Pantera Capital Partner: Interpreting the Decentralized Streaming Platform Audius

Written by: Paul Veradittakit, Partner at blockchain investment firm Pantera Capital

Translated by: Lu Jiangfei, Chain News

Recently, a decentralized streaming platform Audius, which started in the music industry, has attracted the attention of the blockchain community. They announced a strategic investment of $3.1 million from Pantera Capital, with other investors including Multicoin Capital, Blockchange Ventures, and Coinbase Ventures. It is worth mentioning that Pantera Capital also participated in the company's early seed round, which included investors such as General Catalyst, Lightspeed Venture Partners, and Kleiner Perkins.

Audius is noteworthy because it is a community-owned, governed, and operated decentralized music content protocol. Let's take a look at how it works:

• The existing business model in the music industry is not friendly to creators, many of whom cannot maximize their benefits. New artists also do not receive adequate support, while distribution channels and record companies like Spotify and Apple Music exploit streaming and record purchases to capture most of the revenue in the music industry, with creators receiving only 12% of the total industry revenue.
• Audius is a decentralized protocol that facilitates direct transactions between music listeners and creators, eliminating the influence of streaming platforms and record companies (which are often barriers for music creators to enter the market), allowing creators to host their music for free on the Audius blockchain.
• The infrastructure of Audius is designed around two tokens: Audius and Loud. Music service providers can use Audius tokens to stake in order to operate the protocol and recommend music content to listeners by indexing the Audius blockchain, facilitating music discovery. Audius tokens can also be used for arbitrating music content claims, filing content claims, voting on governance proposals, and more. Music service providers can earn a certain percentage of revenue from listeners, which helps reduce the inflation of Audius token supply. This idea essentially limits the role of music service providers to merely acting as discovery channels (to reduce their influence) and aligns their incentives with those of music creators.
• Listeners can use Loud tokens to pay for music content, which is pegged 1:1 with several stablecoins in the market. Creators can receive 90% of the total revenue from music streams, and they can customize pricing models to support better streaming, artist memberships, individual track purchases, album collectibles, and more. Audius establishes a direct payment channel between listeners and music creators, thus aiding artists in their early creations. Moreover, the listener interface of Audius is designed in such a way that users may not even realize it is built on "blockchain" technology, meaning that listening to music on the platform does not require any technical background, just like listening to music on other web-based streaming services.
• Currently, the Audius platform has over 250,000 music listeners and 40,000 artists, with as many as 80,000 songs created on the blockchain, including well-known music labels like deadmau5, 3LAU, and Zed's. All music streaming on the Audius platform is currently offered for free, but Audius will later launch a paid version of the infrastructure, allowing artists to start profiting from paid music content, which will also help promote the platform's adoption.
• The traditional music industry today is filled with "bureaucracy," while Audius is a very promising decentralized music application that prioritizes the interests of music creators through its staking token model and eliminates many barriers for them to enter the music industry. As the protocol gains popularity, we will see a paradigm shift for music creators in the digital content ecosystem, allowing them to receive more and fairer rewards.

Creator revenue accounts for only 12% of the total revenue in the music content industry

Looking back at the development of the music industry in recent years, we find that the dominant business models are almost all driven by record companies and music platforms/apps. In the early stages of the smartphone industry, companies like Apple established numerous music markets (such as iTunes), forcing users to purchase tracks and albums from music creators, while most of the music royalties and usage fees went to Apple and record companies, leaving the artists who actually create music content with only a small portion. Even in the streaming era, many artists in the music industry still struggle; companies like Spotify transmit music creators' works to millions of users every month, but the compensation artists receive is very low. On average, music artists can only earn about 12% of the total revenue from the industry, and even major stars like Taylor Swift have chosen to "briefly part ways" with Spotify due to unequal revenue distribution and strained working relationships. In fact, these issues have caused significant pain across the entire music industry, with many artists calling for the industry to address various unfair treatments.

The dominance of centralized streaming platforms in the music industry severely harms many niche artists, especially those who have not yet signed with record companies. Generally, niche musicians have fewer listeners and very limited marketing channels, making it very difficult to share in the "12% share of creator revenue" from the music industry, so they find it hard to succeed and continue creating music. Moreover, the music industry's over-reliance on record companies and centralized service providers may lead to censorship of artists' creative content, meaning artists must cater to mainstream tastes to adjust their works, or they risk being eliminated from the platform. On the other hand, there are indeed music service providers like SoundCloud attempting to support independent artists, but the popularity of these applications has been declining, and they charge artists high hosting and monetization fees, further increasing the barriers to entry. Therefore, the music industry urgently needs a better platform that utilizes innovative revenue models to support emerging artists in creating music content.

What is Audius?

Audius is a decentralized music sharing and streaming protocol designed to place artists at the center of the industry. This platform not only significantly enhances artists' ability to express themselves freely but also connects artists directly with fans, ensuring that artists can receive most of the revenue from their work streams. The Audius platform has no intermediaries (like Spotify/Apple Music or record companies), and the entire experience is designed to deliver music directly from artists to consumers.

How does Audius work? Why would someone use blockchain technology in the music streaming industry?

Audius has two tokens: a governance token called "Audius" and a platform token called "Loud." Music creators can publish their content for free on the Audius blockchain, which essentially acts as a "database" for the platform's music content. Other music service providers can access this database and index it.

Then, node operators help listeners connect with music content on the Audius blockchain. They can operate a "discovery service" on the protocol (an application programming interface) that essentially indexes the Audius blockchain and music content for listeners to discover new works published by artists on Audius. However, node operators must stake Audius tokens to operate the corresponding "discovery service" on the protocol; the more Audius tokens they stake, the greater the likelihood that listeners will connect to their "discovery service." Additionally, staking Audius tokens allows node operators to apply for arbitration claims, file claims, and vote on platform governance. To incentivize node operators to run services and stake Audius tokens, the protocol compensates them through the streaming revenue they facilitate and by reducing token supply inflation. When Audius launched, a certain initial supply of tokens was set, which will be increased annually according to a predetermined schedule.

Audius's unique token model places content creators at the center of the music industry:

1. Clearly defines the role of platform operators: Node operators are no longer marketing engine platforms and streaming platforms but merely provide channels and APIs for music discovery, allowing for a more direct relationship between creators and listeners in terms of music traffic and purchases.

2. Platform operators need to invest in the Audius protocol. The brilliance of the token staking model is that node operators must actively invest in digital assets (which have fiat currency exchange and resale value) to initiate operations. This model helps align the incentives between node operators and artists, as they can only earn rewards when the "discovery service" provided by node operators runs well and the target audience genuinely purchases the creator's content.

For listeners, they need to use Loud tokens to purchase music content (streaming is in high-quality 320kbps format), and this token is stable and backed by third-party stablecoins. Currently, Audius can provide creators with 90% of the revenue from listening to original music artists' works, a significant increase from the current industry standard of 12%. Creators compensated with Loud tokens can also use their income for marketing channels, and all payments are based on the Audius blockchain and run on a smart contract network, meaning the entire transaction requires no intermediaries. Loud tokens are minted through a non-credit system, allowing any user to deposit stablecoins and exchange them for Loud tokens at a 1:1 ratio. Users can also deposit and burn Loud tokens to receive an equivalent amount of stablecoins.

To directly connect music creators with listeners and allow them to choose their own distribution models without following traditional streaming channels, the Audius protocol has designed many different content distribution channels to help music creators profit through streaming, individual track purchases, artist memberships, album collectibles, and more. Moreover, music creators can optimize the distribution of their desired audience without having to conform to the standards of the traditional music industry.

With a stable technological infrastructure, Audius allows users to avoid the cumbersome process of explaining blockchain and DApps. Music sites aimed at listeners do not need to consider solving underlying protocol issues; all services are built on a simple streaming platform, with the two main user groups being music creators and listeners. For ordinary users, the appearance and user experience of Audius's interface are quite similar to services like Spotify or SoundCloud, which is another significant advantage in attracting content creators and listener users.

At a higher level, the Audius protocol is at the core of content sharing, discovery, and payment, protecting the interests of music creators. More importantly, the Audius protocol clarifies the roles of each stakeholder (such as platform operators), eliminates intermediaries (such as payment layers and record companies), and fosters direct connections between music creators and listeners.

How has the Audius platform developed since its launch?

Currently, the Audius platform has reached 250,000 monthly active users, with 40,000 music creators and 80,000 tracks, including well-known music labels like deadmau5, 3LAU, and Zed's, which have attracted over 20 million listeners and fans on other streaming platforms.

At present, all streaming on the Audius platform is completely free, but its paid infrastructure is gradually being rolled out, aimed at helping some emerging artists start profiting from paid music content, which will also aid in the platform's promotion and adoption. Music creators can host their works for free on Audius (without competing with peers like Spotify) and then profit from their streaming.

Final Thoughts

There is no doubt that the traditional music industry is ripe for disruption; the current business model fails to provide effective support for emerging artists, and even many internationally renowned music "big names" are dissatisfied with highly corporatized and centralized content channels like Spotify. Audius not only provides more roles for music creators but also amplifies their voices, ensuring that "middlemen no longer profit from the difference." Furthermore, the responsibilities of platform operators are effectively constrained, limited to music discovery/hosting and adjusting incentives based on creators and listeners. In this frictionless experience model, music content creators can openly and directly share their works with listeners while setting incentive conditions according to their own wishes.

The core promise of decentralization is to return ownership and value to end users. In the music industry, Audius offers a compelling model while providing listeners with a high-quality music content access experience comparable to, or even better than, other streaming platforms. Building a fair ecosystem that supports emerging artists and rewards creators is the first step in restructuring the content industry dominated by centralized platforms—especially in the digital content market, it is time to prioritize content creators and content consumers.