Tokenized Royalties

VeradiVerdict - Issue #163

  • Of the $40 billion in annual revenue earned by the music industry, only 12% is actually paid out to artists. The remainder goes to institutional middlemen like agents, platforms, and record labels, unfairly cheating creators out of the fruits of their labor. Moreover, fans, whose engagement almost entirely drives these revenue streams, are given no stake in or opportunities to engage with the music production process. 

  • Royal is a new platform that enables artists to crowd-fund creative projects using smart contracts that pay backers (holders of tokens called limited digital assets) with a share of the project’s earnings from royalties. Royal centers its approach around three main functions:

    • Simplified and compliant minting and selling of limited digital assets (LDAs), which fans can initially purchase to support creative projects

    • Collection and payouts of royalties, including a share to LDA holders to reward them for their dedication and engagement

    • Facilitating a secondary market for LDAs, allowing LDA holders to trade tokens from different creative projects with one another, creating a vibrant economic ecosystem around media ownership

  • Royal is also building a suite of tools to help creators leverage LDAs as a primitive for engagement, by granting special privileges, enabling direct communication access between fans and creators, and more. By framing LDAs dually as an economic investment and as a piece of the fan community, LDAs more fully capture the intangible, social value of art. 

  • The project is currently securing partnerships with a number of undisclosed high-profile artists, and plans to let fans begin backing music productions in October. After building and validating a product around music ownership, the team plans to expand their approach to other royalty-generating assets––both digital (TV licensing, YouTube content creation, etc.) and physical (land mineral rights, patents, etc.). 

  • Royal was founded by 3LAU, a well-known EDM artist who sold a tokenized album that grossed $12 million in a single day, and JD Ross, former co-founder of Opendoor. The project has raised $16 million in seed funding from Founders Fund, Paradigm, and more. 

  • Ultimately, Royal represents a paradigm shift towards centering artists and their most dedicated fans in the process of digital media production by removing the need for self-interested middlemen, enabling artists to rely on devoted, incentive-aligned backers, and generously rewarding highly-invested fans for their support.

The Blind Spot of Royalties

A dominant business practice in digital arts today is the collection of royalties, where creators charge consumers (or often, the hosting platform) a small fee for use or consumption of their assets. Digital media is often easily reproducible and widely available, meaning it lacks the intrinsic quality of scarcity that drives the value (and collectable revenue) of many physical objects. Royalties have enabled artists to earn long-term, stable revenue from digital media through the licensing of original work. 

Sadly, the distribution of royalties today cheats artists in favor of the middlemen that distribute and platform their work. Of the $40 billion in revenue earned by the music industry annually, just a slim 12% makes its way to artists. It’s not just the small artists who are taken advantage of either––in a famous tweet, Kanye West revealed that he receives only 18% of revenues on his first 5 albums per his contracts with Universal Music Group (UMG). 

Fortunately, this unfair revenue distribution today may simply be a vestige of outdated, inefficient business models designed by increasingly irrelevant institutions. Thanks to streaming, record labels like UMG and Sony Music play smaller and smaller roles in the process of music distribution and platforming. Additionally, artists are being discovered by fans earlier in their careers, and fan communities are growing more and more engaged, allowing artists to source support––including funds––from dedicated backers that share their best interests. The time is ripe to put creators and their communities first. 

What is Royal?

Royal is a platform to crowd-fund creative projects using smart contracts that provide backers with a share (or royalty) of the project’s earnings. It disrupts the highly-institutionalized business model of the music industry today, in favor of one that rewards artists earnestly for their work and dedicated fans for their support.  

How does it work?

Royal aims to redefine how artists and fans can profit from music in three ways:

  1. Simplified creation of limited digital assets. Royal’s protocol includes a service that helps artists compliantly mint and sell limited digital assets (LDAs) for any kind of digital media in exchange for a small origination fee. Fans can purchase LDAs in the initial sale as a way to “back” the artist’s project. 

  2. Automated and efficient collection of royalties. Royal’s smart contracts will automatically collect and distribute royalty payments, handling everything from conversions between fiat and on-chain tokens to paying out shares of royalty revenues to LDA holders. Royal collects a small share of royalties as a platform management fee. 

  3. Creation of a secondary market for limited-digital assets. Holders of formerly-issued LDAs can trade LDAs with one another, creating an entire ecosystem of value around an artist’s work and their supporters. This also creates additional business opportunities for Royal to facilitate LDA market making and for artists to earn residual profits from token resales. 

Beyond these key functions, Royal also intends to release a full suite of creator tools to help creators leverage LDAs as a way to drive engagement with fans, through special privileges, direct communication access, and more. By centering LDAs as a primitive for engagement, Royal’s model captures even more of the vast intangible value produced by art and the communities built around it. LDAs function dually as an asset in a portfolio and a rare item in an art collection. 

The Royal team is currently securing launch partnerships with a number of undisclosed top artists. Fans will likely be able to begin backing productions with LDA purchases in October of this year

Beyond Just Music

Unfortunately, unfair distribution of royalties is not just limited to the music industry; these practices appear across video streaming, YouTube content creation, TV licensing, independent film productions, and more. After building and validating a baseline product for musicians and their fans, Royal intends to disrupt these other digital media verticals as well. 

Who’s behind the project?

Royal was founded by 3LAU, well-known EDM artist who sold the first-ever tokenized album (Ultraviolet) which grossed nearly $12 million in a single day, and JD Ross, a former partner at Atomic Ventures and co-founder of Opendoor

The project has raised $16 million in seed funding from Founders Fund and Paradigm Capital. 

Final Thoughts

The cardinal promise of decentralization has always been to reduce the power of institutions and return more value to individuals. The music industry has long suffered from highly-predatory business models, where artists must relinquish exorbitant shares of their profits to massive institutions like record labels and distribution services, just to be able to create and release music. Fans, whose engagement almost entirely drives the revenue streams of the industry, are left in the dust and receive no reward for their dedication. 

Royal presents an innovative business model that puts artists and their most dedicated fans at the center of music production, enabling artists to rely on devoted, incentive-aligned backers to support creative projects, and rewarding highly-invested fans for their support. By integrating fan communities into the production process, Royal synergizes the intangible, social value of music with the tangible, monetary value of its consumption into a single tradable token. Ultimately, Royal represents a tectonic shift in the ways that digital creators and their communities can fund their creative efforts and reap its rewards.

- Paul V

Share


DIGESTS

An In-Depth Look Into the Lightning Network as a Bitcoin Scaling Solution

CoinDesk Research presents its latest Bitcoin report on the aspirations of the Lightning Network to scale Bitcoin.


NEWS

Nader Al-Naji (Formerly Known as ‘Diamondhands’) Unveils Long-Term Plan for BitClout Blockchain

DeSo, short for “decentralized social,” is backed by major venture capital firms.

Custodian Cobo Wallet Closes $40M Series B to Expand Institutional DeFi Offerings

The firm wants to expand its so-called “DeFi as a Service (DaaS)” product.


REGULATIONS

Biden to Nominate Crypto Critic as Top Bank Regulator: Report

Cornell University Professor Saule Omarova has criticized cryptocurrencies in the past.

Leaked Slides Show How Chainalysis Flags Crypto Suspects for Cops

Walletexplorer.com, a block explorer site secretly operated by Chainalysis, has provided law enforcement with “meaningful leads,” the documents say.


IN THE TWEETS


NEW PRODUCTS AND HOT DEALS

Goldman, Coinbase Back Crypto Fund Manager One River Digital

One River Digital Asset Management, a startup cryptocurrency-fund manager backed by Alan Howard, raised $41 million from new investors including Goldman Sachs Group Inc. and Coinbase Global Inc.

Ethereum-Based Fantasy Sports Platform Sorare Raises $680 Million, Second Largest Round In Crypto

The Paris-based fantasy soccer game and non-fungible token (NFT) trading platform has raised $680 million in Series B financing, led by Japanese conglomerate SoftBank, at a valuation of $4.3 billion.


LETS MEET UP

Mainnet 2021, New York City, Sept 20-24

Coffee meetings or walks in San Francisco


ABOUT ME

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. I’ve been in the industry since 2014, and the firm invests in equity, early stage token projects, and liquid cryptocurrencies on exchanges. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.