them) — this minting contract assigns each token id (numbered 1, 2, 7, 555, 1001 etc.) to a specific set of meta-data, which often points to images or creative content (Bored Ape Yacht Club, Pak Cubes & More).

Worth a quick mention, even fiat money has non-fungible features that originate from a minting machine (haha, think serial numbers on dollars to prevent counterfeiting). This seems to be a pretty standard way of keeping track of authentic ownership, whether in the real world or digital world. This general authenticity framework reveals two important questions as distributed ledger tech begins to intersect IP & copyright law. Who owns the content that NFTs point to? What rights does the end user / NFT holder have?

Let’s turn to music. Most agreements in the legacy music world are really just sheets of paper. There are payment issues frequently, discrepancies of rights registration with third party collection agencies, and a boat load of problems that blockchains can probably solve. Bringing that entire antiquated system onto a blockchain though, would be a sluggish endeavor, and would require the consensus of legacy middlemen, managers, and artists alike (almost impossible to achieve at a normal pace). If an artist wanted to give ownership of their music to their fans before the web3 era, the task would be quite daunting; the time, paperwork, and data collection necessary to execute such a feat is quite obviously debilitating. Enter royal.

The royal team has spent months designing architecture that we believe will shape the future of music assets on chain, but this initial framework will inevitably evolve over time! Our first LDAs are effectively our product beta test, and we’re excited to give the most loyal members of the community early access :) Music is fundamentally different from visual content both in storage format & how it is consumed — it requires unique tokenization treatment as compared to jpegs, videos, or gifs. To be blunt, collectible music on-chain just isn’t that interesting, likely because the display / listening layer isn’t blockchain native. That is to say, even if you owned a music NFT, you probably won’t be listening to it on ipfs or arweave (at least in the short term).

Royal LDAs are ERC-1155 Tokens that have a suite of features beyond the simple functionality of hosting meta-data that points to media content. As compared to ERC-721, the ERC-1155 standard utilizes a single contract to mint various NFTs, it can also mint fungible tokens, all at reduced gas cost. I’ve outlined the general feature set of the first royal mint below, but there’s much more to come!

LDA Features

  • Provenance / Hashing & Signing the .WAV: One way royal assets prove origination, provenance, and artist ownership (in this case I prove my ownership of the Worst Case audio) is by hashing the highest resolution export of the song, the .wav file that comes straight out of any DAW (digital audio workstation). In this instance I sign that hash with 3lau.eth — my public Ethereum wallet address, as a means of autographing the token. We took inspiration here from the original cryptopunks contract, which contained a hash of the image file of all 10,000 unique crypto punks, as opposed to pointing each token id to an individual image hosted on the decentralized web. In the future, we believe multiple artists & collaborators may want to tokenize their specific rights in a song; this method is can be utilized to distinguish between duplicate issuances of the same record! Check the code for more easter eggs ;)
  • Unique Album Art: The first royal LDA — Worst Case — features 333 unique versions of the original album artwork for the song. We know collectors love to display their ownership, so naturally we’re excited to experiment with multiple visual representations of album artwork as we work with other artists to tokenize their music.
  • But Where’s the Audio? There isn’t an obvious listening solution or display layer for proving ownership of a music NFT. At royal, we care most about artists sharing ownership of their music with listeners & supporters, and that ownership is somewhat distinct from listenability. While there is no widely accepted IP precedent for tokenizing music, record labels, publishing companies and other rights holders could require prohibitive clearances before permitting audio playback in the meta-data of tokens themselves. Artists have many different rights structures, and we are prioritizing the compatibility of royal with as many artists as possible (independent or signed).
  • Utility: Owning royal assets can unlock a number of features for artists in the future. From tickets to live events, to unlockable content, the possibilities are endless. In the short term, both the royal & 3LAU discord servers will have a “Worst Case” exclusive channel that can only be accessed by users who own the asset. Thankfully, the web3 community has built many tools surrounding asset utility, and we’re lucky to integrate a lot of these open source technologies into royal assets in the future. For those who are familiar with my Ultraviolet Album drop, I actually hosted two of the auction winners backstage with me at EDC Las Vegas this past weekend. We’re just scratching the surface of adding real utility to digital ownership!
  • Rights Assignment: The royal team + external counsel worked for months on establishing a precedent for assigning rights in music to token holders. Keep in mind this is just our first take, and these agreements will evolve substantially & take more crypto-native shape over time (signing agreements w/ your wallet etc.). In the future, artists will be able to use royal’s contract architecture to assign all kinds of rights, but we felt an easy first step was focusing on streaming rights, a category that is directly influenced by listeners & easily accounted for. You can find the agreement on the royal.io edition page, and also in the token metadata, but here’s a link for quick reference.
  • Tiers: The first royal assets for Worst Case represent a single tier, but in the future, we think artists will want to mint multiple tiers of ownership in their music with different privileges. Access is a huge part of our mission at royal, and we think it would be unfair to price-out certain buyers from participating in the ecosystem we’re building. Our future tier architecture is another reason why we chose to mint via ERC-1155 on our first pass.
  • Treasury Contract + KYC Whitelist: Royal’s initial contract architecture has 3 components. The 1155 minting contract, a treasury / dispersement smart contract, and a KYC whitelist registry contract. So how do token holders claim their rights in music as songs begin to generate revenue off-chain? When an artist receives royalties from streaming services, they agree to pay token holders’ share into a treasury contract. Holders then have the ability to claim their pro-rata income on a monthly or quarterly schedule (depending on when artist receives payments) In the future, when music streaming creates on-chain revenue, the distribution to treasury contracts will be automatic, and we’re certainly excited for that future; huge shout out to Audius for paving the way! [For the purposes of clarity, royal is building tools to assign royalties that are generated by the content itself on streaming platforms, secondary sales royalties is a separate matter.]

The Future

The team at royal firmly believes in a multi-chain future and we’re building for it! We’ll be sure to keep you posted as we progress in finding the most efficient fit for music assets and their composability. I have to mention, all existing 3LAU & SSX3LAU will share a lot of these features. We’ll be rolling out certain aspects of royal’s contract architecture for all of my existing assets, from Everything & the Ultraviolet album NFTs to Faces & Flux! Stay tuned & thank you for all of your support and for helping us build the future of music in web3!!!

--

--

3LAU

I make electronic music & experiment with fintech.