Programmable Collateral: Bringing Music Royalties On-Chain

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August 26th, 2021

The exciting ways to use Ethereum stretch far beyond financial applications - as NFTs are currently showing, but a less-than-sexy area of music, royalties, are already being paid faster and more efficiently today using DeFi and NFTs.

Paperchain is a company that was formed in 2017 and founded by Dan Dewar. After riding through the rise and fall of the 2017-2018 period in crypto they had landed on a strong value proposition: collateralize streaming data for an artist on Spotify and use that to create synthetic assets on-chain that can be immediately paid to the artist.

This solved a big problem: slow royalty payments

Spotify is well known for not producing much income in the way of royalties for artists. What it is not as well known for is how slow those royalty payments can be - sometimes taking as much as 75 days. That is slow, but other sources are even slower. Paperchain recognized this as an issue DeFi was uniquely positioned to solve.

What if NFTs weren’t just collectibles or art or token gates? What if NFTs could be programmable collateral?

High-level diagram of how Paperchain uses NFTs, Tinlake, and DAI for providing immediate royalties on Ethereum.
High-level diagram of how Paperchain uses NFTs, Tinlake, and DAI for providing immediate royalties on Ethereum.

Paperchain has now been at this for awhile - first announcing their plans to leverage NFTs and DeFi publicly in 2019 in a partnership with Centrifuge.

How it works: Paperchain provides the data from a music distributor, gives a market rate for the per stream of the individual artist, and use Centrifuge’s Tinlake to mint DAI that could be paid to the artist the same day the streams happened.

Paperchain is leveraging a unique combination of NFTs x DeFi to unlock the creator economy with a web3 layer that makes content interoperable with digital assets and community monetization models.

This solves a bigger problem: On-chain music royalties

Last week Paperchain announced that they are now available to select United Masters customers, now making a crypto wallet available with an incumbent music distributor.

Paperchain is now an App + Debit Card that creators can use to access daily partners, and is partnering with music distributors to help them pay their artists daily. More significantly, they are moving towards giving artists a wallet to interact with crypto. You can use the debit card to spend your DAI at the store, sure, but maybe in the future you could also use the app to buy NFTs or Social Tokens of another artist.

Paperchain app
Paperchain app

This is all part of a grander vision for Dan Dewar, CEO of Paperchain. He notes that royalty payments may not add up to much today but aggregating them in one place will lead to wealth accumulation. Dan also noted that Paperchain surveyed users for new features and that they found that artists were more interested in buying crypto with their streaming payments as opposed to things like cash back rewards with the card.

Giving artists the tools to bring their work into parity with the payments they receive for that work has been a large value proposition of web3. The problem has been that payments have not been on-chain and artists didn’t have identity on-chain. Paperchain has now augmented legacy payment systems to realize on-chain royalty payments for music - in a way that bridges legacy media to web3 layers. \n \n When music can be distributed to Spotify + all other DSPs and those royalties can be brought on-chain - artists can then explore ways to give value back to their fans in more novel ways. Royalties from streaming can flow to NFTs, social token holders, early followers, and anyone who has a record of interacting with that artist on-chain.

Paperchain can expedite streaming payments for artists now but I think that will be one of the smaller achievements in comparison to what else they have unlocked in the process.

Special thanks to Dan Dewar for helping make this piece happen. Checkout paperchain.io or give them a follow @paperchainio

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