This is the latest issue of Sidechain, our dedicated 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. For today’s issue, BlackDave (@BlackDave) curated community discussions and news, while Cherie Hu(@cheriehu) curated database and sales updates.

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

Since our last update, we’ve added over 200 entries of new music NFT drops, accounting for over $300K in primary sales, to our music/Web3 dashboard.

Highlights include:

• 25 new one-of-one drops from Catalog’s platform, for approximately $10.5K in additional sales tracked in our records. Top sales from this list came from the likes of Daniel Allan, MADI, and bloody white.
• 192 new drops from Sound, for a total equivalent of nearly $300K in additional sales. Top sales from this list came from artists like oshi, cornerclub, Mija, and TK, who generated over $57K in USD equivalent sales from his seven-part Eternal Garden drop.
• A new anotherblock drop from Offset and Metro Boomin — which gives each NFT holder a 0.00075% share of master streaming royalties from the song “Ric Flair Drip,” as well as a non-exclusive commercial license to use the attached sound loop and sound pack.
• The debut Async NFT drop from WKSHP, a new collective of musicians and other creators releasing projects in Web3 (co-founded by two of our members, @sydmusic and @brodieconley).

We’d also like to call out a few new funding rounds and exits for music NFT platforms and communities in our database:

• Controversial music NFT marketplace Hitpiece raised $5M in seed funding led by Pelion Ventures.
• Heds, the music community focused on created curated mixes, raised $2.5M in seed funding led by True Ventures.
• Pixelynx, the startup combining Web3 and game mechanics to build new immersive music experiences, announced its acquisition by Animoca Brands.

NEW DECK — Attack Decay Research Release: Mapping community with FWB

In August 2022, Water & Music and Friends With Benefits joined forces to explore the nature of IRL <> URL communities through a collaborative workshop at FWB Fest, where attendees came together to document how they would map the communities they are a part of.

We’re excited to present a new deck that includes all of the artworks generated during our workshop, as well as a retrospective summary of our research findings. We found several repeated patterns and themes in our attendees’ approaches to community representation and engagement — such as kinetic movement, interconnected ecosystems, and self-extension — that could serve as anchor points for community leaders and participants when it comes to designing thoughtful, memorable collective experiences, both online and offline.

COMMUNITY PULSE

Synthesizing conversations happening in the #web3 channel in our Discord server

THE NEWS: Last week, the artist Wayak posted a tweet calling out the music NFT aggregator Ooh La La for allowing people to stream his music without his permission. Since then, a swath of artists making music NFTs have been finding out that their music is being used in dApps (decentralized apps) like Ooh La La, Future Tape, and Spinamp that make listening to music NFTs a better experience than listening directly on marketplaces.

The realizations and subsequent critiques culminated in a Twitter space on Friday evening that lasted over five hours long, plus 300+ messages in our #web3 channel from members debating the discussion in real time.

COMMUNITY PULSE: The debate that ensued in #web3 was so fiery that we had to get AI’s help to summarize the discussion. Our tech lead @aflores had the brilliant idea of running the conversation through ChatGPT to give a summary of the themes:

A really important point to understand is that permissionlessness is a core tenet of Web3 data. Once something is on a public blockchain like Ethereum, it may be accessed by all. In particular, once a song is minted as an NFT, it is technically made irrevocably available to the public, enabling any developer to build their own curatorial or social frontend on top of music NFTs.

That said, copyright law still exists regardless of where artists choose to distribute their music — and the traditional copyright landscape is far from permissionless. For instance, if people are streaming music from NFTs on a Web2 frontend, that could arguably qualify as a “public performance” of that music, for which PROs (representing songwriters and composers) are technically owed a public performance licensing fee.

Hammering out Web3-native licensing frameworks will be crucial to music/Web3’s future, and as this develops, precedent will be set as to the moral and legal aspects of playing music NFTs outside of their original platform of minting.

For more insights, read our report on the growing music NFT aggregator market.

THE NEWS: The full details of the FTX saga have been well reported elsewhere, and are basically guaranteed to be repackaged as a 10-part miniseries dramatization on our favorite video streaming service in the next few years.

To summarize: FTX, formerly one of the top centralized crypto exchanges, has filed for bankruptcy, dragging everyone from individual investors and investment groups to entire blockchains like Solana along with them (highly recommend Molly White’s FTX Contagion chart for a full list of impacted orgs). The saga started when Binance CEO Changpeng Zhao announced that they were going to sell their huge cache of FTX’s token $FTT, causing the market to liquidate their tokens as they knew the price would drop considerably when Binance sold out.

From there, it became apparent how poorly FTX was being run, from mismanagement of funds down to criticism of the lifestyles of everyone involved. The story is still evolving each day — from the whole exchange appearing to be hacked, to FTX sending the Bahamas their Ethereum coffers, making the country one of the largest ETH holders in the world.

COMMUNITY PULSE: Our community lead @KatherineOlivia asked whether this fiasco has had any impact on music/Web3 communities, considering that FTX had close ties to and ambitions in the entertainment industry. Aside from buying rights to an entire arena in Miami (which the city government now wants to remove), FTX also inked a partnership with Tomorrowland, and tried to pursue a $100 million sponsorship deal with Taylor Swift.

That said, our members responded that the fallout hasn’t changed activity drastically — artists are still minting, collectors still buying, developers still building. This perhaps goes to show how Web3 is not a monolith, but rather consists of multiple different sub-sectors and subcultures, with DeFi and cultural Web3 spheres remaining quite detached from each other in their participants and overall mindsets.

It’s worth noting that in the wake of the crypto bear market at large, Web3 companies with a hand in music continue to face layoffs — including Metaplex, which has been working on Solana-native NFT standards for creators, and Dapper Labs, whose Flow blockchain is used by platforms like Ticketmaster, RCRDSHP, and Revelator.

Revisit our report on 2021 music NFT sales trends.

THE NEWS: Several recent music/Web3 news items point to songwriters formally entering the Web3 playing field, in both positive and negative ways.

First, songwriter Luna Aura accused 3LAU of not paying her fair share from his $11.7 Ultraviolet NFT auction. According to Billboard, the songwriter was offered just $25,000 as a flat-fee payment, when she has a 50% royalty stake in the song. 3LAU’s manager Andrew Goldstone says that “there are no set standards for how to approach an NFT project like this, which involved much more than just the music,” and that they’ve been trying to reach an agreement in good faith for months, until talks broke down.

Elsewhere, Pianity and SACEM came to an agreement on royalty payments around the platform’s NFTs. The agreement involves SACEM collecting royalties for the composers they represent from Pianity, which is focused primarily on classical and instrumental music. W&M member and Pianity team member @David explains that “SACEM will have a wallet on Pianity, [that] then does the repartition of the royalties they collected to the rights holders.” He further breaks down the process by explaining, “If the artist is a member of the SACEM and wants to release a song on Pianity, then SACEM will be included in the split repartition and will receive automatically the royalties they should receiving, depending on each track, if there’s an author, composer or publisher behind the song.”

COMMUNITY PULSE: The outcomes of both of these situations could provide a blueprint for how music rights holders should (or shouldn’t) navigate Web3.

As we’ve covered in our previous research, defining what a “music NFT” is in the first place is far from straightforward. Arguably, an NFT does not need to have audio attached to it to be considered a music NFT. In our music NFT sales database, tens of millions of dollars in sales have been generated from NFTs that have no audio, but whose value is still directly tied to an artist, music brand, or music culture at large. The vague definition of a music NFT is at the center of the 3LAU case, which could create a technical precedent for what an NFT represents in the eyes of the traditional music industry.

In the most straightforward of ways, @danfowler says that for 3LAU’s NFT drop, “a thing was sold that used music to sell it. The quotes indicate a buyout, but $25K on $12M is a bad bad bad look.” Even though what’s legal and what’s right aren’t always in alignment, the outcome of this case will ultimately come down to the contract between parties involved — and could potentially create the perfect ammo for rightsholder CEOs to argue their necessity in Web3 and NFTs.

IN OTHER NEWS

Contextualizing music/Web3 news you may have missed

Future Tape founder and W&M member Anthony Volodkin (@fascinated) shared that he is now tracking what percentage of songs on Catalog, Sound, Zora, and Nina are also on Spotify. As shown in the above screenshot, Catalog and Sound have the highest proportion of their minted music NFTs on Spotify at around 40% each, versus only 26% for Nina NFTs and 10% for Zora music NFTs. If these percentages increase over time, the trend could have all sorts of potential future implications for the music/Web3 landscape as a whole, especially around rights and various music collaborators’ claims to NFT revenue.

Mint Songs co-founder and W&M member Garrett Hughes (@_garrethughes) posted a Twitter thread of user data from the now-shuttered music NFT platform. The thread contains some potentially useful insights for other music/Web3 developers and analysts, including Mint Songs users’ device and browser activity (mostly desktop, and mostly Chrome) and the importance of marketplaces vs. user/artist profiles in driving discovery. Perhaps the most salient data point in terms of sizing the music NFT collector market: At its peak, Mint Songs had under 2,000 monthly active users.

Warner Music Group partners with Polygon and LGND to roll out a platform that will allow users to play “digital vinyl” on the go. While LGND Music will be a multi-chain platform, Polygon is working as the main partner. At large, Polygon has positioned itself as the partner of choice for mainstream brands looking to onboard massive user bases into Web3, with other customers including Starbucks, Nike, and Reddit. That said, our community members have mixed reactions to Polygon, claiming it feels spam-ridden and less trustworthy than Ethereum Mainnet.

CreateOS (founded by W&M member @DAOuda) has launched Droplink, a new app that connects wallet addresses to streaming pre-save activity. In the last edition of Sidechain, we covered the rise of Web3 presave strategies as potentially one of the first steps toward getting everyday music fans acclimated to Web3, in a way that removes Web3 itself from the conversation. Droplink launched with a landing page for the latest Nas album, King’s Disease III; it’s not too late to get connected and see the flow for yourself.

Warpsound has developed a new music album NFT metadata template that treats the NFT artwork itself as an interactive album player. Setting this up was previously very difficult to code, leveraged only by artists who had access to the developers who could make it happen. The launch spawned some conversation in our community around whether artists would actually prefer this method of bundling multiple songs into a single NFT, over just minting individual NFTs for each track. As Warpsound founder and W&M member @_jeffnicholas_ tells us, this current implementation is just a V1, and thatthe ideal long solution would be that each song within the player is also its own individual token that the player can pull from.

W&M member @Bitwax shared that a Web2 record label they worked with received a contract from a music NFT marketplace that would require a three-year lock-in period. @Bas Grasmayer points out that it is far too soon for these clauses to happen: “We’re nowhere near the market maturation stage where it would pay off to play zero sum competitive games.” Restricting artists’ and labels’ freedom of movement across the Web3 landscape feels predatory, and reminiscent of practices that many acts who have entered Web3 are trying to escape in the first place.

Coinbase Wallet users can no longer send NFTs to each other on iOS, as Apple allegedly wants to collect a 30% cut of the resulting gas fees. This is a surprising instance of misunderstanding on the part of Apple on how decentralized blockchains work, as Coinbase not only does not collect gas fees as revenue, but also has zero control over Ethereum’s gas fees at any given time.