We Can’t Ignore Tokenomics In Music3
The idea of “tokenomics” is used to describe the logic, mechanics, systems, and incentives that guide crypto assets. It encompasses everything from the technology behind the asset to its economic features to the psychological or behavioral influences that the asset exerts over time, on buyers, sellers, and other market participants.
When we’re talking about blockchain music, it’s tempting to embrace a purist approach, holding music itself above all other aspects of a project. It’s tempting because music is the uniting force that brings us together and creates our mission and purpose. But if we’re going to create a sustainable industry that benefits everyone involved, we need to think about tokenomics too.
It’s no secret that the music industry is in a state of flux. The traditional ways of making money from music are no longer as lucrative as they once were. Artists and record labels are increasingly looking for new revenue streams, and crypto tokens offer a potential way to monetize music.
Tokenomics incentivize users to buy and hold a coin, making the project as a whole more likely to succeed in the long run.
At the end of the day, crypto projects are built on foundational layers that include economics, technology, and social dynamics, and the supply vs. demand calculation is where those elements are brought to function.
Supply and Demand are the two most important economic forces. Supply and demand are the basis for tokenomics, and they give us a good indication of how valuable a certain token or cryptocurrency should be. Supply is governed by the token liquidity, market cap, and unique holders; demand by the token’s cultural popularity, utility, or growth potential.
The basic concept is this: when the available amount of a cryptocurrency falls, its value rises. Deflation occurs when there are fewer tokens available; we refer to this as scarcity. When the quantity of a cryptocurrency rises, its value decreases — inflation. But the basis for this is initial demand. Supply means absolutely nothing if the overall demand remains at zero. In fact, if the only thing that mattered was the supply, we could just create a new coin every day and its value would constantly go up (assuming all other conditions stay the same).
The token utility is where things get interesting.
The more use a token has, the more valuable it becomes. The use-case itself doesn’t need to be massive, and it doesn’t need to overpromise; in the ICO boom, we saw an insane number of tokens promising utility that was almost impossible to achieve, and rarely based on reality — leading many to be cautious about the utility promises in a project’s tokenomics.
Utility simply needs to be real, practical, and clear. For example, a governance utility in a community that has benefits for membership, such as a DAO, can be an important utility that gives a token worth as more people want to engage with and direct the efforts and energy of the collective. Purchasing and trading assets, staking and farming for additional economic benefit, tokens that represent fractional ownership, etc., are all popular working concepts for tokenomic utility.
A popular utility can help a project reach a cultural impact inflection point. This is due to something called network effects. The basic idea behind network effects is that the value of a good or service increases as more people use it. This is because the network becomes more valuable to each individual user as it grows in size. Utility can get a token there, and once viral demand kicks in, the sky’s the limit.
The potential utility for a token in this ecosystem is limitless. For example, imagine a world where musicians are directly rewarded for their work by fans who appreciate it. Instead of record labels and other gatekeepers taking the lion’s share of revenue, the artists could be directly compensated by the people who love their music. This is just one potential application for blockchain technology in the music industry — there are more.
In the music industry, tokenomics can help to create a more transparent and efficient system for distributing and monetizing music. For example, by issuing tokens that represent a stake in the artist’s work, fans can become more directly involved in the success of their favorite artists.
In this context, we can’t consider tokenomics, or the value of a token, to be an afterthought. It’s all well and good to be creating and crafting blockchain music, but if we can’t find a way to make it valuable to people, it won’t go very far. The economic basics of the token itself will determine the future of a blockchain music token as much as the music behind it, because ultimately, artists still need to get paid, and the industry still needs to function.
Tokenization offers a way to create a more direct connection between artists and their fans, while also providing a more transparent and efficient system for distributing and monetizing music; the spirit of crypto and the blockchain in music goes beyond the financial aspects, but those aspects can’t be ignored if we want to build an ecosystem that will last.
We need to think about how the economics of a project can incentivize people to participate and help it grow. We need to create systems that benefit artists, fans, and other participants alike.