Music DAO Deep Dives, Pt. 11: How $RAC pushes the boundaries of what’s possible with artist DAOs

By: Yung SpielburgCherie Hu

Published: 2022-03-07

This breakdown is the last part of a members-only interview series focused on artist and label DAOs, as part of Season 1.5 of our ongoing collaborative research on music and Web3. The goal with this project is to make collective sense of the emerging, fast-moving ecosystem of music DAOs — not only giving structure to the current landscape and future possibility space for music DAOs from the perspectives of function, tech tooling and organizational design, but also identifying critical needs in the landscape that are still going unaddressed.

All interviews in these series are conducted and written by members of the Water & Music community, and break down a music DAO’s approach to community design and onboarding, tech tooling, governance, treasury management and more. You can read our previous installments here:

RAC DAO is the community of holders of independent electronic artist RAC’s eponymous social token, $RAC.

RAC (birth name André Anjos) is known as an OG in the cryptosphere, particularly as a true pioneer at the intersection of blockchain technology and music. According to Water & Music’s own music/Web3 dashboard, RAC has released or collaborated on NFTs that have generated over $600,000 in primary sales to date, across platforms including Async, SuperRare and Catalog.

He has also been experimenting with social tokens since 2017, when he released the $EGO token in collaboration with Ujo Music, a former music project under ConsenSys. This was followed by $TAPE, which he launched in partnership with Zora in May 2020 and which buyers could redeem for a limited-edition cassette tape of his album BOY.

Most recently, in October 2021, RAC launched his wide-ranging “community token” $RAC. Originally, $RAC could only be earned, rather than bought, through sustained support of his music across a wide range of channels including Patreon, Twitch, Bandcamp and his online merch store. Shortly thereafter, Zora pivoted to focus on NFTs, and RAC had to migrate his token off their platform.

In February 2022, he worked with HIFI Labs to launch a custom web portal known as “racOS” for his Web2 fans to claim $RAC tokens and access token-gated tracks and other exclusive content perks down the line. That same month, $RAC also became the first artist social token to be available on Coinbase Exchange.

For this project, we interviewed RAC and Jack Spallone, Head of Crypto at HIFI Labs.

Main takeaways

Building horizontal, platform-agnostic communities

In our interview, RAC stressed that a key feature of a social token — or any token, for that matter — is that it is platform-agnostic.

There’s a direct parallel here to our interview with Mat Dryhurst from Holly+, who sees “cryptographic identities” as a crucial component of the definition of a DAO. At large, decentralized, platform-agnostic identities can allow artists and fans to build communities with not only a built-in level of trust, but also actual data ownership and portability — e.g. being able to move playlists and distribute music more easily across platforms, without the need to create separate logins or platform profiles. Recent music-industry news like Epic Games’ acquisition of Bandcamp has raised fears within independent music communities about ongoing industry consolidation, and the need to seek alternative, platform-agnostic solutions for music distribution and community engagement amidst the low-margin economics of streaming.

Upon launch in October 2021, $RAC was gifted to supporters of the artist across both Web2- and Web3-native platforms — including Bandcamp, Patreon, Twitch and RAC’s merch store in the former category, and prior holders of $TAPE and $EGO in the latter category. Using this method of tracking historical patronage on-chain, RAC has now been able to identify his supporters across multiple platforms and eras, as well as delineate varying degrees of support based on dollars spent (editor’s note — yes, there is a stark parallel here with Water & Music’s own $STREAM airdrop strategy). Regardless of where RAC is organizing his fans or releasing content in the future, this stamp of patronage sits a layer above centralized Web2 platforms, and will endure any Web2 site waning or falling out.

Initially, RAC’s token-gated Discord server was made up of fans whom he was attempting to funnel from multiple platforms, ironically, in an attempt to centralize his community in one place. Coming largely from Patreon and Twitch, these fans were largely Web3-illiterate, especially given that so much of RAC’s activity in crypto pre-dates its newfound popularity.

RAC’s “a-ha moment” in designing his Discord server was when he realized the opportunity to approach his community from a less unidirectional, top-down perspective of an artist speaking to many fans at once. Instead, he realized that his server was sustaining itself off of fans interacting with each other; the environment became much more multidimensional, involving more horizontal, artist<>fan<>fan interactions.

“People have a lot more in common than just my music,” says RAC. “The music is the catalyst, but you stay for the conversations about cooking, memes and dog pictures. There’s a shared culture and vibe that happens naturally in the community.”

Importantly, being a member of RAC DAO, by owning $RAC, does not give you voting power of any kind at this moment, nor control of a treasury.

Instead, holders receive other benefits in the form of financial upside due to a fan-made liquidity pool for $RAC, access to a gated Discord server and gated areas of rac.fm and a direct line to future benefits and perks from RAC and his team.

“I think that owning a piece of a community is extremely valuable on its own,” says RAC. “We add utility to these things to pad it out as bonus features, but owning something and having control has value on its own. That’s a core belief of ours, and sometimes that’s not enough for people. If that’s the case, that’s OK — don’t participate.”

The importance of custom tooling and access to developers

What stands out to us about RAC’s journey through Web3 is that many of his Web3-native products rely on custom code. Perhaps as a result of his long-term investment in experimenting with crypto, he has direct access to developer teams who have been willing to build custom experiences around his social tokens over the years.

For instance, $RAC was custom-built by Zora and Coinbase engineers, $EGO was built by Ujo and ConsenSys engineers and $TAPE was a Uniswap automated market maker (AMM) contract with a frontend custom-built by Zora. As mentioned earlier, HIFI Labs drove custom development of the racOS site; RAC also partnered with Decentraland to create a custom event space and club around the site launch, with the top floor of the club open only for $RAC holders.

Among all the artist/label DAOs we’ve interviewed to date, hiring Solidity engineers and other Web3-fluent developers has been a major pain point for many leaders from a talent standpoint. The few artists who have been able to build their own custom tooling and experiences around their tokens are either technically savvy themselves (e.g. Julian Mudd, Holly Herndon/Mat Dryhurst), or, like RAC, were able to get direct access to Web3 devs (e.g. Jonathan Mann’s collaboration with Raid Guild).

Direct, easy access to developers will be a crucial ingredient in helping to scale more delightful and digestible Web3 experiences to a wider range of music fans and communities; at the same time, this is a matchmaking problem whose solutions require many more minds outside of the immediate music/Web3 ecosystem to solve.

Treasury strategy and regulatory challenges

Another takeaway that stood out from our interview is how thoughtfully and intelligently RAC is approaching treasury strategy and diversification for his DAO.

At large, RAC and his team have always leaned into the idea of DAOs supporting, investing in and collaborating with each other on-chain. The emphasis in their mental model of DAOs is on mobilizing DAO “supporters” rather than investors — “support” meaning the purchase of a token with the incentive to invest long-term in a community, instead of a more traditional investment setup with an expectation of short-term financial returns.

The RAC DAO’s treasury is a living example of what these emerging DAO-to-DAO relationships and partnerships can look like. The LAO, an investment DAO that provides Web3-native funding to Ethereum projects, is one of the largest holders of $RAC, via an over-the-counter trade that involved a six-figure dollar-equivalent contribution to the RAC DAO legal entity (not RAC the individual artist) in exchange for an equivalent $RAC allocation. This funding went towards early software development around RAC’s Web3 experiences, and now being a LAO member can make you a member of the RAC community and grant you access to his token-gated experiences.

RAC still owns most of his own token supply, and there are no voting rights with token holders. So, functionally, the main utility of the LAO investment is capital injection into the RAC DAO treasury as well as general data and financial transparency, which is a major selling point for many other music DAOs in our series.

Jack tells us that the opportunity for outside supporters to buy an artist’s token can be a better deal for the artist than the traditional music-industry model of injecting cash in exchange for copyright ownership or revenue share. “Tokens can offer a new capitalization mechanism for artists outside of copyright,” says Jack. “It’s a movement from the traditional loan-shark model of record labels to more of a venture-capital model.” At large, token allocation can also reflect an artist’s business diversity beyond merely serving as a fan club or CRM tool; tokens can also be reserved for large community contributors in exchange for capital, used as equity on a vesting schedule to incentivize an artist’s team or even exchanged in a label deal in lieu of copyright ownership.

The pain points that RAC is coming up against with his token are telling in the terms of the scale of his operation and mission. Many of the other DAOs we interviewed focused on more human coordination and community-engagement problems as their primary scaling pain points. In contrast, with several years worth of a headstart from an onboarding and community standpoint, RAC’s main challenge now is working with regulators to set hard legal precedents for artists’ place in crypto. It took over a year to set up $RAC’s availability on Coinbase Exchange; this is a unique position among artists, not many of whom are talking with regulators directly on a frequent basis.

On-chain patronage, raising funds outside of traditional music-industry structures, catering to superfans in a platform-agnostic way — these are all foundational points of utility that have shown up successfully for artists in the nascent music/Web3 ecosystem. Having the rare benefit of a longer timeline in the industry than most, RAC has been able to zero in on and prioritize these use cases, creating custom tech to support them, and is now fighting to establish legal precedent to scale these efforts for others to follow suit.