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Background
Mint Season 4 episode 30 welcomes Justin Blau, who’s an American DJ, electronic dance music producer, NFT pioneer and one of the most cited and recognized thought leaders in web3.
Justin is on a mission to revolutionize the music industry. He’s been on this path for years now, but more recently started Royal.io where musicians sell royalty ownership in their songs and give collectors access to special perks via NFTs.
In this episode, we discuss:
- 00:00 – Current State of Music NFTs
- 13:10 – Fun Fact: Most Audio Files Do Not Live On-Chain
- 19:07 – Why Do People Care About Owning or Collecting NFT Songs?
- 31:20 – What Traits Go Into Valuing Ownership-Based Music NFTs?
- 35:31 – Web2 Data Used to Value a Royal.io Drop
- 42:16 – What is an LDA: Limited Digital Asset
- 49:30 – Music NFT Price Psychology
- 52:23 – Justin’s Thoughts On What Will Eat Web3
- 59:04 – Outro
…and so much more.
I hope you enjoy our conversation.
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Let’s dive right in.
Current State of Music NFTs
Feeling good man living the dream. Let’s dive right in. Okay. I think a lot of the crypto community already knows who you are. So, I want to skip that intro question. For the most part, I want to dive right into how do you understand the current state of music NFT’s? How are you thinking about that as where we are today?
Justin Blau: So, I think there’s really two ways to think about music. And the intersection of anything that’s web three related NFT’s, like people use this phrase music NFT’s very loosely, there’s like three types of things to think about. There’s the consumption of music itself, because music is ultimately invisible. It’s not like a PFP, or like a piece of art. It’s invisible. So, there’s the consumption. There’s the ownership. And then there’s the visual representation. And all those things kind of can exist in a web three framework in different ways. But the consumption and the collectability piece are distinct in that people probably don’t consume music, in the same way you consume a visual, when a visual is in your profile picture or in your wallet. And you cast that to a screen, there’s a more tangible experience in the ownership. It’s unlikely, in my humble opinion that people are going to listen to music from their wallets. I believe that they’ll probably use streaming services like audience or like Spotify, to consume music, which is a bit different than the way all other types of NFT exist and manifest today. So yeah, again, there’s like kind of three things to think about. There’s the, you know, ownership, true ownership of the rights in a song. That’s what we do at Royal that we’re excited about. There’s the visual representation, which sometimes can be combined with like the collectability of audio, however, that manifests. And then there’s the consumption. So those are the three layers of thinking about music in web three.
Why are you so excited on the ownership layer? Why did you decide to position royal as the ownership layer for music in crypto.
Justin Blau: So, there’s pretty misdirect narrative surrounding like how meaningful music ownership actually is. Okay, a lot of artists have been disenfranchised from, you know, actually owning a large portion of their music. But when you do own your own music, there are significant monetary rewards slash cash flows that accrue over time. The best example I like to give this is I have this song called Is it Love, which was the first song independently released. At the time, I had a record deal in place for blues was 50% of the song for $15,000. And that was in 2015, the song came out, I decided not to do that label deal for $15,000 for 50% of the song. And that song has since generated over $750,000 significant, it’s actually not even on my most popular chart on Spotify. I think people just like don’t understand the flow of income in music. And I’m actually publishing a blog post on like, where money comes from and who takes what and why artists are left with so little. But in most cases, when artists do own their own music, they’re actually our real capitalist. No, in some cases, they might feel insignificant. But there’s a reason why private equity and like, and hedge funds are plowing money into catalog and previous catalog. It’s because they’re that you know, music as an asset class is interesting. It’s not quite the narrative that’s portrayed in the public were like, musicians don’t make money. That might be the case for some independent artists. But frankly, people might hate me for saying this. But like, not everybody is going to have the most popular music. It’s just impossible. I don’t, right? But I’m still able, like, there are lots of artists out there. I think there’s an artist named suicide boys that aren’t central label, they own all their own music, and I’m pretty sure they generate like a million a month from streams, all independently. There’s a lot of stories like that, right?
So, at Royal, like the narrative that like you don’t make money from streams, and there’s all these comparisons about like collectible music, NF T’s and how they they’re valued differently from how streaming is valued. I think it’s kind of a weird comparison to make. Because when you collect a collectible music NFT which I’ve actually never done in my career, I’ve actually never, I’ve never issued just a music NFT by itself. I’ve never just tokenized a song. When you just tokenize a song, I’m not really sure what it does. I’m not sure why it’s interesting. To me, owning a piece of the copyright is infinitely more interesting. And board apes did this first, you know, for visual art. And I think that’s why they’ve succeeded. Why I participated in the initialment of apes, and why we’re so excited about them. I think, you know, on the one hand, you have this, on the collectible music side, you have another channel, another challenge, which is the clearances. So, an independent artist can release collectible music. And people might speculate on that value. There’s no enforceability to the scarcity, the same way there is on the on the true ownership side, right? Like, with true ownership, you can only sell 100% of something. So, there’s inherent scarcity. Whereas with music, because the consumption layer and the collectible layer are kind of analogous to each other, and the consumption happens multiple times, there’s no real way to protect against like the scarcity problem. And a lot of music musicians have actually made NFT’s with the same song in the collectible world. So, I find it quite interesting that like the scarcity isn’t as inherent or obvious, because music inherently is consumed as an invisible thing. So that’s another like kind of interesting fact, on the collectible side.
But on the clear inside. Music collectibles can scale to independent artists who control their own work. Once there’s another rights holder, you need to get their clearance, if you’re using the audio, what we do at Royal is none of our tokens actually point to the audio files at all. So, when you buy an asset on row, you’re buying ownership in the song from an IP standpoint, and you get visual art that represents that ownership, so that you have something show your friends, like social signaling, emotional value, we still find is extremely important. So that’s what we do at Royal. And part of the reason why we do that is because I went through a lot of stuff on the IP side after I did my auction, stuff that a lot of other collectible music platforms aren’t even really thinking about, because there’s no precedent for it. Right? And so a lot of the experience that I had informed the architectural, Royal, the acid architecture, and we’re excited because it’s working, you know, we’re excited, because with nods, you know, we had 200,000 people show up, you know, 60%, of which had never used a wallet before, to actually participate. And we think that that’s like really key to onboarding the mainstream. Especially because the mainstream doesn’t really understand collectible music when, you know, I say to someone, hey, you can own, you know, a song on like, an NFT, that points to a song on IPFS. But you can also listen to that song on Spotify and audience, it’s not quite the same as an image becoming more popular as more people see it. And there’s one owner, you know, the same kind of value proposition of regular NFT’s. It’s, it’s different. It’s different, because again, it’s invisible. So, you know, my general thesis is, in the long term, people will be interested in owning rights. And that’s mainly because regardless of what the economics you, you think about today for a big artist, or a small artist, if you bet on a Billy Eilish song, before it explodes. There’s real income there. It’s really interesting, let alone the appreciation of the, you know, the asset value itself. So yeah, so there’s a lot of unpacking to do there. I can talk about that for hours and hours. I’m trying to give a quick, brief as possible.
Sure, no, so I I’ve been collecting music NFT’s for the last few months, I haven’t gotten the chance, the drops have sold out too fast on Royal for me to be able to snag one. But I’ve been collecting other music, NFTs across Zora, across sound, etc. And I think a lot of the narrative behind why people collect these collectibles, whether there are additions, whether they are one of ones is because there’s never been really the opportunity to value music for what it’s worth as art, right? Just like you were to value a piece of art within itself. And you’d go to the museum and you want to place a bid or some type of gallery, there hasn’t been a real way to value the art for the art within itself, the song within itself, right? How do you think about that, because that tends to be a lot of the commentary, a lot of the rationality in co collecting.
Justin Blau: I actually think it’s the combination of both, it’s the most powerful. So, when you buy a token, and well, you were buying ownership in the song, that is in a way, you know that ownership is to me more meaningful as it applies to buying the song as art. Because it’s a different medium. I actually don’t, at Royal we do want to enable people to buy music as art, but the participation piece is instrumental. And that’s just the structure of the music business, by the way like this is this is very much informed by like how IP flows in music is very different than visual arts. And so, the idea that like buying music for like for the fact that it is art is still an amazing idea. The problem you run into again, is clearances. And that doesn’t scale. Right. So, it works for independent artists who have had a hard time earning streams. And so collectible music is interesting insofar as it’s basically like a donation to the artist in a way. It’s like patronage and proving that you found that artist first, which is like a both value propositions that we capture at Royal just without the audio file, which the audio file itself is what makes collectible audio impossible to scale. The second you have one other writer on a song, um, who hasn’t given you explicit permission to issue that audio. And I’m like living proof of this. And you know, there’s a lot of contexts that I have on this. So, for independent artists, collectible audio is extremely interesting. Like, but ultimately, you’re just trading, you know, the way that secondary flows. It’s like a user shows patronage for that collectible audio and then they just trade their patronage. They don’t, but they don’t have any right. They don’t actually own anything I think from now here is wrong. Like when you own a music NFT that is all you do. You just own it. It’s like owning a CD on the blockchain, which is cool, but not at the price points that it’s happening for. Right.
So, in my mind, what we do at Royal is really special because it’s the combination of both, you actually get the upside of all the IP that exists in web two, like an IP law, unfortunately, will persist to exist in web two for a while. It’s not as simple as people snap their fingers and put all this DRM on chain. Most independent artists probably would benefit from a publishing administrator, even though it’s a legacy actor, they collect on your behalf when anyone else uses your music in web two, in the web two worlds. If you have a publishing administrator, and you issue an NFT with the song, you need to get clearance from your own admin like, these are like problems that I don’t think anybody’s really thinking about, that I’ve run into personally. And it just doesn’t scale. So, I do think collectible audio is interesting. It’s again, trading patronage being first. But there’s no inherent scarcity. It’s invisible, the consumption layer is the same as a streaming service. And I’m not really sure what you’re buying. So, because no one’s been able to tell me, you know, the only thing people say is you’re buying music as art, and you haven’t been able to do that before. I don’t know how much I buy that in the sense that music is definitely art. But if you really think about buying it as art, why should that matter? Is it synthetic? Right? Is that idea synthetic? And I think for me, at least personally, the answer is yes. However, when you think about one of ones that are collectible for songs, that resonates a little bit more to me, because there’s only one of them. And like, that’s super interesting, in that it’s like the ultimate form of patronage, right, as opposed to 1000 people. And that kind of patronage. It’s literally just a donation to the artist. There’s nothing, there’s no ownership, really, but I can, I can kind of go through this for a while. I guess my question to you is, you know, what do you feel like when you said, you have a collection of music NFT’s? Do you spend time listening to that collection over and over again? Or when you’re in the car like in the car are you listening to your collection of music? Or are you using another streaming service?
Great question. I can’t listen to my music NFT’s. The consumption layer for music collectibles doesn’t exist yet. There’s no way for me to really connect my wallet to something for it to populate my music NF T’s, for me to download them offline to enjoy them. If I’m on the plane, for example, doesn’t exist yet. Right? Now to say whether it’s gonna exist. If someone’s working on it probably.
Justin Blau: Does not matter. Doesn’t need does it even need to exist? I think is.
So, if artists end up doing web three native releases and drops where they only submit their material on, on chain, right, and they ignore the entire web two element.
Justin Blau: How on chain?
Fun Fact: Most Audio Files Do Not Live On-chain
Maybe I’m thinking about it wrong. How does it work from the infrastructure level?
Justin Blau: This is the myth. This is a myth. I invested in Arpeggi Labs because the actual samples are on-chain, and I think that’s really cool. You’re gonna have to just points to IPFS or with an audio file hosted up, Like, who? It’s just like anything else? The NFT is just a certificate. It’s like, and by the way, you know, I did this for a really long time, right? I did audio visual collectibles. And now I’m actually assigning ownership to all those previous collectors, true ownership. And that was kind of always my vision from day one. You know, I’m happy to be very real about my opinion here. I don’t think I’ve been too public about this. But, you know, I’ve individually done over $25 million dollars of volume for collectible music, audio, that’s more than the entire market of collectibles. As it is today, like by miles. And I think that that’s not the way, why? because I again, think like collectibles are a great way for independent artists to monetize. And I think that’s super powerful. And I would never want to take that away from anybody. If there are buyers for that. Great. I don’t think the mainstream will care. Because ultimately the consumption layer will always be a streaming service. Even if its audience or a web two streaming service at Royal you capture both, audiences doesn’t have monetization enabled today. I’m an original audience advisor, when they do enable monetization, your rights as a token holder still extends to a web three consumption service. So, people were like, why are you doing this thing with streaming rights if it’s dependent on the web two world? No, you actually get to participate in any income that happens in the web three world to, in fact, an artist could theoretically assign a royal token ownership and like future collectible editions of itself. And, like there’s infinite kind of ways you can frame it. But owning rights is the core value prop of royal and I only came to after a year and a half of experience dealing with the IP side of things that I will be very, you know, forthcoming about no one else has dealt with the way I have, um, it’s intense. And we’re going to, I’m going to tell some of those stories in this blog post.
But even if I own the complete master of something, if somebody wrote a couple of words, and they own 7% of the publishing, you need to clear that before you upload an exploit that audio. And that just doesn’t scale. That means every artist that releases collectible audio needs to either have an agreement in place, which in some cases, like a new agreement in place for a new song, with a split. But this whole myth of splits is also kind of weird, like, you can create splits on chain that that’s not enforceable anywhere else. Outside of the originating minting contract in terms of, what happens? Like, right, this whole split thing is kind of mythical as well. And that, you know, let’s say you only release a song in web three, and you have this split contract. But then somebody else goes and exploits your song and uses it on YouTube. You don’t capture that. And anybody can do that. So, it’s actually almost dangerous, I think. Because web two still exist, we can ignore it. Yes, you can create a web three native artist, like Snoop had this, you know, did this NFT with his mix? Like if you own one, you could do every one with it. I mean, he like that. I don’t know what that means. So, I go buy one and upload it to Spotify, do a remix of it, and like monetize it. I mean, if I did that, right? Yeah. Like, that’s kind of crazy. Like, I could do that. But I don’t know if I could do that. So, it’s unclear, right? I think what we do at Royal it’s really interesting is we make we make it as clear as possible. And today, we only support streaming specific royalties. For new artists, I’ve done full master ownership with my previous works. And then in the future, like artists will be able to sell whatever they want, whatever, whatever ownership they maintain in song for writer, who might not even own, it might not even be a featured artist on the song, they can sell their writer share if they want. It’s the flexibility and scalability that we really care about. The second you intersect, the second the audio comes into play. It’s your point of failure.
So, you asked me earlier, why do I collect music NFT’s like, what’s the point if there’s no ownership attached to it, okay. Again, for me, I look at it whether or not the audio file lives on chain or are we were IPFS, the collectible still sits in my wallet, right? If I go to Open see, and I can play that song through open see.
Justin Blau: Proof of ownership.
Proof of patronage Sure. But the way I kind of think about it, and correct me if my mental model is wrong, I lived through the era of one seeing your drop in clubhouse, being able to get one of those like participation and NFT for not making it a top 33. Right, I got one of those, I saw people’s drop, I saw that era of nifty gateway, I saw the era of supe rare, I saw a lot of these Instagram and corporate artists that otherwise weren’t making jack shit off their craft, later transition that talent to crypto to NFT’s. And then a few months later ended up in Christie’s, ended up in some of these, etc. That’s a lot of meat, like capturing those data points and trying to see will that history kind of apply to the music artists, right? So from a creator’s point of view, if I have the ability to support that artist, right, and give them patronage, based on the price point that I can afford, amazing because it’s a win, win. And if that artist ends up continue innovating in web three, they open the Dao, they issue a governance token, they tie all that value back to their collectors somehow, that’s something that I believe might happen, right? And I’ll take that bet. That’s a point one Eth if it’s a one Eth bet, right. That’s how I kind of see it. So maybe it’s not so much on like the IP ownership, more so on the patronage side of things, but I think there’s, I think at some point, there’s value in both, but I’m really curious, like.
Justin Blau: I wonder how the audiences, that’s, that’s my that’s my ultimate kind of question.
Why Do People Care About Owning or Collecting NFT Songs?
Because that’s my question to you to like, do consumers, do retail investors care about owning a song one or collecting an NFT? Like a music NFT? Like, is that embedded in like the nature of a human, right?
Justin Blau: Yes. And here’s, here’s an example I can give you. There’s kind of two ways to think about this, right? This proof of patronage model doesn’t need the audio file to exist, or the or the tokenized audio to matter. So, what I mean by that is like if an artist issued a bunch of tokens that were like proof of patronage, and that proved you were the first person to listen to that artist, and it didn’t include the audio. You remove all the friction points on the IP regulatory side and it does the same thing because you’re not again, you don’t listen to your collectibles. Really, right, you collect them to support the artist.
Correct.
Justin Blau: But the failure point is the audio. So, if somebody just wanted to create badges of, you know, badges of patronage, I actually think that’s kind of interesting in and of itself. And again, my mental model around this is all like, based on failure points, not based on like, the thesis, right, which is like buying music is art is probably interesting. It’s just that you can’t really scale that. The next question is, how much do people care, which is what you were asking? Right? I was just in Austin. Our offices are the real offices are in Austin. And I was looking at a new apartment and the realtor probably 43-year-old guy asked me, you know, what are you doing in Austin? I’m, like, started this company called Royal. Said, what’d you do? I said, Royals enables anyone to invest in music and music. And he said, oh, so like, does that mean I could own like a piece of Free Bird? Like immediately? I didn’t say no, or NF T’s like know that. Like, you can own a piece your favorite music? He’s like, alright, I understand that. Yeah, like, I own a piece of free bird. And by Leonard Skinner, I’m like, yes. He’s like, you know, he asked, Is it like a music? You know? Is it a music market? Right, like, like me stock market. And we’re like, not really, but ultimately, it resonated immediately, with this guy, that he could have an emotional like real and emotional ownership and something that’s meaningful to him without having to use the word NFT or collectible, right? And honestly, like, that’s it. Right? Like, if we want to onboard the next like, opens see still has just above a million users like, that’s, that’s unbelievable. And I’m an open see investment. I’m a huge supporter. And I think that they’re building incredible things. But if we want to onboard the masses to this technology, you have to use framing that makes sense to them. And when you own something, the word own literally means etymologically having control authority over an ownership without suffix ship, as the word as the framing of legal tender to the meaning. We think legal tender is pretty important for music ownership.
Board apes did this with I mean, the most successful project of all, gave you real ownership in the IP. Think that says something. I think that says a lot. In fact, that’s probably why I minted apes in the first place when they originally minted. Because Ben, my friend Ben Milstein was like dude, you’ve been talking about this IP thing. And this is the first visual project that gives you rights VIP, that’s really powerful. I was a crypto punk Maxi, and then like, then they fucking bought lava lamps. I mean, like it, like my thesis from back then it’s all playing out. I wrote about it. It’s documented, not to like not to pull egotistic I was right. Like, it was I mean, I think, like, I just truly believe that the speculative activity around a lot of this air is interesting and fine. And I even engaged in it for a while, but then abandoned it, because I felt that something more real needed to be built. Because to let, like most people like, you understand the idea of tradable patronage, manifesting support for an artist early in their career, the idea that like someone else might want to pay a higher price, to, you know, support that artist. Buying music as art is a very, very, very interesting thesis. But music is a different kind of art. You can’t manifest something that doesn’t, behaviorally doesn’t already exist. So, one thing that my co-founder and I talk a lot about is no, my favorite band in the world is Radiohead, and Radiohead created a one of one physical platinum vinyl of In Rainbows. I would bid like crazy to fucking win that thing. Okay, but if they made like 100 of them, I’d probably pay for it. Yeah, I pay for it like physical. I’m talking about like physical platinum. They made 1000 of them. I wouldn’t care. You know, um, I think it’s, it’s just kind of a behavioral thing, where, and that’s like something physical that I can hang up on my wall, right?
How is a regular consumer going to distinguish between listening to a song on Spotify and owning a music NFT, I mean, there’s literally no difference. The difference with the visual is like, with a PFP. Specifically, you’re the only one with that fucking image, at least, for apes. And for some of these. With the art prints, like yeah, there might be 100 but I could put it up on my wall. And I can say I own that when someone’s in my house, which I do. I have a lot of visual. I have a lot of visual art NFT way more than PFP NFTs. I actually love the visual art NFT because I can do something with it. With music. I can play you my audio NFT. I could go on one of these websites and play it for you over my Sonos when you’re in my house. And I say I own this but you don’t you own an NF T of it. It’s like when you’re walking down the street. Here’s the best example. And I’ll leave it at this. I was walking down the street with our, with our marketing director, and close friend of mine, Kevin in Austin, our office. And my song is a loved one I brought up earlier came on, on like, we were passing this bar. And Kevin was like, you know, I love Royal. I’m like, why? He’s like, what I bragged to you about having the CD of this in the 90s. If we had the same experience in the 90s, when I brag to you about like having the CD of this song, no, that behaviorally never would have happened. But today, I can brag to you and say I actually own a piece of this song. That’s a way more meaningful social experience. And I would like in collectible audio to owning the CD of something. I don’t think it’s any different behaviorally, with art, right? It’s a different medium. Music is invisible. Art is tangible. So, I think all these different mediums when you think about like, what’s going to be tokenized, and what isn’t and how it’s going to be tokenized, you can’t apply the same scarcity model to every type of media just doesn’t work. And so, for me, at least, enforceable scarcity, with real ownership gets me excited.
Now the people like think about the royalty layer, and like how much you actually gonna make? The answer is we don’t know. Like, if a song works, it works. Some doesn’t. It doesn’t. We think making everyone, giving everyone the ability to be their own record label is incredibly powerful. And that’s not to say that I think record label DaoS are a whole other equation. And that gets very, very interesting. And, you know, there’s a lot of really interesting things, I think that will happen there. But for us at Royal, we just want to make it really easy for somebody to understand you like this Tiktoker and her music. She’s huge. And for 25 bucks, you can own the song. And if she grows in popularity, significantly, those royalties might be significant. They might not but the actual underlying value of the asset. There’s something intrinsic there, we price all of our assets with a model that considers all the actual value from the Royalty world, because that’s the only place the value is manifesting. And I think synthetic value is kind of dangerous. There are only like 5000 people doing this right now.
So small.
Justin Blau: And Royal has almost a million users or people that are waiting to buy things. Not all of them are crypto native. So that should that should say something I think, right? I think that should say something in that like people understand what it means to own versus collect. And there is a difference. And at least with an ape, I own it. Now with my punk that I love forever. I own it. I really do. Do whatever the fuck I want with it. Right? That’s awesome. You own music NFT there, you can’t do shit with that thing.
But like right now, you said you’re going to transfer rights or you’re going to do some type of IP mixture to kind of provide some type of royalty to your previous NFT music collectors. Is that what you said? Oh, yeah, something like that. Okay. So, talk more about that, because can’t technically an artist who just issued collectibles, do a variation of that and apply that IP? Or am I thinking about this wrong?
Justin Blau: Of course, they could. Okay. Of course, they could they need the tools to do that. Okay.
And is that a limiting factor right now? I guess that requires a lot of money. It’s something that you went through, right. And I am a very dumbed down point of view. Because.
Justin Blau: literally, this is a great, that’s an amazing question. Yes, you can assign anything to previous things that you’ve minted. I think that’s cool. I think people should do that. In fact, at Royal we’re building, I can’t speak too much about this. But you’re gonna be able to plug into anything you’ve ever minted, and do stuff on Royal, whether you’ve minted an asset with royal or not, as an artist. We’re building some really, really cool tools for artists that we think, you know, tools that I would want as an artist, right? I kind of I’m building royal in the vision of the future that I see as a musician, and all the tools that I want. But just as you said, you know, I released a bunch of NF T’s last March, unreleased music, we finally released them on Spotify. And I literally give away 100% of the ownership to the holders. And they’re gonna have like now that songs and songs are out there generating income, not significant, but they are generating income and those holders will get paid. They own it, they actually all own the song together. I don’t even own it anymore.
Do the participation trophies get anything? The one that participated in the iconic draw?
Justin Blau: Actually, we did. My little brother included that on the whitelist for his project, which was really cool. These things are on chain. And there’s now proof that you did that back then. And I can do whatever. Like it should be every artists intention to reward those who supported you early. That’s the one thing about patronage that I do think, like proving that patronage is very valuable. But to get this stuff to the masses, I think it’s just a different equation. Now, you own you said you own that participation in NFT. Like, there’s not much I can say here, but I can say like, obviously, obviously, at some point in time, I’m going to want to reward everybody who’s ever supported me. And those participation, NFTs are quite meaningful, and will probably have really cool utility in the future that I’m planning. But again, you know, a lot of the stuff that I wanted to do a year ago, is finally almost ready today, you know, take a year, took a year, building a team at Royal like, basically building all the tools that I wanted as an artist to execute on. Again, I should say, I’ve been a little bit aggressive in this conversation about collectible audio, I actually think that for independent artists, it’s really powerful. And it helps them monetize it helps them survive. And I think there’s, it’s all positive, it just doesn’t scale, which is not the business I want to be in. But I want to be in the business of changing the world. I don’t want to be in a business of a niche business of, you know, donation, like patronage on chain for small artists. super interesting. But if you, but everything we do at Royal captures that end, there’s economic upside, right, like ending on Billy Eilish before she becomes Billy Eilish. That’s a fucking real serious investment. Yes. That’s awesome. Right. So yeah.
What Traits Go Into Valuing Ownership-Based Music NFTs?
That’s a lot of the conversations. I don’t know if you remember, but about a year and a half ago on Blockchain & Booze, it was you and Cooper, we were talking about music, NFT’s right? It’s actually the most watched episode of Blockchain & Booze. And it was funny enough. Yeah. And we, we talked about basically like, what if you could invest in an artist and provably invest, right and support an artist prior to them becoming huge, and ride that success with them? Right? It’s a lot of the mental model that I kind of use to understand from that point on how these things are going to change the world. From my point of view, right? I want to I want to talk to you about also like the value frameworks, like what traits go into valuing an ownership-based music NFT?
Justin Blau: Right now, we just have the web two world, okay, unfortunately, plus, there’s like an emotional premium that we’re gonna, as we collect more data points, we’re gonna find out like, we’re gonna, like pricing is we’re in this like, crazy price discovery mode for like, how does the, like, we still think, well, we’re selling music as art, it’s just not the song. And the reason why we exclude the song is because we never we don’t believe NFT’s will be the consumption layer music ever. So, we protect ourselves from IP, specific things, we enable scale, you’re still buying ownership in the song, which is art, and you have visual art to represent that ownership. But the pricing is right now. Modeled after, you know, web two based income Not gonna lie. What’s cool about it is in secondary, it’s trading way above that. That’s the emotional value difference. But I’d love to let the market price that Sure. Why not let the market price the difference. That’s what I’ve always done with my token sales. When I did that auction for ultraviolet, they could have ended up with 50k. So, like, there was no pricing, the market decided that the market was crazy. I still to this day, think it’s not. But you bet all those people will, you know, some of them have already, you know, gotten amazing utility. Two of those collectors came backstage with me at EDC this past year, that was part of their perks. They had like the best time ever, you know, like there’s real value there. But, again, letting the market value the emotional difference between reality of ownership and web three ownership, I think is really important.
Can we reminisce for a minute on that drop? That was the most iconic drop ever. I remember that was in the prime of the clubhouse era. And it was a bridge between the website that you had which was like a first of its kind type of minting site, backed by Origin protocol. And then clubhouse. I’ve just like, this emotion, this energy of like switching between my phone tabs from clubhouse to my Chrome, my Google Chrome tab and seeing how everything was fucking escalating in real time. You coming on clubhouse crying, your parents coming on screaming, your grandparents. Like, it was like a whole friggin, it was insane. It was absolutely insane. It was that point where I was like, shit, like, what is going on here? Like.
Justin Blau: It was the first time you know? You know, people ask me all the time, like how? Why? You know, it’s just a combination of inputs, the design of the auction? Yeah, it being on my own website, not having a partner. Like that was so risky. I was like, I was scared shitless, I was like, what if this ship doesn’t sell? It’s like, it has to be people that come for me. Like there’s no platform, emails, there’s, you know, it’s all meat. Right? And like, there’s no other way to cut it. And you know, the reason why I did well is I think it’s because the history, you know, me trying a lot of this stuff five years ago with Poe apps at a crypto Music Festival, right, like that’s how this all manifested but that was a really emotional moment. And it kind of set my brain into this crazy I mean; it’s still running from then it’s been a year and it doesn’t stop. It’s like how do you? How do you scale what happened that day to everybody? There’s, there’s got to be a way to do that. Like, it shouldn’t just be me who gets to do this? Every artist should get to do this. Yeah, that’s really the inspiration behind royal is like, what will the math? What will the mainstream be interested in? Not what, what are crypto people interested in? I think there’s like, there’s a big discrepancy. And you know, we do have to onboard the next many users.
Web2 Data Used to Value a Royal.io Drop
Yeah. You know, back to the point of how do you like value and ownership-based music and NFT, you talked about, like the web two data? Can you go more in depth as to what is, what is web two data? Is it like, aggregating all streaming plays? What kind of metrics do you look at?
Justin Blau: Into streams, their sinks, there’s Piros there’s so right now we’re only supporting streaming ownership, but like seven months of is full ownership, okay. You know, people on, in the kind of music NFT to me on music and Twitter often compare, like the valuation of a song as an NFT, to the streams that it would take to generate that much money. It’s such an unfair comparison, because you’re talking about charitable donations versus capitalism, like, just not the same. I’m willing to bet you that not every fan, like, there are still very few people that are willing to buy this stuff at Mass like I couldn’t, I might have sold, you know, I might have streamed my music over a billion times. Which is true across platforms, I may have sold over half a million tickets in my life. But getting those people to just like collect a song for $200, for 100 200, whatever it is $300 That’s hard. It’s like a hard sell. To them. It’s hard to sell people merch, right? Most of us don’t even really make that much money in merch, only the top guys do. So, you know, thinking of this, treating it as it is an investment with real, intrinsic value is powerful. But you asked, I feel like I got away from the question, which was?
Like the question the value, the value frameworks, right? So, you talked about like the streaming data, right? And looking at that, for example, right?
Justin Blau: And then multiplying the cash flows and annual basis.
Got it? Got it.
Justi Blau: And then we let and then we let the secondary market price, the emotional value in.
Make sense.
Justin Blau: What’s on, right? That we’re doing. It’s priced based off based off of a model that takes into account all of his other streaming performances. And the street, the streaming performance of his other music, the trajectory of this song. And, like, there’s payouts for this, these levels of ownership, and the more ownership you buy, like the diamond token has a little bit better. Like, you know, as you can tell, like price, dollar per ownership is different. You go up in the tiers, and then the benefits also change. Right, and you get more benefits being a you know, right, I’m in holding.
The Patronage, so this patronage utility. And like you said, there’s also the ownership IP era, it’s earlier utility.
Justin Blau: Exactly. It’s both, it’s both and that’s so important, we think we think both matters. One over the other is difficult, is difficult to see. But we’ve got some crazy data, where, you know, we did this artist, ollie, and after his drop, the actual string counts escalated, because incentives are now aligned. When you own a beat, when you own a music NFT as a collectible, you’re going to tell your friends about that artist, but there’s nothing they can do to to accrue value to the artist that you bought into. Right, like you own this music NFT, they might go like, listen to that, that musician more on Spotify or on audience, wherever they do, it doesn’t really add value to your music NFT unless someone else wants to buy it. Whereas with royal, you’re an owner, you tell your friends about a song that actually adds value to everybody, instantly, the second you do it. So, the alignment of incentives is something we think is really powerful with real ownership. That doesn’t really exist with collectible ownership. The same like, again, this is different for visual art than it is for music. Visual Art, you tell somebody about your favorite artist, and they might want to go buy the next NFT from them, whether that’s people or thank you x or fuck render, the music, the second the song is done. The second you own the song like yeah, maybe that person will buy like the next song from that artist. But it doesn’t influence the performance of the one that you actually bought, which I think is ultimately and that performance actually kind of matters, right for an artist popularity. So, it’s a weird mind maze when you start thinking about this stuff. But again, behaviorally, there’s history that historical precedent for prints, being valuable to humans, prints, physical prints. My JD owns, my co-founder owns a dolly, I think a dolly print. That’s one of 100. There’s like historical precedent for that kind of value. multitude of physical art, there’s historical precedent for uniqueness in one of one art. And in many ways, PFPs are one of one in so far as you have your own unique visual as part of a collective of 10,000. So, there’s like historical precedent for these behaviors. In the physical art world. There’s no historical precedent for buying music as art.
So, we can imagine what that world might look like. But if you’re dependent on the IP of the legacy world, it’s hard to, and like, again, I feel like I’m repeating myself a lot here, but I did it. And it didn’t work. It didn’t work in so far as you know, I, you know, had to deal with the IP consequences of that auction. And I did, and then it’s all good now. But were a lot of people that were like, how do we even value this? Like, what percentage of the sale should be attributed to me as a writer of this song? And like, there was no, there was no precedent for that. So, you know, some people might negotiate that upfront for collectibles. But again, there’s no historical manifestation of that behavior, with ownership and music there is so like our thesis at Royal is, if you make something that rich people already do accessible to everyone, that’s probably a good model for a startup. That’s like our thesis that JD and I share, like music ownership is limited to record labels and to private equity firms. We open that up to everyone. The fact that we do it with NFT’s is irrelevant. That’s part of it. That should never be the center, right? Of a value proposition. You have to kind of lean into existing behavior. Uber did this, Airbnb did this. Uber is like, calling a cab is fucking annoying. And there’s lots of cars and people that are probably willing to drive you around everywhere. You just have to get over the fact that there’s a stranger that’s going to drive you that in that place. And if you do, this is way more efficient. Right? Yeah. But like the behavior already existed. Buying music is art, is just something I can’t really wrap my head around, on a core level, but on a patronage level. I can. Okay, that’s where I think things really do work. And so, you know, it’ll be interesting to see how everything manifests over time. But at Royal, our goal is to capture all of it, right? Like, all of it without any of the risks. And Max scalability.
What is an LDA: Limited Digital Asset
Makes sense? Can we talk about the limited digital asset that’s unique to Royal? What is an LDA? The LDA, remember, is something that was very revolutionary and iconic to Royals brand leading up to the launch. And now with every single drop, you make all the legal paperwork, like very transparent, you let us know what you’re getting into, which is amazing. But for those who don’t understand the legality, what is an LDA? How do you make sense of it? How can the everyday user kind of understand it, just take it away.
Justin Blau: So, an LDA is, you know, technically they’re NFT’s, we just think that it’s more approachable because NFT’s to most regular people carry all this emotional baggage of like, environmental things. And this and that, we just say, you know, with a limited, with this limited digital asset, you as a real user own a piece of this song, you own music, you actually do. And then we publish the legal agreement that assigns you whatever rights are associated with the contract, minting address, and the token IDs, and so on and so forth. And then the artist is obligated to, you know, assign and upkeep those rights that you own in song, and Royal just the platform to enable it. It’s like, think about eBay, or, you know, even Amazon third party sellers. You know, these are platforms where buyers and sellers come together. That’s what we want royalty be for artists and fans, shared ownership, a platform for shared ownership. So LDA is are essentially just like our, like, I don’t want to call it proprietary. It’s just like the way that we think about these assets, because they are assets versus tokens, which like most people don’t really understand tokens, they start thinking social token, Dao token, and NFT like, these are real assets with real rights attached to them, that also have additional, you know, token gated benefits or you know, LDA gated benefits, right. And that benefits portal that we’re building will be ready soon. And that will also enable, you know, we’re, I can’t speak too much about that. But we’re just excited to kind of, like, unlock all the value propositions that people have been preaching in the media. So LDA is are really just writing a song plus visual art that represents those rights. And it’s really.
Got it, so actually how did it come to the formation of an LDA? Like, what’s the story behind forming this thing? Because from what I understand, there wasn’t some type of legal vehicle that supported a lot of the thesis and the energy that you wanted to bring to Royal right. So can you talk more about like the origin story of forming the LDA because I feel like a lot of what people know royal for, beyond patronage beyond the ownership is that ability to cannot bypass but find a way to actually do it, at least the right way, right to do these ownership things the right way. So, talk to me more about the formation of the LDA What were you I guess, trying to achieve with it that you couldn’t achieve with other legal formats? and kind of around that. Yeah. So, you realize I’m even having a hard time quite asking. Yeah, I don’t understand what the hell it is from, from a very like technical point of view, right?
Justin Blau: It’s just, it’s really just a data point. I think it’s quite simple. It’s like, I do agreements with vocalists, and all these other people on songs. And I have an accounting firm that calculates royalties and sends them out to these people. And if I died tomorrow, God forbid, all these people would still get paid because of the way copyright law works. And that’s probably important. The idea is like, an LDA is really simple. It makes you a collaborator. In the song, even though you didn’t contribute anything creatively to it, it actually makes you an owner, a collaborator with your favorite artists in a song. We think that’s like, so incredibly powerful. And the legal framework surrounding that is the song has already existed. You as an artist, can sell whatever ownership you maintain in that song, as you would in the real world, right? So, people sell catalog or the Bob Dylan, you hear Bob Dylan sold his catalog for $300 million? Like, who are the buyers of that? Well, hedge funds, private equity, right. And I think Bruce Springsteen did it recently, right, so all these activities are happening in the real world, and we’re just extending them to the public. And then the reason why we built the stuff on chain is because it’s actually like way more efficient to send micro payments on an LTO. Or, you know, when people might make you know, $10 a month or $15 a month, or maybe they don’t make anything, we just wanted the infrastructure to exist, so that that was possible, for, you know, so that the gas claim wasn’t as much as the payout, right. And, you know, sometimes like, just as with venture capital, or seed investing, like not every song someone buys is going to explode. But it still has emotional value to you. I think that’s what’s so powerful is like, combining both real ownership and emotional value and patronage is to me like, it captures all potential venues for success as we bring this stuff to the to the mainstream. So, you know, a lot of this activity.
Again, I love like web two behavioral models, because you just project them skeuomorphic on web three, and things start to get make sense. Like, patronage already happens. In Web two, buying merch, it’s really like the number of physical merch is probably the number one method of like true patronage. You extend that into web three, and it’s interesting, there just hasn’t been that much demand for it yet. And I’m not sure when or if or how that will happen, for merch for digital merch. But there’s already demand for rights ownership. It’s just inaccessible to the public. We use web three to make it accessible to public. That’s kind of the mental model that I went through with royal to kind of establish the LDA framework, but an LDA is, you know, we call it a limited digital asset, because that’s exactly what it is. We don’t like using the word NFT. Because we think it confuses the public, it does. When I talk about royal people ask what is Royal? I say it enables you to own your favorite music. I don’t say you can own an NF T of your favorite song. I mean, there’s just as huge difference when you say that somebody. And yeah, that’s kind of the origins of LDAs. But I mean, there’s a lot, there’s a lot to unpack there. But I’m also going to publish this blog question that goes really deep. And it’s easier to write than to say, I feel like I repeat myself a lot. So, I apologize for all of you watching this episode, if I repeated myself too much.
No, no, it’s all good. I think the more context, the better. Does the LDA change for every single drop? Is it tailored per artist?
Justin Blau: There’s so much coming in that department that I can’t talk about yet. But they’re all currently from the same thing contract, for a lot of reasons. But mainly, for a new user to not have to set approvals every time they want to sell something based on how we’re building it. Because when we, when you don’t have a wallet, and you buy an LDA with a credit card, we generate a wallet for you. It’s like really, really cool back-end technology that abstracts the blockchain completely, which we think is important. But we want the flexibility of being able to withdraw and control yourself. It’s very much inspired by nifty gateway. And, and for me at least, there’s a really healthy balance between open sea and nifty though like at Royal we’re really exploring heavily.
Music NFT Price Psychology
I want to talk to you about price psychology, okay, and how artists and creators should be thinking about basically, how does one actually go by determining the price of a song? Remember Verta released a blog post saying that she lets basically an open bid structure to kind of determine let the market decide what they want to collect a song for by song for. How do you know whether to buy something for $1 $50 for $1,000? And I guess it’s different in the ownership context, right? Because it’s completely different.
Justin Blau: market pricing is always a good model. The problem is there just isn’t enough liquidity or data there, too. There’s like no price discovery mechanism for collectibles. And my auction is proof of that I openly say that the market did price that. So that is the emotional value, like whether we like it or not the market set that emotional, right? I’m saying Verta is right, in that, she and I are very close friends, it doesn’t surprise me that we agree. I also think that with ownership, there is more of a rigid framework for evaluation. The beauty is what’s happening in between capturing the emotional value unlock that the web two world hasn’t yet. And at Royal we want to enable that, but not force it down people’s throats in that there is a limited number of people that are going to spend money on a, you know, collectible piece of music today. They’re their native crypto users, it’s a small audience. With a larger audience, how’s that price discovery gonna change, it’s gonna either go in one direction or the other, but it’s going to be way, way, way, way, way more powerful. And we’ve seen that with all types of tokens, not just NFT’s Right? Like, all like Eth went down to $88 two three years ago, yeah. Look at how powerful it is today. Right? Like, there’s the markets are inherently speculative when they first start. So, for collectibles, it will always be speculative. And to be honest, like that’s most of the behavior. At Royal, we’re excited to, like, while we know that some of the secondary is going to be speculative, we want to let that happen naturally and build in true ownership. So, you know, the prices that we post are relative to a pricing model that considers income related to the song we as it should be, then there’s you know, the artist has a choice in what they want to price things. And there will be a day that we don’t sell out a drop on royal, if there’s an artist will price things too highly. And while we will advise artists, we will never tell them what to do. It’s ultimately a platform for artists. So, there is going to be a day that somebody prices something too high and it doesn’t sell out. And that’s actually great. It sets an example for other artists; I think what’s happening in collectible land is the supply is just so limited. And at the same time, there’s only like 10 or 12,000 people that even are buying these collectibles. There’s not enough data to price anything. It’s just not enough volume and market. So, a real we’re excited explore what that looks like in the millions of users. And the only way to do that is by abstracting crypto.
Justin’s Thoughts On What Will Eat Web3
So, I have one final question for you. I know we’re running out of time here. Okay. And it’s a question that I tend to ask specific. So, I’d love to hear your take on it. Okay, I’m a big fan of the evolution of the Internet. Web one was very much like read only and got taken over by web two. Web two is very much reading right and allowed us to kind of contribute content interact with others on the web. And now we’re transitioning into what we believe or what we coined to be web three, the read or write in ownership era of the of the internet, right, powered by decentralized networks, where we can basically provably own something that’s digital. What do you think will essentially eat web three?
Justin Blau: Hmm. So, I mean, I made a joking tweet about this the other day. Um, you know, the only thing I can conceptualize today is when everybody’s walking around with a chip in their brain that just does things for them. But that was actually like, I was like, what does web four look like? It’s literally think it like the internet is Read Write own, web four is, I think, think do where you just like automate the human mind. I think that’s probably like a I mean, it’s like in like AI type stuff. I think AI automation is probably web four to an extent, but like, how it plugs into the other types of webs? I don’t know, right? I think like, a world that I see is really interesting is I see something in the real world and I can buy it by thinking it. Like, that’s really fucking powerful. I think that’s web four? I know that sounds great. But like, I actually do think that’s, that’s next because you think about like on time horizon, right? A lot of these like changes happen over about a 10-year period, from web one to web two to web three, you think about like 2032 think own think do? Like, it’s the think that I think is going to get automated next, you remove friction of thought to action with technology. That might be like too intense of an answer, but I actually think that’s what.
Will think about it for a minute. Okay, so Bitcoin came in the late kind of or not early 2000s. Right. What was it 2009 or so right around the time where Instagram and a lot of these social networks started popping off and coming out. And a lot of what it aims to solve is to create decentralized networks otherwise owned centrally right, and we’re overpowered and whatnot. A lot of why Vitalik, I guess the premise of why Vitalik kind of created Ethereum two, right is because of the whole entire issue of, or at least that’s like the meme the issue around World of Warcraft, right? And him getting kicked off the game and saying, like, he’s not able to sell his merch, or whatever the hell the narrative was. And I like to think about it of like, from the form of, what’s the, what happens when we’re extreme on ownership, right? Like, what happens on that site? Maybe what happens when we’re too extreme on decentralization? Like, well, what’s the middle ground? Is that a right way to think about it?
Justin Blau: Um, maybe, I mean, in the most extreme form of decentralization, where like, governance is super decentralized, and decision making happens in decentralized way. That’s all still part of web three, right? So, like, when I think about the difference between eras, like web one, like if you really think about it, web one and web two, did two things. Like combined at the same time, to an extent, communication information and content is web one and web two. None of that was value capture, value happen the same way you still pay for E commerce thing with a credit card. It unlocked new markets, but it didn’t change the fundamental way that humans value, like, ascribe and accrue value, web three changes value through ownership. It changes the way we think about valuing anything, really, because you can now value digital things that only exist in the digital space, which I think is like incredibly interesting. And then you like insert Metaverse in certain, you know, quest, meta quest devices, etc, right. But like the next iteration of that isn’t going to be about ownership, like web three is going to cover ownership in some way, shape, or form over time. The next iteration is like, okay, well, like, all of a sudden, after 70,000 years of human existence, everyone has the same information. information asymmetry was like the biggest problem in human history before the internet. Now you eliminate that that’s insane, then communication, right, like being able to email someone. Right? Fuck, that’s crazy. Right? Then content, you can just like, consume parts of other people’s lives at any moment in time. Wow, that’s crazy, right? But all these things serve to connect. And it’s all information. Right? So, information becomes omnipresent for humans. Web three, ownership becomes available to anyone. And frictionless value transfer, right? Was the proposition of Bitcoin, right? Even before NF T’s reef, you could just send value wherever you want in the world without getting permission from anyone whenever you want it to, that was super powerful, fucking powerful. Now we’re extending on the Bitcoin thesis over time. The Final Frontier is, is automation, at least in my mind, and I think automation. It’s just again, like information value automation, like steps. But I don’t really know like, like, the extreme form of decentralization. I don’t know what that looks like. But it’s still what free right now. So, I think like web four I’m like, what’s so crazy, that’s next. And it’s literally like, friction, real-life, real-life friction with AI. And I mean, I think that’s why a lot of likes, the billionaires in the world are exploring it, right. It’s like, I think that is the next frontier.
AI and space, are just gonna be a bunch of robots that are gonna be traveling to space. And I guess just to correct myself really quick, the whole the whole comments around Bitcoin because being born because of the social networks, it’s not a direct correlation more so centralized network, right? The aim to make things decentralized.
Justin Blau: Yeah. Yeah. Yeah, I was kind of separating like the, the disruptions that happened as different technologies emerge. So, like, one web information, communication content, web three decentralization value, you know, Bitcoin, still considering that as a web three tool. Right. But yeah, neither are necessarily connected. I think. That’s the beauty.
Outro
Yeah, Justin. Amazing. I have so many other questions lined up for you, but I know we’re short on time. We’ll have to do this again soon. Before I let you go. Where can we find you? Where can we find Royal? Shout out to Diplo in the upcoming drop on Tuesday. This will come out on Tuesday. So where can we find, where can we learn more?
Justin Blau: Twitter @3lau@join_ royal. Same on Instagram. Easy, really simple. We’re excited if you decide to join our crazy little idea. Great little community of people. And we’ve got a lot a lot of awesome artists coming. So.
Amazing. Thank you so much. We’ll do this again soon.
Justin Blau: Awesome. Thanks, man.