This is the latest issue of Sidechain, our dedicated biweekly newsletter for music and Web3. The overarching goal of the newsletter is to capture the W&M community’s unique, early-adopter, critical pulse on the music/Web3 landscape, backed by ongoing reporting from our Web3 research team that you won’t find elsewhere. We’ve recruited BlackDave (@BlackDave) to help with curation of community discussions and music/Web3 projects, alongside our database lead Brooke Jackson (@brookejaxon)

You can read more about the motivations behind launching this new vertical in the inaugural issue of Sidechain, which was published last month. If you have any feedback on this new format, please reply directly to this email or reach out to us at members@waterandmusic.com — we’d love to hear from you.

OUR LATEST WEB3 RESEARCH

This section recaps our latest music/Web3 research activity. Dashboard updates are maintained by W&M core team member Brooke Jackson.

Since the last issue of Sidechain, we have added just under 100 new music NFT drops and generative projects, equating to more than US$950K in primary sales, and seven additional Web3 startups and platforms to their respective tables in our music/Web3 dashboard.

Highlights include:

• The David Bowie Estate’s first-ever NFT sale, which dropped on OpenSea on September 30 and so far has garnered about $165K in USD equivalent sales, the vast majority of which ($127K) came from the one-of-one edition, “Bowie” by artist FEWOCiOUS.
• omgkirby x Channel Tres’ collaborative release of 5,550 generative music NFTs (notably, this drop used OpenSea’s new minting experience SeaDrop, which allows for projects and creators to set up their own dedicated drop pages).
• 24 new one-of-one sales from Catalog’s current platform, for approximately $23K in additional sales tracked in our records.
• 29 new drops from artists using Sound, for a total equivalent of $64K in additional sales in our database.
• Additions of recently-funded NFT platforms Minteo ($4.3M from investors that included Open Sea Ventures, amount others), Supermassiv ($1.2M closed in Q1 2022), and StemsDAO ($4M closed this week).

As a reminder, you can submit any music NFT drops or platforms we may be missing from our database, from any point in time, by filling out this Airtable form. All accepted submissions are eligible for 10 $STREAM as contributions to our research, with token allocations distributed on a roughly quarterly basis.

NEW ARTICLE: A NEEDS-DRIVEN APPROACH TO MUSIC NFT METADATA

For our latest season-agnostic Web3 research drop, longtime W&M member and contributor @danfowler led a community-driven project to iron out a needs- rather than standards-driven approach to developing a music NFT metadata schema.

Our approach prioritizes active use cases in music/Web3 (with a focus on curation, streaming, social, and analytics), while taking a more minimalist stance on data requirements compared to a more standards-driven angle. This way, we can foster more of the creative, boundary-pushing experimentation we are witnessing in the music/Web3 ecosystem today, while ensuring sufficient interoperability, synchronicity, and continuity among future experiences built on top of music NFTs. The article also examines the usefulness of universal identifiers for media and the entities involved in NFTs, as well as the rights and licensing involves in music NFTs and how this affects platforms, artists, and rights holders from a metadata perspective.

COMMUNITY PULSE: Future Tape joins Zora, the mass adoption debate, and a new case study in royalty-backed NFTs

This section synthesizes conversations happening in the #web3 channel in our Discord server, and is written and curated by @BlackDave.

Soundtrack for writing this section: Mr. Morale & The Big Steppers by Kendrick Lamar, Keep It like a Secret by Built To Spill, and Entergalactic by Kid Cudi.

THE NEWS: Future Tape, the NFT streaming app by our community member @fascinated, makes a new home under the Zora umbrella. According to @fascinated, very little will change in terms of Future Tape’s ultimate vision: “the broad plan is the same – make a high quality experience around the music nfts out there + support the broader space (artists, collectors and various platforms doing great work). but now i have a whole day to do it + access to this cool larger team.”

COMMUNITY PULSE: While our community was by and large excited by the news, some members questioned whether leaning into streaming as a zero-profit game was actually a win for the music industry — considering how much of the rhetoric around Web3 music poses it in opposition to streaming economics, not to mention the eternal battle of ensuring the tracks uploaded to the player are copyright-compliant. (It’s worth noting that, for now, Future Tape relies on tracks from specific NFT platforms like Catalog and Sound that each heavily vet artists, so it’s unlikely that any unlicensed material will crop up there.)

In this vein, @seaninsound pointed out that he’s “baffled to see so many people talking about free streaming as a victory.” Later on, he added: “Having to find one person to buy an mp3/wav/flac as an NFT for £300+ to justify everyone being able to stream it royalty free, feels like a broken system. […] I spend most of my time talking to musicians who’re finding it impossible to cover even their basic costs and I don’t see how a lot of the headline grabbing activity in web3 is helping them in the short or long term.”

In response, @tom__k, who works on the music NFT aggregator SuperCollector, believes it is “necessary to look at it from a ‘great reset’ perspective” and “for most not-huge artists streaming income is negligible and if it has to (temporarily) be sidelined in order to pursue a more idealistic future (alongside it), it’s worth exploring (imo, as an artist).” From an artist’s perspective, @BlackDave (disclaimer: me!) alsonoted that, as a crypto-native artist, the streaming-as-exposure dynamic works pretty well for him, at present: “I’ve always thought “my NFTs aren’t supposed to have the content hidden” and in many ways I worry about chasing every penny and if it’s worth it, mainly in the streaming of music NFTs sense. Obviously there are situations where the chase is worth it but I just wonder if chasing every penny at every turn is the right move.”

Behind the question of financial sustainability of a Future Tape-type model is a bigger issue of how widely adopted these niche music players can actually be, given the overwhelming dominance of Spotify, Apple Music, et al. But as @fascinated#6969 notes, even modest success would go a long way to increasing the variety of music consumption modes on offer for music fans: “regarding the general ‘will it scale’ vibes above, it’s always a good question but also good to remember that big label ppl would say that bandcamp doesn’t scale and is not a mainstream music service… for me, if music nfts have any scale comparable to bandcamp, that would be a big success.”

THE NEWS: There was no particular news that triggered this discussion, so much as a general observation about the lack of a clear strategy (or even desire) from many artists or Web3 music platforms to broaden their user base to a wider group of fans, outside of more niche or wealthy collectors.

COMMUNITY PULSE: The question in the above header, first posed in our community by @houndtrack, sparked wider discussion around collector motivation in web3. As web3 and NFT technology continue to flourish, finding collector motivation will be important for sustaining the market’s growth — especially given the rather small current state of the music NFT collector base, which sits anywhere from several hundred to a few thousand collecting wallets depending on whom you ask. Easy-to-use user interfaces and pointed discovery, aggregation, and curation will be crucial for providing a smooth, simple experience that larger fan bases will want to stick with.

Here are some answers from other community members about what it will take for music NFT adoption to continue and scale:

“I think you can tie in ‘collectibility’ with ‘scarcity’ and ‘desirability’ which I think points to people who actually need (to enjoy) music in some way” – @magmacrater

“It’s a combo. Most collectors care about NFTs. The big brain answer is what’s in your wallet represents your interests (that’s false because everything is financialized) — wallet as identity is the long goal.” “When you think about NFTs as the books on your bookshelf or the clothes in your closet you can align with the identity aspect.” – @BlackDave

“Until there’s a super badass app for listening to music onchain, I’ll be more excited about music related collectibles which aren’t necessarily tied to the song file itself” – @houndtrack

“It’s not that far off from expressing identity through burning cds and sharing playlists” & “I’m not sure I fully understand the concept of collecting mp3s. Much more intrigued by new collectible primitives that web3 can unlock” – @stokebuilder

“i think what’s interesting about the music nft space is that you can create and sell and object+experience that is different+richer from what is on spotify. putting all the media together would make this impossible” – @fascinated

“Eventually there’s gonna be 10s of thousands of music NFTs minted every day though like was said in Vérité & Black Dave space today – for people that love to dig (those of us that were on hypem SoundCloud and spotify all at once etc) … eventually tools / ways to help sift through it all and not miss a gem may be appealing. How those discovery mechanisms are constructed is what needs to be rethought.” – @athena

THE NEWS: DannyBoyStyles, producer for The Weeknd, released a royalty-backed NFT of The Weeknd’s 2015 song Acquainted on anotherblock. This release, first surfaced to us by @fascinated, is notable at least because of its terms and conditions. DannyBoyStyles dropped 400 editions of an NFT, each of which represents 0.0025% of the royalties from the song. Each sold for .085 ETH, totaling 34 ETH (~US$45,000 at the time of publication) in primary sales. @epetem estimates a 7-year time horizon to recoupment of around $108 per person.

We’ve covered the rise in popularity around royalty-backed NFTs in our previous Web3 research, covering startups like Royal and Decent. Importantly, though, anotherblock also occasionally works on projects with other parties apart from the main artist who hold rights to songs, such as songwriters and producers, as opposed to working with the main artists directly (who can be notoriously hard to lock in, primarily because of pre-existing agreements with other rights holders). This practice of buying and selling partial revenue shares in back catalogs has precedence in the “pre-Web3” music industry, with the likes of Royalty Exchange and Sound Royalties having facilitated this marketplace dynamic for the past several years.

COMMUNITY PULSE: While royalty-backed NFTs might be one of the great promises of music/Web3, few have actually broached this use case due to the legal complexities involved, particularly the possibility that these NFTs are considered securities by the SEC and other securities-related agencies around the world.

Some of our community members voiced this regulatory concern. Fortunately, anotherblock ambassador @LukaSp chimed in, laying out the securities conversation as follows: “You are buying a sub asset to an intellectual property (copyright) which is defined as an intangible asset and thus, a non-financial asset. The complexity here is whether the economic rights should be viewed as a financial asset or not which has not been defined.” anotherblock tells us separately that they are closely monitoring the legal landscape and will adapt as it changes.

This section compiles and contextualizes music/Web3 news you may have missed, and is written and curated by BlackDave.

Hot Protocol Fall

• Sound Protocol launches and deploys their first releases. In a Twitter thread with an accompanying Mirror post, Sound.xyz lays out their next phase, integrating a protocol into their structure. WIth this announcement, anyone can mint using the Sound smart contracts. They will still be onboarding artists to the front-facing Sound.xyz platform for curated drops, but with this addition, anyone can mint an NFT using their smart contracts. The contracts, as they were before the protocol, are artist-owned, with the primary difference being that each individual song will have its own contract. Sound started implementing a 5% fee for primary sales on their front-facing platform in order to fund continued development. Over the next few months, Sound will be working to integrate the protocol into the application layer; in the meantime, they have partnered with Bonfire to work on their first bespoke drop with Reo Cragun, netting the artist 10.989 ETH (~14,670.32 right now)
• Decent Protocol is announced by its namesake music NFT platform, Decent. Per their Mirror announcement post, the protocol is intended to be “a toolkit developed for artists to build on-chain through new contracts that capture value, encourage community growth, and incentivize collector engagement.” Alongside this, Decent releases the Creator HQ, a self-service backend for creators to deploy the contracts of the protocol in a no-code format. Upon deployment, a minting page is also created for the new contract. As music artists using Web3 continue to move toward releasing through their own custom websites, products like Decent Protocol will gain their footing and new users.
• Reveel Protocol is announced, focusing on on-chain splits. The highlight of the announcement is Tiers, which is a split that is able to change at certain thresholds of received ETH. This widens the scope of uses for splits, especially entities like labels and investors, where they’re able to recoup automatically through the contract with the artist receiving the full share after a certain threshold.

Rugs & regulations

• Yuga Labs is part of an SEC investigation into whether Bored Ape Yacht Club NFTs are like securities in how they are bought, sold and traded. A spokesperson for Yuga has said: “It’s well known that policymakers and regulators have sought to learn more about the novel world of Web3 … We hope to partner with the rest of the industry and regulators to define and shape the burgeoning ecosystem. As a leader in the space, Yuga is committed to fully cooperating with any inquiries along the way.” This is a legal case to follow given how tightly coupled BAYC is with the mainstream music industry, including but not limited to Universal Music’s Kingship group and the widening roster of celebrity collectors of BAYC NFTs.
• The SEC charges Kim Kardashian $1.26M after promoting cryptocurrency EthereumMAX. In 2021, Kim Kardashian was paid to promote a cryptocurrency, EthereumMax in an #ad story on her instagram profile. Despite using the #ad disclaimer, Kim is still being sued by the SEC and has to pay $1.26M in damages for not properly disclosing the advertisement. According to SEC chair Gary Gensler: “Under U.S. law, people who tout a certain stock or crypto security need to disclose not only that they are getting paid to do so, but also the amount, the source and the nature of those payments.” Having a high-profile individual go through this legal process serves as a warning to influencers looking to promote cryptocurrencies, including music artists.
• CNN’s NFT project Vault calls it quits in an announcement posted on Twitter. Vault says they started as a six-week project, although having a roadmap that spans much longer than six weeks, that had grown to much more, but they will no longer be developing or maintaining the community. The NFT community at large feels like the project was a rug pull, not delivering to the collectors of the project.

Major music brand moves

• Former Roblox music chief joins Napster as CEO. Jon Vlassolpulos, formerly the Music Chief at Roblox, one of the leaders of the metaverse as we know it, has joined Napster to lead their Web3 efforts on the Algorand blockchain. With this news comes the announcement of Napster Ventures, the venture capital and artist fund run by the company. This move gives power to Napster to be able to invest in and purchase more cutting-edge companies that may be of benefit to their legacy brand. (ICYMI, Napster was previously acquired for $70M by the music/VR startup MelodyVR, and has gone through a lengthy rebranding and restructuring exercise ever since.)
• Warner Music Group partners with OpenSea to continue expanding into Web3. Per the Warner Music press release, “WMG artists would get early access to OpenSea’s new drops product, along with improved discoverability, personalized storytelling on customized landing pages, and OpenSea’s industry-leading safety and security features.” This announcement points to WMG receiving preferential treatment from the platform, which could point toward a version of history repeating itself with labels receiving special treatment over independent bodies. That said, it’s also potentially a step toward mass adoption as WMG continues to partner their way to more tools and services for their artists.
• Hume, owner of the Web3-native avatar artist Angelbaby, raises $11.7M led by TCG Crypto. WIth newfound funding, this is an opportunity for Hume, and Angelbaby, to continue building the avatar artists in digital and IRL scenarios. In a time of uncertainty around avatar-based musicians, especially around the FN Meka controversy, this news potentially bodes well for the future of their acceptance.