Music NFTs: A Way to Invest in the Nascent Web3 Music Space
Music NFTs are an emerging asset class offering exposure to music and NFTs.
Updated Nov 17, 2022
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Few assets have seen the same meteoric growth that non-fungible tokens (NFTs) had during the pandemic. NFTs are digital collectibles and goods represented by tokens on the blockchain that grew from a grassroots movement to a global phenomenon. The market was valued at as high as $40 billion at its peak in 2021.
The crypto-loving public has warmed up to famous art projects such as CryptoPunks, Bored Ape Yacht Club, and NBA Top Shot on Flow. In fact, owning certain collectibles from these famous projects can confer some considerable crypto clout.
An enterprising investor could capitalize on demand for an artist by buying their collectible NFTs.
Increasingly, the nascent digital collectibles trading hands in the NFT space are moving beyond art and into other lucrative digital assets. One of the more exciting applications at the cross-section of digital assets—NFTs, digital music, and content—is music NFTs.
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Discovering how music NFTs could find a place in your portfolio (and maybe make you some money along the way) requires an understanding of how music NFTs set themselves apart from conventional NFT projects.
What are Music NFTs?
What are Music NFTs?
Music NFTs is a 'catch-all' term for digital tokens representing either ownership of or interests in a musical work, music royalties and revenues, or music communities.
Grammy-nominated RAC released an NFT of a cassette
However, that 'catch-all' definition is vague. Some music NFTs are similar to buying a song on iTunes, which isn’t much of an investment at all. On the other hand, a music NFT can represent interests in an artist’s works, which can resemble an investment, albeit risky.
Some marketplaces—such as Catalog and Sound.xyz—emphasize allowing users to buy “collectible” music NFTs representing ownership of sound files, accompanying visuals, or exclusive content. Collectibles from these marketplaces might generate a return because they are scarce, but other marketplaces—such as Royal or Opulous—take a different approach by offering music NFTs that generate income as an alternative, non-correlated asset.
Why invest in Music NFTs?
Why invest in Music NFTs?
Think of music NFTs as the web3 way of investing in music royalties. The idea is fundamentally the same between both web2 and web3 platforms for investing in music royalties. The critical difference in the web3 version is decentralization, a blockchain-based experience, and the use of NFTs.
In the spirit of decentralization, many artists are choosing to abandon the legacy music industry. Historically, artists signed with labels, thus shifting the risk to labels, but reduced the amount of money and rights they got from their own music. But in recent years, artists have chosen to go independent, which means greater upfront costs, risks, and uncertainty.
One way investors can remove some of that risk is by auctioning off a portion of the financial interests in a song or offering up some collectibles. This could become a win-win for both the artist and the investor: the artist will receive upfront cash to finance their projects and career; the investor will receive rewards arising from that investment based on the song’s performance.
Source: MoneyMade Music Royalties page
In the end, artists taking a more 'indie' approach to the industry are holding onto their intellectual property rights, generating more revenue, and possibly even generating more leverage for a better record deal. You can think of buying a music NFT as an investment in the artist, the individual record or song, and the up-and-coming web3 space.
How can you invest in Music NFTs?
Like popular NFT projects such as the Bored Apes and CryptoPunks, music NFTs are traded on NFT marketplaces like OpenSea, LooksRare, and Magic Eden. However, music NFTs are more frequently traded on platforms dedicated to trading exclusive artist content and music royalties.
Many of these marketplaces are still in their early days and the quality of investment candidates on these platforms is also hard to discern given their short track record. That's why many artists have taken to OpenSea to share their NFT content.
Music royalty marketplaces
Royal and Opulous are the most popular and established marketplaces for music NFTs. These two platforms allow you to invest in songs from popular artists and receive an NFT representing fractional ownership of their songs.
The percentage of ownership that investors get is determined on a song-by-song basis, along with the number of tokens issued. On Royal and Opulous, the cuts for investors might be tiered to allow investors to get in at various price points—those tiers will carry varying amounts of ownership in a song, EP, or album.
An offering from Royal’s marketplace for a new song, including two tiers.
In either case, investors can also expect to receive other benefits by investing—that might include access to a Discord channel, exclusive events, or even physical merchandise.
So long as investors hold the NFT, they’ll receive revenue from the song. It’s a pure and direct way to invest in songs and be rewarded financially for it.
More speculative music fans can invest in—and trade—music collectibles. Unlike in the case of royalty marketplaces which allow investors to buy shares in a song, these marketplaces allow investors to purchase NFTs that carry more conventional NFT benefits.
That said, the music collectibles market is a little more opaque than music royalties. Music collectibles could take on the form of audiovisual art, gated access to artist communities, licenses to use music for commercial purposes, or access to exclusive content. The idea is that interest in the artist or creator’s community gradually becomes more scarce. An enterprising investor could capitalize on demand for an artist by buying their collectible NFTs.
Sound.xyz allows artists to sell limited-edition NFTs, giving their fans the right to leave a comment on that song and show that they were an early supporter.
However, investing in music collectibles isn’t for everyone—they don’t generate passive income, the ability to sell the collectibles is not guaranteed, and many marketplaces have small cult followings. You should consider buying these kinds of NFTs as supporting an artist; you might make a return if you can sell your NFT after it appreciates, but that uncertainty makes it highly speculative.
Music & artist DAOs
One last option for getting exposure to music NFTs is through music and art-focused decentralized autonomous organizations (DAOs.) There are now thirty music-focused DAOs according to Cherie Hu at Water and Music, a platform providing journalism around music and the web3 ecosystem that’s springing up around it.
Music DAOs offer a less direct way to gain exposure to the innovative, albeit turbulent, web3 art scene. Among them are investment DAOs, label DAOs, and artist DAOs.
NoiseDAO is one example of a music investment DAO. Investors pool Ethereum to make investments in NFTs, musicians, archival projects, and the digital music ecosystem. However, NoiseDAO is extremely exclusive as membership is limited to the first 65 people that joined.
Prompt after connecting Web3 wallet to NoiseDAO.
There are also DAOs dedicated to artists and labels. Just take RAC’s artist DAO as an example; it has become the gold standard of how investors can support artists. That investment isn’t necessarily one which will mean hefty returns, but it might mean access to other forms of value.
In the indie label world, look at Dreams Never Die as an exemplary label DAO. Though it's still in its early days, the DAO has grown into an artist-centric social club—it releases music from artists wanting exposure to the web3/DAO world which can be purchased in editions on collectible sites like Catalog.
All in all, music and artist DAOs are another interesting option for investors to mull. Not all DAOs will generate revenue like music royalty NFTs or have benefits like collectible NFTs, but the DAOs might be a way that artists can join groups dedicated to music NFTs (and make investments).
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Would you invest in music NFTs?
What are the risks of buying music NFTs?
What are the risks of buying music NFTs?
Equities, crypto, and bonds are all riskier investments than, say, holding all of your money in cash. To some degree, investing in alternatives is even riskier than that. Music NFTs fall into a unique intersection that curtails conventional forms of risk while compounding the risk and uncertainty from the world of digital assets and blockchain (as evidenced by the recent crypto crash) and the music industry (which is opaque compared to other investment vehicles.)
That means that getting in on the ground floor of this unique new investment opportunity could pay dividends (literally) or wipe out your capital. For that reason, it’s essential that would-be investors weigh these considerations, educate themselves to an even greater degree, and consider their risk tolerance before making investments in the music NFT space.