From Pay Per Play Smart Contract to NFT economy - Musicoin was born to change the music industry and I will explain how and why (part 2) Sharism
Document formated with photo and links
1. Decentralize Music Industry
How many time as a listener you were listening to an amazing song and you wanted to be able to help that artist (or group) grow more, help him or her blossom in music ? How many time you went to a concert and felt this amazing feeling to be part of the music ? But in fact you were not really part of it. You only paid a ticket and you could not have done more, you were only a costumer. But music is much more than this. How many times do you buy music on Amazon, ITunes or have your subscription on Spotify and you know that more than 80% of what you paid will never go to the artist, will never go to support the music. Or even if you listened music for free on Soundcloud, artists don't get paid at all even if SoundCloud market cap is around 100 ml $ USD. As artist I'd prefer maybe to be pirated. Spotify CEO Daniel Ek said "to unlock the potential of human creativity by giving a million creative artists the opportunity to live off their art", but the cruel reality for Spotify is only 43,000 artists live off their art as you can see on this Rolling Stones article. Despite 61.73 Md $ Market Cap USD it seems to me that they failed. Are they serving artists or stock shareholders and labels? We all agree : the only competition is to unlock the potential of human creativity. We share the same goal.
I'm a blockchain Indie artist and I release songs on many diferents decentralized platforms like Musicoin, Hive, Steemit, DTube, Lbry, Rocki, Audius, Ujo, Choon, Whaleshares, Hyperpace and many others. I have a master degree in economy as well. From my point of view Musicoin is the one with the highest potential because of PPP smart contracts and Sharism philosophy. On this document I'm going to introduce Decentralized Finance tools to Music Industry using Musicoin as starting point, even if we could adapt it to other music blockchain projects as well. On Musicoin you can stream songs, you can tip song and artists, but you cannot yet invest in music, you cannot stake or farming neither and at the same time you cannot really participate into music creation, be engaged, be part of the process, risk a few penny. Let's start by definitions:
Decentralized finance (commonly referred to as DeFi) is an experimental form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks, and instead utilizes smart contracts on blockchains, the most common being Ethereum.
Let's try to adapt it to a Decentralized Music Industry (commonly referred to as DMI) is an experimental form of Music Industry that does not rely on central Music Industry intermediaries such as labels, centralized music platforms and instead utilizes smart contracts on blockchains, the most common being Ethereum, Skale or Musicoin.
Let's assume that the goal of the stock investor is to identify stocks that are currently undervalued by the market. The goal of a fans/listeners is to identify songs they like that are currently undervalued, unknown, unlistened, underpriced.
I've heard song after song asking me: "Which is the one that is lowest priced in relation to what I believe it's worth?" The blockchain tool I'm going to introduce to you on this document will give you the possibility to answer to this question. I'm going to demonstrate how to create a better and longterm relationship between artists and fans. Take a look to the introduction to this document: From Pay Per Play Smart Contract to NFT economy - Musicoin was born to change the music industry and I will explain how (part 1).
1.1. PPP smart contract and Sharism
Musicoin PPP smart contract is a powerfull tool for creators. I used it often to release blockchain collaborations on Musicoin with many great artists as Asterios Papastamatakis, Dj Lethal Skillz, Giampaolo Scatozza, Samprock, Soundphaser, Resonanz Kreis, Tanzaff Production, Regata Collective and many other, with whom I could hardly have collaborated without blockchain, without Musicoin.
But my question now is : "Where is the tool for listeners ? Where is the tool that let you be part of music, sharing the same purpose : Music but with completely different point of view."
On the White Paper Isaac (Musicoin founder) called it Sharism "This leads to shared ownership where value is distributed throughout the network through the contributions of everyone involved." In other words, everyone is valued and is necessary to Music, the listeners, the fans, the musicians and the investors. How to transform this theorical and philosophical concept into a real case? With NFT technology using ethereum ERC1155 collectible token. To allow artists to trade their songs, their PPP smart contract and to allow fans to leave an indelible trace of their action, timestamped on the ERC1155 forever. Fans will be part of the music businnes model, they will be encouraged to help artists to grow, marketing songs, collect songs, share it on socials, distribute it, organize events, concerts, showcases, studio recording. Music is a common good and a common goal.
We need to say also that milions of users will jump into the blockchain universe in the next years and it would be kind to jump into a music related project and immediately feel useful, instead only see Bitcoin green and red candles. In 2018 Cryptokitties was sold at 300k USD, with an average of 64 $ per piece on a artificial and simulated scarcity market. I'm sure we can do better using songs as aggregator, with a real case, using music royalties, inviting artists to grow music value.
1.2. Multiple collectible NFT smart contract
Why Multiple collectible NFT smart contract? Because everyone is valued and is necessary to Music, the listeners, the fans, the musicians and the investors. This is a microeonomics tool to make this synergyc and decentralized relationship economically valuable, synergetic and real for both.
And why use an ERC1155 NFT token? First because it works and and it has already proven its usefulness in the blockchain economy. Second because we need a multiple collectible token, we could have use ERC751, but it would not match the reality of the music industry, where many listeners and many fans "consume" the same song. With my blockchain knowledge it is what I assume could integrate the best the PPP smart contract.
One PPP smart contract for multiple ERC1155 NFT token. Let's going to see in the details our Decentralized Music Business model.
1.3. Decentralized Music Business Model : token economics
I hope everyone already understand how Musicoin PPP smart contract works and maybe already used it for releasing their songs. This is important before to go forward on this document. "With our PPP smart contract to enforce and execute licensing terms, musicians can receive instant payments based on each playback. No intermediaries are required to facilitate payments other than the ledger of the Musicoin blockchain." before going on I recommend you read Musicoin PPP blockchain technology.
The artist who owns the song can decide however to make it tradable right now using a NFT creator platform like https://app.rarible.com/create starting selling it on ETH. Make it tradable is only the first step of this document but it is not enough to match the reality of music industry. The NFT should be able to provide the sharism model as well, in other words artists and fans should beneficiate it together. So let's go on :
The artist's earnings will no longer come only from streams and tips but also from NFTs royalties (trades, collections)
Rewards are going to be shared with fans/listeners/investors as well. This will raise a common goals, it let the song grow, it will increase streams, listeners, tips, followers. If we wanted to translate it into more understandable and known words, it is like create a "stock dividends" to buy "shares" for that specific song, but with a split ratio determinated by the artists. I'm going to explain in details.
a1.4. Music Farming to decentralize Music Industry
Maybe you already have a knowledge about what Defi and NFT are. If not I suggest to take a look to these article or these one or to simply read about this topic on the web or take a look to this video.
Let's introduce Music Farming expression. Music Farming, also referred to as music liquidity pool, is a way to generate rewards with NFT holdings connected to a PPP smart contract. In simple terms, it means locking up on a PPP smart contract with a NFT token and getting rewards.
Fans will easily provide liquidity if they receive a reward from their owned NFT, from their best songs on Musicoin, from their best artists, for their best songs collection. They will finally be part of the economy, maybe they will decide to use the total amount or a part of this reward to give it back with tips to the artists they like, but they will no longer be just a passive customer or a passive listener.
The principle is very simple. The artists provide music, the fans provide liquidity. The artists release the song and then decide how many NFT create to make it collectible/tradable. Fans (investors) need to stake their $music as a collateral and pay the fees in order to unlock NFT and start receving royalties. Artists will start to receive part of NFT royalties too. Can we call it Applied Sharism? Maybe yes but how?
2. Economic model
2.1. How to unlock NFTs from every PPP ? With a Stake Per Token (PPT) smart contract
Do we need to modify the PPP smart contract code in order to create this special feature? I'm not developer but I don't think it will be so easy, maybe the best and easiest way is to create a new brand smart contract let's call it Stake Per Token (SPT) connected to the original PPP and which can be set with these parameters here below, in order to prepare the "stamp" of the unlockables NFTs. From the SPT every fans (or investors) will be able to receive a NFT simply by paying the price and the fees. A SPT smart contract provides NFT tokens in exchange for staked $music.
The artist owner of the PPP need to set up these parameters before to release the SPT :
Max NFT supply (L) = maximum number of unlockable NFTs from this PPP smart contract
NFT purchase fees (r) = percentage fee that automatically credits the PPP and NFTs smart contracts anytime a NFT is purchased (10% as default)
Additional exclusive features connected to the NFT = like concert tickets, web concerts, CDs, vinyls, merch, music classes, showcases and so on.
Maybe it can help to see how works the vinyl production. If the PPP can be represented by the "Master", the SPT roughly corresponds to what used to be the "Metal Stamper". From the newly minted metal stamper we produced the vinyls. On Musicoin SPT is the "crypto" metal stamper from which we produce NFTs. Take a look to this video before to go on, because behind this process is the history of the music industry.
Once released the SPT, the fans (investors) will be able to unlock the NFTs "production" by simply purchase the price and the fees. The price will be staked as collateral into the SPT smart contract and the fees will be splitted between artists and NFT holders.
2.2. How to set up the price ?
The price of NFTs directly linked to the STP will be determined by the intrinsic value of the song and the max supply tokens to mint. NFTs will be unlocked as and when they are purchased. As long as there are still NFTs locked in the SPT, it will not be possible to acquire them at a higher price. In other words, the market will be protected until all NFTs have been acquired and the necessary liquidity has been created to open the market to an (Automatic Market Maker) AMMs letting the price float freely like any other financial defi asset. At most, investors may lose fees, but after a few streams or tips or NFT purchases by others breakeaven point will be reached.
How to set up the NFT price even if there isn't yet a liquidity pool nor automated market makers (AMM) like in Defi? Using mark up! Mark up refers to the value ($music) that a player (artists or fans) adds to the price of a product (music), starting with $music generated with PPP smart contract. If in economy the price corresponds to the market cap divided by the supply, for our use case the price corresponds to the total amount of $music already generated by the song divided by NFT max supply (L).
Total amount of $music generated by the song thanks to PPP royalties and SPT royalties, considering that before the first purchase of NFT, SPT royalties (F) are null.
PPP (P) = streams (S), tips (T)
P = S + T with T < S to reduce tip gaming impact (option)
SPT (F) = Total $music staked in the SPT (D) and its fees (rD) to a specific purchase point
F = (1+r) (D + D, + D,, + ..... + Dn ) with n => L
In other word the initial price of the NFT will be directly proportional to the song's capacity to generate royalties and inversely proportional to NFT max supply (L). The price will grow with the increase of the song royalties generated from PPP and SPT. PPP + SPT = Song Market Cap (Stock)
Song Market Cap (M) : Total value generated with PPP and SPT
So if M = P + F with F = 0 before the first NFT purchase
Song Price (D) corresponds to :
D = ( P + F ) / L
D = M / L
As long as there is at least one NFT locked in the SPT, the price will increase and will correspond to the value generated divided by the supply.
2.3. From Song Price to Song Economy : Marginal Weighted Revenue for artists and NFT HODLers
This is the core part of this document : how to fairly and economicly efficient split this two flows of revenues from PPP and SPT between artists and fans (investors) ? How to modulate it in proportion to their contributions ? Given that the ratio between the two inputs (Artists and fans contribution) changes over time. Even if is not so complicated to understand, it is not so easy to explain and to translate in economic formulas, it is even less easier to translate in blockchain codes. Everybody knows that in each company, income should be calculated depending on everyone's contributions.
Let's going to develop the formulas using Marginal revenue. What is Marginal Revenue? It is the increase in revenue that results from the sale of one additional unit of output (streams, tip or NFT purchased). Marginal revenue refers to the incremental change in earnings resulting from the sale of one additional unit. Marginal weighted revenue refers to the incremental change in earnings resulting from the sale of one additional unit according the weight of each contribution.
In mathematics, the derivative of a function of a real variable measures the sensitivity to change of the function value (output value) with respect to a change in its argument (input value). Using ∂ (symbol for derivative) to express the change of revenues (output value) for artists and fans respect to a change of royalties : ∂P and rDn corresponding to the increase of income called marginal revenue, with n => L. From the first purchas to L purchase ( n => L )
∂P = change in PPP royalties (P) : streams (S) and tips (T)
rDn = increase in SPT royalties : increase of price ( D ) and fees ( r ) with n => L
Marginal revenue = ( ∂P + rDn )
If P / M is the distribution coefficient for artists i.e. the relationship between the income generated by PPPs and the market cap (total income) and
If F / M is the distribution coefficient for NFT holders i.e. the relationship between the income generated by SPTs and the market cap (total income)
Artists marginal weighted revenue = rDn ( P / M ) + ∂P ( P / M )
Artists marginal weighted revenue = ( ∂P + rDn ) ( P / M )
NFT holders marginal weighted revenue = rD ( F / M ) + ∂P ( F / M )
NFT holders marginal weighted revenue = ( ∂P + rDn ) ( F / M )
Marginal weighted revenue for each NFT holder = ( ∂P + rDn ) ( F / M ) / N with N as number of unlocked NFT N => L
Artists and NFT holders will receive what they are entitled to.
The Economics, business, accounting and related fields often distinguish between quantities that are stocks and those that are flows. Here the revenues for artists and NFT holders are considered like flows, while the price is calculated from stocks (market cap), as we will see in the next section. Take a look to better understand the difference between flows and stocks.
2.4. Scalability. The evolution of the price is the evolution of the market cup
Let's repeat it : Market cap - or market capitalization - refers to the total value of all a company's shares of stock. It is calculated by multiplying the price of a stock by its total number of outstanding shares (NFTs).
The purchase price (D) of each NFT increases with the increase of PPP (∂P) and SPT (∂F) and it will be staked as collateral and it is represent a guarantee for NFT holders, a value they can redeem at any time. Every NFT has its own redeem price corresponding to the purchase price from SPT. Each NFT corresponds to a minimum value, which we repeat corresponds to the purchase price. It will also prevent the price from going down. So after the first purchase how does the price change ?
If song Price (D) corresponds to :
D = M / L
The song price after the first NFT purchase will increase for the second purchase (D,) as follows :
D, = D + ( ∂M / L )
D,, = D + D, + ( ∂M / L )
Dn = D + D, + D,, + .... + Dn with n => L
Dn = ( ∂P + ∂F ) / L
The price will increase with every NFT purchase, stream or tip. Fans will be able to purchase the NFT token with a fair price corresponding to the increase of market cap and revenue of the song and .
(Stock) Song Market Cap (M) increase with the increase of ∂P + ∂F :
∂M = ∂P + ∂F
(Flow) Instead, remember that incomes are generated as follows :
Marginal revenue (R) = ( ∂P + rDn )
We discovered how stock and flow change and how one influence the other. In our economic model stock always increase, flow is never negative and price always increase at least with Dn n => L
To summarise, in order to guarantee (R) = ( ∂P + rDn ) never negative in our economic model :
Price (D) is a function of market cap D = f (M)
Market Cap (M) and Price (D) cannot decrease
Each NFT has a redeem price, investors can recover their investment at all times, they would never trade at a lower price. This will prevent dump effect.
If NFT is redeemed, the NFT will be burned in order to not dump the market and so its staked value $musics will always be count in the Market Cap and in the price. It won't no more able to provide revenue, which will be distributed to the other NFT holders, increasing the ROI
One of the most important discovery with this economic model concerns Scalability. If streams are really, NFT royalties will be able to provide liquidity to PPP even with millions or billions of streams on a long term. If streams are based on a real fan base, fan base will be able to provide liquidity, part of generated $music will be pay the $music for pay per play. There are two main reasons :
NFT royalties rDn will increase with the increase of ∂P
Stake will increase Musicoin price ($music) and PPP smart contract will automatically adjust according to change in the market value of $MUSIC take a look to the Musicoin White Paper to see this in the details.
We can even changing NFT purchase fee ( r ) once all NFT will be purchased and it goes to free market.
3. Use case
3.1. Musicoin economic model : SPT complementary to PPP to serve the music
After analysing moving data on a spreadsheet, we discover how the model elvolved, purchase after purchase, stream after stream, price after price, here with a practical example untill purchase number #20 with a use case in the paragraph :
3.2. NFT setting step by step with a real case "From Moon to Mars" the song
Everything starts with music and no one has ever been able to stop it. First step, artists create a song, maybe starting from a blockchain collaboration. Let's say Stranger Souma releases a song with Ben, Asterios and Lorenzo. She contacts them, she shares the idea, the music base, chords. Then Ben records the drum, Asterios records the bass, she puts some lines of synth, samples and Lorenzo wrote lyrics, mix and mastering then he sends back to Stranger Souma.
She finally releases "From Moon to Mars" song on Musicoin, she sets the PPP split reward on the smart contract 20% for Ben, 20% for Asterios and 20% to Lorenzo and 40% to Stranger Souma, so we can say that Stranger is like the producer of this song. The song is now released on Musicoin platform, ready to be listened and tipped. After one month the song got 10k streams and 10k $music tipped. I think we can set 1 month as delay for NFTs release like default, but maybe 1 week can be enough. I think it is important to set a sort of dalay between PPP release and NFTs release. Even we can set the price automatically with a common start price for all Musicoin song and leave max supply fonction of Market Cap L = f (M). For example once a song reach 1000 streams it can be create his own NFT for example. At least fans can better judge about their investment, gaming.
With 10k $musics streams and 10k $musics tips many fans will probably ask to Stranger to release NFT token from that song as soon as she can. So she creates the Stake Per Token (SPT) our NFT generator, setting a few parameters before :
- NFT max supply (L), we said 100 NFTs (it can be set automatically, with an easy to user experience)
- NFT trading fee percentage (r), we said 10% (it can be set automatically, with an easy to user experience)
- Additional exclusive features like concert ticket, web concert, first to be informed by the news, merch, music classes,
As you can see on the picture above, immediately after have minted the ERC1155, a popup will open on the left of the Musicoin page of the Stranger Souma "From Moon to Mars" song. The PPP smart contract will be locked, it would no longer possible to change the split reward inside it.
So in the popup it will appear the NFT unlock, the NFT price.
The 100 NFTs will be locked within SPT contract ready to be purchased by the fans, investors, listeners. The first fan that will jump into this song will listen the fantastic blockchain composition and then he will decide to buy the first NFT. What's happen to all business model? How royalties will be splitted? Which is the order? And how does it work the first purchase? How will work the Music Farming?
Let's call Maria the first fan who visits the page after the NFT mintage. She loves the song so much and she decides to participate to the Music Pool, so she purchases one NFT token. The price is 200 $music, the fees (10%) are 20 $music, so she sends 220 $music to SPT in order to receive her NFT. 200 $musics will be locked and she will be able to redeem it whenever she wants.
So as we can see on the spreadsheet above, we simulate at 100 the number of streams between one purchase and another let's say each for each new . So one after the other, fans will unlocked NFTs, starting receiving royalties.
Before Maria purchase, artists already shared 20.000 $music from PPP (∂P) : 8.000 $music for Stranger and 4000 $music for each of the other artists.
Maria purchase generates 20 $music (rD) fees and will be shared as follows : 80 $music to Stranger and 40 $music to each of the other artists.
For the second NFT purchase let's say Pamela (maybe after one or two week) stake 203 $music on SPT and send 20,3 $music :
Maria will receive 0.65 $music ( ∂P + rDn ) F / ( M x N ) = (200 + 20) x 220 / (20320 x 1 ) = 0,65 $music
Artists will receive ( ∂P + rDn ) ( P / M ) = (200 + 20) x (20100 / 20320 ) = 119 $music
For the third NFT purchase after one week :
Maria and Pamela will receive 1,57 $music ( ∂P + rDn ) F / ( M x N ) = (300 + 20) x 321 / (20744 x 2 ) =1,57 $music
Artists will receive 216 $music ( ∂P + rDn ) ( P / M ) = (300 + 20) x (20100 / 20744 ) = 216 $music
We can even start display some financial parameters as expected breakeven, how many purchase your fees will be recover ? Or Return on Investment (ROI) or APY and so on.
Every new purchase will generate more revenue take a look to the spreadsheet above :
purchase number 4 : NFT holder 2,54 $music, artists 311 $music
purchase number 5 : NFT holder 3,49 $music, artists 404 $music
purchase number 6 : NFT holder 4,41 $music, artists 496 $music
Many conclusions we can start from this document, but first let starts by understand it, by integrate it, by create the . I didn't develop This economic model is complementary to the PPP smart contract, it makes sharism real and most of all it will provides funds for PPP on the long term. I do want to go on on the economic part even if we can say a lot more, but the core part is wrote down on this document, finally after 3 years of work inside the blockchain. We can also finishing by some considerations about gaming, macroeconomic and how to code it ? To be able to introduce the next steps of this document the part 3
4.1. Prevent Gaming
In order to reduce the impact of gaming with milions of autoplay or fake streams we could introduce a easy factors to reduce it like :
Organic stream IP address listeners
Number of followers. The more followers, the more this factor will be high
Study differents coefficients of distribution between artists and fans
4.2. How to code it ?
Let's make it real together. I'm not a devs but on DEFI we are already able to code something similar for yield farming, you stake $eth for a token. Stake Per Token it is similar to a PPP smart contract but instead to upload mp3 we stake $music as collateral and we create NFT tokens in order to receive part of pool royalties. Ok, ok I finished for the moment, giving the time to devs to collaborate. And if you are a devs you can join our Telegram channel and start to create the code t.me/MusicoinNFT Ask Me Anithing, find others Musicoiners running for music and join a real community driven project who create the road map every days.
4.3. Microeconomics and macroeconomics effects of NFT token introdution
Economics is divided into two categories: microeconomics and macroeconomics. Microeconomics is the study of individuals, while macroeconomics looks at the decisions of countries or communities (Musicoin community for example). Though these two branches of economics appear different, they are actually interdependent and complement one another. Many overlapping issues exist between the two fields.
Musicoin is like a country with individual and community decisions united for the same purpose : Music. Here the main macroeconomic questions :
Music Value. How can we increase Music value? How can we help artists to increase aesthetic and artistic value? How can we onboard new artists?
$Music Price"When moon? When listing?" are two of the main community questions on t.me/musicoinofficial, in other words: How to create buying pressure on the $music ? How can we increase the price of $music too?
Musicoin can be a NFTs marketplace for musical artwork that makes it easy for independent artists to represent their music collections with NFTs that can then be sold on the Musicoin marketplace.
So the creation of NFTs will create a buy pressure on the whole project because of all $music staked on each song (F). We can conclude by saying than $music price is the manifestation of the music value. We were to the moon on december 2017, exactly when I discovered the platform, I upload a few song and I really was impressed by the potential. As artist I used the platform for its value, releasing many songs with other artists inside the platform, than I become ambassador, I even attended a few events to talk about Musicoin, I coordinated the Ambassador Program . During this bear, cold winter 3 years from 1000 to 1 satoshi, I learned a lot. We have the best 1 satoshi communy in all the blockchain area and this document aims to go forward. I gave my best to produce it, many months to edit. You found a mistakes but it is not finished, I only want to awaken your passion for music. Sorry for all the grammar mistakes your encountered.
Music created P2P thanks to Napster, Satoshi created blockchain and Bitcoin thanks to P2P, Musicoin created PPP and we are going to create a great platform for music with NFTs.
No one has ever been able to stop the music
Music speaks directly to the heart. This response, this echo within the heart, is proof that human hearts can transcend the barriers of time and space and nationality.