Pantera Partners: Understanding the Music Tokenization Platform Royal in One Article

Written by: Paul Veradittakit, Founding Partner of Pantera Capital
Translated by: Lu Jiangfei, Chain News

• The music industry generates up to $40 billion in revenue each year, but only 12% of that actually goes to artists, while the rest flows to intermediaries such as agents, platforms, and record companies, unfairly "stealing" the fruits of creators' labor. Furthermore, this revenue stream is almost entirely driven by fan participation, yet they have no rights or opportunities to engage in the music production process.

• Royal is a new platform designed to help artists crowdfund their creative projects using smart contracts. With these contracts, supporters—referred to as holders of limited digital assets (LDA)—can receive a portion of the royalties generated by the projects. The Royal solution primarily manifests in three core functions:

• Simplified and compliant minting and selling of limited digital assets (LDA), allowing fans to purchase these assets to provide support right from the inception of creative projects;

• Collection and distribution of royalties, including incentive sharing for LDA holders to reward their contributions and participation;

• Facilitation of a secondary market for LDA, allowing LDA holders to trade tokens from different creative projects with one another and create a vibrant economic ecosystem around media ownership.

• Royal is also building a set of tools to help creators leverage LDA as a means of ecological participation, providing features such as granting special permissions and supporting direct communication access between fans and creators. LDA can serve both as an economic investment and as a "pass" for fan communities, capturing the intangible social value of artistic works more fully.

• Currently, the Royal project is establishing partnerships with several undisclosed well-known artists, and if all goes well, fans will be able to support music production starting in October. After building and validating products around music ownership, the Royal team plans to expand their approach to other categories of royalty-generating assets—including digital assets (such as TV licensing, YouTube content creation, etc.) and physical assets (such as land mining rights, patents, etc.).

• Royal was founded by renowned EDM artist 3LAU and former Opendoor co-founder JD Ross, who previously sold a tokenized album that generated $12 million in a single day. The Royal project has completed a $16 million seed round of funding, with investors including Founders Fund, Paradigm, and others.

• The digital media production process is undergoing a paradigm revolution, shifting from being intermediary-centric to being artist and their most loyal fans-centric. Ultimately, Royal will become a representative project of this paradigm shift, enabling artists to rely on loyal, incentivized supporters while generously rewarding those fans who support them.

The "Blind Spot" of Royalties

At this stage, the primary commercial use case for digital art is the collection of royalties, where creators charge consumers (often hosting platforms) a small fee for the use or consumption of their assets. The nature of digital media makes it easy to replicate and promote, which means it lacks the inherent qualities that drive the scarcity of many physical values (and collectible revenues). Royalties allow artists to earn long-term and stable income from digital media through their original works.

Sadly, the distribution of royalties today does not favor artists but rather leans towards the intermediaries that distribute and platform their works. Of the $40 billion generated annually in the music industry, only 12% goes to artists. Moreover, it is not just artists who are being exploited—Kanye West revealed in a famous tweet that, according to his contract with Universal Music Group (UMG), he received only 18% of the revenue from his first five albums.

However, fortunately, this unfair income distribution model is nearing its end, as this inefficient business model was designed by unrelated institutions in the past. Today, streaming services and record companies like UMG and Sony Music are taking up less and less weight in the music distribution and platforming process. Additionally, artists can garner a wave of fans early in their careers, leading to increased fan community engagement, allowing artists to receive support—including funding—from dedicated supporters who have the greatest common interest. It can be said that the time has come to push creators and their communities to the "C position."

What is Royal?

Royal is essentially a platform that uses smart contracts to crowdfund creative projects, providing supporters with a share of project revenues (or royalties). This disrupts the highly institutionalized business model of today's music industry and offers tangible rewards for the work of artists while providing better support for loyal fans.

How Does Royal Work?

Royal aims to redefine how artists and fans profit from music in three ways:

1. Simplifying the creation of limited digital assets. Royal's protocol includes a service that helps artists compliantly mint and sell limited digital assets (LDA) for any type of digital media in exchange for a small creation fee. Fans can also purchase LDA during the initial sale as a way to "support" the artist's project.

2. Automatically and efficiently collecting royalties. Royal's smart contracts will automatically collect and distribute royalties while handling the conversion between fiat currency and on-chain tokens, as well as all transactions related to paying royalties to LDA holders. However, Royal will take a small portion of the royalties as a platform management fee.

3. Creating a secondary market for limited digital assets. Previous LDA holders can trade with one another, creating a complete value ecosystem around the artist's work and their supporters. Meanwhile, this also creates additional business opportunities for Royal, facilitating LDA market-making and allowing artists to earn residual profits from token resale.

Royal is also building a set of tools that provide features such as granting special permissions and supporting direct communication access between fans and creators, helping creators leverage LDA as a means of ecological participation. By defining LDA as synonymous with participation, Royal's model can capture more of the immense intangible value generated by art and the communities built around it. Today, LDA is not only an asset in an investment portfolio but also a rare item in art collections.

Currently, the Royal team is establishing partnerships with many top artists who have yet to be revealed. Fans are likely to be able to purchase LDA to support their creations in October of this year.

Not Just Music

Unfortunately, the unfair distribution of royalties is not limited to the music industry; it also appears in video streaming, YouTube content creation, TV licensing, independent film production, and other areas. After building a foundational product for musicians and their fans, Royal plans to disrupt these other digital media verticals as well.

Who is Behind the Royal Project?

Royal was founded by renowned EDM artist 3LAU and former Opendoor co-founder JD Ross, who previously sold a tokenized album that generated $12 million in a single day and is also a former partner at Atomic Ventures and co-founder of Opendoor.

Currently, the Royal project has completed a $16 million seed round of funding, with investors including Founders Fund, Paradigm, and others.

Final Thoughts

One of the main goals of decentralization is to reduce the grip of institutions on power and return more value to individuals. For a long time, the music industry has been plagued by highly predatory business models, forcing artists to give up most of their profits to large institutions like record companies and distribution services just to get their works and music released. On the other hand, fans who contribute their income to the music industry and drive its development have been ruthlessly abandoned, with their contributions going unrewarded.

Royal proposes an innovative business model that places artists and their most loyal fans at the center of music production, allowing artists to rely on this loyal, aligned group of supporters to back creative projects and generously reward those fans who support them. By integrating the fan community into the production process, Royal combines the intangible social value of music with the tangible monetary value generated by music consumption into a "tradeable token." Ultimately, digital creators and their communities can gain funding and rewards through their creative work, and it is no exaggeration to say that Royal represents a structural shift in the model.

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