For a moment, it seemed like the future of music had arrived. Crypto and Web3 have dominated music culture over the past year with high profile NFT drops from Snoop Dogg, Nas and Grimes.
But now crypto prices are plummeting. There is panic in the air and massive layoffs across the industry. Is it all over? And what does this mean for the future of “Web3 music”? The consensus on the ground is that the hype cycle is over, but now is the time to rebuild and focus on real innovation. These crypto “winters,” as they are known in space, are always tough, but they are also tough when the biggest breakthroughs are made.
First, let’s assess the damage.
Ethereum price has fallen over 75% since November, dropping from a high of $4,800 to around $1,100 at the time of writing. The latest selloff was triggered by a seismic collapse in Terra/Luna cryptocurrencies that wiped out a total of $60 billion. The domino effect spread through the industry, forcing Celcius, a major credit company, to freeze customer withdrawals. Now one of the biggest crypto funds, Three Arrows Capital, is said to be insolvent after facing $400 million in liquidations.
Across the industry, Web3 companies are laying off staff and dramatically cutting costs. Leading cryptocurrency exchange Coinbase froze hiring, rescinded job postings, then abruptly cut staff by 20% last week. Meanwhile, executives who opted to take their salaries in crypto or digital tokens saw their paychecks devalued.
It’s safe to say that crypto mania quickly came back to life.
We are also seeing this slowdown reflected in NFTs, which are primarily based on Ethereum transactions. NFT trading volume on Opensea, the largest NFT marketplace, has fallen from a record $5 billion in January to just $515 million so far in June. And it has also shaken up the NFT music market – collections no longer sell out in seconds and major platforms have reduced the number of releases.
Sound.xyz, a platform that hosted daily music releases from Snoop Dogg and Vic Mensa, has slowed to two or three releases per week. Like many others in the space, however, Atlantic Records founder and former A&R David Greenstein says the company uses time to create new features. “Whether the market is up or down, we’re looking to help artists reach as many people as possible and how do we help artists make money from their music?” he says. “Mission transcends a bull or bear market.”
For artists and businesses planning an NFT release, however, the biggest market downturn since 2020 has caused many to adopt a wait-and-see approach. RELICS, the NFT platform linked to Monstercat Records, comes delayed its last drop after selling its first collection of 1,100 musical NFTs earlier this year. Writing on Twitter, the company explained, “Due to the current health of the market, we will be moving the date for our next IDOL drop.” In contrast, omgkirby, a faceless music project run by a Decentralized Autonomous Organization (DAO), plans to move forward with its next planned generative music collection with acclaimed artist Channel Tres in late June or early July. The project’s founder, who spoke anonymously, said he believes his project can stand out while succeeding in a declining market because it includes “real value” with related intellectual property rights . “We have to be more dynamic now. with this decline than ever,” they say. “It’s a time when people are now looking for real value, so I think projects like us will be more celebrated.”
The market downturn will also affect any artist or entrepreneur who launched a successful project but kept their income in Ethereum. For example, when Snoop Dogg released a collection of NFTs in March, he raised 100 ETH worth $260,000 on the day of the drop. That same 100 ETH is worth less than half today. We don’t know if the hip-hop icon has converted his earnings to dollars or kept that Ethereum, but many who haven’t already may soon exit crypto and switch back to dollars to avoid their treasuries. not be devalued. . With the potential for continued instability looming, the Colors Community DAO, the NFT arm of the Colors YouTube channel that raised 60 ETH from its ‘Founding Pass’ drop this month, just converted 95% of its cash. Ethereum in USDC, a stablecoin pegged to the price of one dollar, in order to “reducing operational risks”. For many, the focus quickly shifted from hyper-growth to defensive mode or just headlong building.
If all of this sounds bleak, there’s good news, and the appetite for musical NFTs hasn’t completely died out. Earlier this month, and even with the price of ETH down 60% from November 2021 highs, a collective of indie musicians known as Headless Chaos managed to sell for $458,000 worth of NFT. While upcoming artists Kaien Cruz and Daniel Allan sold collections worth $41,000 and $29,000 respectively, in poor market conditions. (The market has since fallen a further 38%).
One strategy we might see is a shift to a free mint model, which is likely to gain traction as people are reluctant to spend their money on anything speculative, like NFTs. For fans, a free NFT means there is no risk of losing their money. And for artists, it’s a great way to connect with their community. Last month, Chainsmokers launched 5,000 NFTs, for free. Each NFT offers fans a percentage of the streaming royalties on their new album “So Far So Good”. Later this year, Warner Records will release a free collection called StickMen Toys, which features generative music.
On the pitch, the musicians remain cautiously optimistic. Lyrah, an independent artist whose music has been featured on HBO shows such as Charm reboot, says she is not changing her exit strategy due to market conditions and is using NFTs to continue creating new experiences for her fan community. It is also developing Web3 music contracts to accommodate royalty sharing and new forms of rights ownership. “Instead of focusing on the hype,” she says, “I focus on the value that NFTs can unlock through shared ownership, access, and experience.”
As for the future, there is still a lot of investment money waiting. Venture capital firm Andreessen Horowitz (A16z) has just raised a $2.2 billion fund to be deployed in the crypto ecosystem. The company cites music as one of the most exciting areas of disruption. Of course, capital allocators will likely be much more cautious given market conditions, and the sky-high valuations we saw in 2021 will return to Earth.
Meanwhile, many existing startups have healthy cash reserves after raising huge amounts of venture capital during the hype last year. 3LAU’s NFT platform Royal raised $55 million last November, and Zora Labs, an NFT marketplace for musicians and artists, raised $50 million last May. And, yes, that money is all in US dollars — not crypto. Although many startups fall short, there is plenty of fuel to continue development.