Music DAO Deep Dives, Pt. 9: Good Karma Records' vision for a Web3-native, multi-token record label

By: Aniket RajgarhiaLevi Downey

Published: 2022-03-03

This breakdown is part of an ongoing, 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. Core contributors lead weekly, members-only research calls every Wednesday in our private Discord server to dive deeper into takeaways from these interviews.

You can read our previous installments here:

Good Karma Records (GKR) is a record label DAO founded by the artistGrady Lee. Since raising 20ETH from 76 backers in November 2021, GKR has distributed its $KARMA governance tokens and voted on their first artist signing, Daz Merchant.

Grady created GKR in an effort to flatten the power structure of the current music industry. Having found success as an artist with music NFTs, Grady decided to lead the charge and create a Web3-native record label DAO run by and for music creators.

For this project we interviewed Grady and GKR Community and Product Manager Robert St. Thomas.

Key takeaways:

On “why DAO?”

Grady and Robert highlighted community-based decision making as a key difference between a DAO and traditional record label. They define a DAO as an organization with decisions being made more horizontally than vertically and a priority of passion over profit. “Traditionally at a label, it would be a few people in leadership deciding who gets signed. With a DAO, you can have hundreds or even thousands of people making that decision. Community engagement is taken much more seriously,” says Grady.

As Grady sees it, by putting the control in the hands of “thousands of people who give a shit, and not a handful of people trying to find the most lucrative means for themselves,” GKR aims to flip the power structure because they believe that “this is how an artist’s support should be.”

According to Grady’s launch post on Mirror (emphasis added):

It’s time for a convergence between fans and the artists they supported. After setting the record for highest sale on Catalog, I realized that Web3 was going to be the place where this could finally happen. Web3 is where artists thrive and fans are a real part of their growth. I’ve watched friends go from delivery drivers and sleeping on couches to crying tears of joy as they sold their first NFTs.

Many other DAOs we’ve interviewed, including but not limited to Songcamp/Elektra, have expressed a similar sentiment of blurring the boundaries among artists, fans and compensated DAO contributors.

GKR plans to ensure that the folks supporting the DAO with their time, energy and money are compensated for their efforts, whether that be in the form of tokens or other perks. This ethos seems to have resonated as they currently have more than 750 members in their Discord server, with a growing group of core participants.

Their community skews toward the Web3-savvy, but they are hoping to help make the onboarding process easier for folks new to the technology, even if this process can be relatively expensive. To engage with their community, they run music listening sessions in their Discord server on Fridays and Twitter Spaces on Tuesdays. One strategy to build awareness and lower the barrier to entry is to run public events; they have run three showcase events so far, and the attendance tends to be a healthy blend of Web3-natives and folks completely new to the ecosystem. Their upcoming event plan includes a monthly showcase specifically focused on artists coming from historically underrepresented backgrounds.

While these events so far have helped onboard a few new people into the community, they did express the desire to build resources for more hands-on learning by helping people set up a wallet and buy their first NFT. Robert, who comes from a product and project management background, brought up an idea to create a mockup version of the current tools so a new entrant to Web3 could walk through the steps of creating a MetaMask, sending ETH and buying their first NFTs without the risk of wasting gas or making other costly mistakes during the initial learning phase. At large, GKR plans to onboard members to Web3 technology in a “soft” manner by incorporating Layer 2 tech, distributing POAPs and setting up projects to educate the community.

While helping expand the community and educating folks on Web3, GKR remains focused on two primary outcomes, as Robert explains: “[1] that the artists are taken care of, and [2] that they are creating awesome experiences for people.”

On governance

GKR currently only has one token type ($KARMA) and uses token-weighted voting for key DAO decisions. However, the team has expressed concerns about the current weighted voting model. Both Grady and Robert recused themselves from the vote to sign Daz, as the two team members are majority token holders and wanted the vote to be truly a community-driven decision. However, they do acknowledge the need for a more sustainable solution.

Going forward, they’d like to see more artists as token holders. “The artist should be the one capturing the value of the work they’re creating,” says Grady. But they also want to encourage only folks who are aligned with the long-term goals of GKR and actively participating, as they both pointed out the tokens don’t really mean much if the holders aren’t actively engaged and voting. GKR hopes for high community engagement and voters reaching high levels of consensus during community decision processes. This is something they achieved in the vote to sign GKR’s first artist, Daz Merchant. According to GKR, 93% of all $KARMA holders voted in the motion.

Currently, $KARMA holders have voting privileges on matters such as DAO treasury fund allocation, new artist signings, artist showcase lineups and some marketing decisions. While seeing value in a flat decision-making process, Grady and Robert did point out a need for some centralized decision-making to keep momentum moving forward. For example, deciding on how to run the logistics of a new showcase, negotiating with venues, some merch decisions, etc. will likely remain with the core leadership team.

Additionally, they plan to move the primary function of $KARMA tokens toward purely governance and DAO operations, as they explore ways to share the value generated by the label with the internal contributors as well as potential outside investors. To accomplish this, they plan on organizing their efforts into five token types outlined in this Miro document:

  1. Governance token only for governance decisions
  2. Utility tokens for a yet to be decided “utility”
  3. Artist tokens representing support for individual artists
  4. Song NFTs for individual songs
  5. PFP tokens for fun and fundraising

In working with Web3 membership startup Passage on the above token structure, Robert says GKR is de-risking and segmenting their assets in this way to give “more granular control over production of utility.”

This structure also helps GKR stay committed to one of their core values of striving to limit DAO ownership stakes to no more than 5% of total token supply by any one individual. For example, individuals can purchase a maximum of only 50 governance tokens (0.05% of total supply). Similarly for voting purposes, GKR initially plans to limit the number of $KARMA governance tokens to 50 per entity and reduce that number over time as more people join the community.

On bridging Web2 and Web3

A challenge the team ran into early in the process of forming GKR is the winding path to bring Web3-managed music into the current Web2 ecosystem. While there are plenty of stern words to be said about Spotify and other DSPs, they are still very much the dominant place to engage with music, and GKR had to find a way to distribute there as well.

To close the loop between traditional distribution channels and their Web3 tooling, they created label and publishing LLCs attached to a bank account. The LLCs are owned by the founders of GKR. Therefore, there is a foundation of trust the DAO members must have in the founding leadership team, as there is no formal legal relationship between the DAO and the LLCs.

One goal of the initial GKR crowdfund was to liquidate the ETH into USD so the LLC could spend the money on operations, marketing, etc., but the tax and legal concerns of this approach did slow down the process enough to prompt a painful reminder of the volatility of ETH. On November 15th, 2021, the day the crowdfund ended, the price of ETH was hovering around an all time high of about $4,800. Between that time and when the legal and tax concerns were settled a couple months later, the price almost halved — effectively reducing the treasury by about $30,000 before the funds could be converted to USD.

Since GKR has already been approached by VCs, they are asking themselves how they will maintain decentralization and community governance if and when they take on more external money. GKR anticipates facing many challenges and potential rug pulls as they forge onwards, but are confident that the culture they are creating will be the driver for their long-term success.

On Web3 tooling

While they see themselves as “a Web3 company that operates within Web2,” as described by Robert, GKR sees Web3 tools and protocols as enablers of their core mission. Abstraction seems to be the key here.

“We didn’t start talking about Web2 until there was Web3. We just called it the internet,” says Grady. “Eventually, Web3 is just going to be [perceived as] the internet. It’s about not forcing it down people’s throats, [it’s about building something] that makes the Web3 stuff secondary; that it isn’t [attaching a label of] ‘you’re a crypto person’, you’re just a person that is using the stuff that makes the most sense… People are too focused on the technology [of Web3]. In actuality, the technology has to come after you’re already doing something magical.”

That said, in order to overcome tech challenges and meet their objectives, GKR is looking to bring on a full-time Web3 development team to build the tools they need natively. According to Grady, GKR is at least four to six months out from creating their own label DAO tools saying, “We are riding off of other people’s creations right now. We are so grateful for the teams at Sound.xyz, Mirror and Catalog, and for the people that have built things that make stuff like this possible for us.”

GKR currently uses Trello’s project management software, but is looking to find more decentralized ways of coordinating work for the DAO. This would involve identifying and performing tasks that need to be done, namely creative work that supports their roster of artists (merch design, photography, promotion etc.) as well as day-to-day DAO operations (designing processes, writing SOPs, etc.). Apart from Discord, GKR envisions their website to be a central hub for governance and minting tokens. This would include Snapshot voting for community decisions, as well as minting artist NFTs and utility tokens.

GKR is currently in the process of building a Discord bot that could automate the token buying process to help save time on the admin task of airdropping tokens. In an ideal world, the process would allow anyone to buy tokens with a hard limit on the maximum tokens each person can hold, to protect GKR from potential Sybil attacks while maintaining their 5% max governance share principle.

On pain points, ideas and recommendations

Most of the challenges articulated by Grady and Robert stemmed from the lack of Web3 tools.

One pain point was sending tokens to campaign backers. The process is currently quite manual, and somewhat separated between the project funding and the token distribution as two separate steps. They would also love to see a more streamlined NFT minting process that would support a quick and easy way to mint an NFT at live events, as well as cheap and easy ways to do royalty splits for NFT holders.

It was clear that effective communication is also a big priority. Robert emphasizes providing the community with enough time and information to make decisions. For example, for a given proposal, the community needs to know what they are voting on, how long the voting window will remain open, what data is available for them to consider and how the DAO’s treasury funds will be used. However, he also acknowledges this can be a double-edged sword that might slow down the pace of operations for decisions that need to be made and acted on quickly.

When asked what they would recommend for folks embarking on a similar journey, Grady and Robert both put an emphasis on community-first approaches, and suggest finding the people who are most engaged and really focus on supporting them quickly so they can get even more engaged. The founders compare running the DAO to bowling: Let people bowl but put up the gutters, so that no matter what happens, they’re always going to hit a pin. The founders see their job as articulating a clear vision and setting group morals, which form the guard rails for the community.

“Don’t try doing too much on your own,” Grady adds, “You need to find a way to create value for everyone you onboard, but don’t spread yourself too thin. Let the people best suited do the things they do better than you. People will step up, they want to help out, so give them a path to get involved.”