Machi X Decentralization

(Also published on LinkedIn)

After working on Machi X for over a year, we’ve learned many lessons. First, tokenizing music copyrights not only brings liquidity to a formerly illiquid market, but also vastly improves the royalty distribution process by making it cheaper, faster, and scalable. Second, it is possible to enable price discovery of music copyrights through a tokenized music copyright marketplace.

Today we are sharing with you the next phase in the evolution of Machi X toward decentralization.

The Current State of Music Copyrights Management

HBO. Player piano plays music in The Mariposa Saloon.

The current music copyright system- both legal and administrative- are based on rules set almost one-hundred years old, without much modernization. For example, the concept of mechanical royalties stem from when automated pianos would mechanically reproduce melody via piano rolls as seen in the opening credits of Westworld. While everyone agrees that music copyrights are valuable assets, we see the following problems in this antiquated system:

• Lack of Open Market — There is no marketplace to connect buyers and sellers of music copyrights, thus no mechanism for price discovery. Fans and collectors who value music as art rather than an asset class have no way to own this art — only industry insiders who value assets through discounted cash flow models participate.
• High Cost of Custody Transfer — Ownership structure of music copyrights are often unknown and buried in contracts that may have been lost or owned by entities that are difficult to reach. Additionally, transfer of custody generally requires lengthy processes and costly legal representation.
• Royalty Distribution is Highly Inefficient — A Berklee College of Music report estimated that 20–50% of music payments do not reach their rightful owners. The current, porous royalty collection process is a problem that artists begrudgingly accept. Artists would rather spend more time being creative instead of collecting payments.

Digitization of Music Copyrights on Distributed Ledger

We began work on Machi X late 2018 and launched a working platform in March 2019, along with the first iteration of our royalty distribution smart contract. We quickly followed up with mobile apps on both iOS and Android in June. By leveraging distributed ledger technology, we’ve enabled the following:

• Fractionalized ownership — Tokenization of music copyrights allowed for ownership by fans and collectors in addition to industry insiders. Subsequently, an open marketplace and price discovery became possible.
• Efficient Custody Transfer — Tokenization of music copyrights also allowed for secure, fast, and cheap transfer of custody. This removed the need for costly intermediaries, contracts, and lengthy settlement processes. When most songs are worth tens of thousands of dollars, paying a thousand or even a few hundred for transferring ownership is cost prohibitive.
• Automated royalty distribution — Tokenization of music copyrights also enabled automation of royalty distribution. Whether a song is owned by one or one thousand owners, royalty payments can be sent with ease, based on the percentage ownership at the time of distribution. Considering most songs only receive $100-$1000 annually, distributing royalties to many users would be cost prohibitive.

The Future of Music Copyrights Management

In the past year, we’ve successfully digitized over 59 songs performed by notable golden melody award winners A-Mei, Wang Leehom, Jolin Tsai, Stanley Huang, and Nicky Lee. In November, we completed the first ever distribution of music royalties on the blockchain, starting with the first wave of royalties we’ve received. In December, the STYL music copyright token recently became the first asset token to list on the BinanceDEX.

We are proud to have demonstrated a real use case where asset tokenization solved a real world problem. We quickly settled a composition copyright credit issue via a transfer of music copyright tokens.

This case occurred with the music copyright for Mandarin Pop diva A-Mei/張惠妹’s Nevermind/無所謂. When songwriters Steven Lin and Luke Tsui wrote this song in 2003, rap lyrics were not granted composition credits. After mutually agreeing to giving Steven composition rights in 2019, a transfer of the copyright tokens corrected this issue. For copyrights that are not tokenized, this work would have required a costly and lengthy process with lawyers and other intermediaries.

In just one short year, we’ve demonstrated what technology modernization can offer to the music industry.

Moving Toward Decentralization

We launched Machi X as a centralized service where the Machi X team works with artists, manages the listing of asset tokens, validates claims of asset ownership, collects and distributes royalties and fan benefits to token holders, and maintains the infrastructure of Machi X. When artists expressed interest to be a part of the Machi X network, we created the MCX Collective, where artists and fans of the IP tokens can all share in the value created through the underlying works of art tokenized and listed on Machi X.

The reality of just how heavily fragmented the music industry has become made the need to evolve toward decentralization more apparent. Songwriters want performers to partner with, performers want labels that can fund/market them properly, and labels want to better connect their artists with fans. Performing Rights Organizations (PROs) and other royalty collection bodies want to collect the proper royalties owed to their members, music licensees (content producers) want to properly attribute/pay royalties to the artists. As we identify more players with divergent interests and a lack of trust between the players, we realized that a community-driven, collective approach is the best way to serve everyone’s needs.

We are inviting our community of artists, fans, and collectors to join us in making decisions. Holders of each IP token can, for example, decide if the existing publisher should continue to publish the song, or delegate this decision right to the artists who created the song. Holders of the MCX platform token can vote on changes to the overall Machi X ecosystem.

To that end, we will build out a governance platform to address these needs. Basic requirements for this governance platform includes the ability to:

1. Coordinate and protect the interests of token holders while allowing consensus building,
2. Provide key components for administering digital organizations,
3. Include easy onboarding and user experience for mainstream users.

Join us!

While we evolve Machi X toward a decentralized autonomous organization, we will favor usability over decentralization. We welcome fans, artists, industry partners (Publishers, Record Labels, PROs) and members of the community to join us in building this digital organization to shape the future of the Machi X ecosystem.

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