GM DOers,
Music NFTs are having a moment—or should we say were?
In Q4 of 2022, they had been in their own mini-bull run while the rest of the NFT space went dry.
Just take a look at the chart below showing songs minted on a monthly basis across the top 3 Music NFT platforms. December was 🔥 but January isn’t looking so hot…
So, did the music stop (no pun intended), or is this just a blip in the road on the path to mainstream adoption and becoming the next big disruptor of the music industry?
These are the moments when the PRO team likes to take a look under the hood and see what’s happening on-chain! 👀🔛⛓️
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In today's report, we’re diving into what’s going on across the Music NFT sector.
In case you missed it, we talked all about music NFTs a few weeks ago on the podcast with Austin Hurwitz, a leader in the web3 music space as well as the new head of biz dev for Doodles (congrats my man!).
Austin explained the hype going on in Music NFTs right now as well as their potential use cases. So make sure to have a read or take a listen to get up to speed on Music NFTs if you need a refresher.
To set some context here, the numbers in Music NFTs are still small, so it’s hard to say for sure if this is going to change the music industry
But let’s see what trends we can uncover with Music NFTs on-chain 👇
The Music NFT Ecosystem
A nascent ecosystem, but a vibrant one nonetheless.
The adoption of Music NFTs is exciting, especially when it's going against the grain of the rest of the NFT industry.
Before we try to answer the question about what’s going on with the numbers in January, let’s get the lay of the land across the Music NFT ecosystem first.
There are only a few web3 platforms live in the music NFT sector at the moment, such as:
Royal (founded by 3LAU)
Sound
Catalog
Though there are a few smaller ones like Glass and others beginning to pop up on places like Lens Protocol.
You can see from the chart below that this current music NFT bull run is being led predominantly by Sound, which takes the bulk of the market share for new songs minted.
Though, 3LAU’s platform, Royal, also saw some solid adoption in December, especially in terms of bringing in new fans (aka. Music NFT collectors).
If we take a look at the action on secondary sales for these music NFTs however, we can see that Sound has quickly become the dominant marketplace, which was a title once held by OpenSea.
Sound has taken control of more than 85% of the total market share of secondary sales since launching its marketplace in October of 2022. Royal, on the other hand, does not yet have a marketplace, which is why Opensea had control of the market previously.
The Music NFT sector simply had nowhere else to go. 🤷
Keep in mind that we’re talking about a total market volume of < 200 ETH in secondary sales per month, so this is small and still anyone's territory to capture.
Not to mention that the total pie that has plenty of room for growth.
In terms of this current bull run in Music NFTs, it’s clear that Sound has been the main driver. With that in mind, I want to get a bit more granular and zoom into the data at the application level of Sound.
But before we do, let’s take a second and first try to answer the question: WTF is going on with Music NFTs in January? Did the bubble pop?
The Local Top of Music NFTs
At first glance, I thought maybe it was just a lag after the holidays, but I decided to pose the question on Twitter to find out. Thankfully, Austin was there to give us some insight and guide our on-chain research.
The current thesis is that the Criteria drop in December exhausted the market of liquidity and caused a local top. Now we need more collectors entering the space to ignite things further.
To figure out the situation, we did some digging to see just how big this drop was and what we’re seeing in terms of adoption across artists, collectors, and more.
Criteria, an EP released by Daniel Allan and Reo Cragun on December 15th was the largest Music NFT drop on Sound to date. The EP consisted of 8 songs at varying rarities in terms of supply to collect, with a total of 2,500 NFTs available to mint.
The 2,500 NFTs sold out in under 1 hour, raising a total of 109.9 ETH at mint (at the time about $131,880 USD) from 498 unique collectors.
Since mint, the 2,500 NFTs have brought in secondary sales volumes just shy of 30 ETH at the time of writing.
At first glance, these numbers don’t seem high in terms of exhausting a market, after all, we are talking about overpriced jpegs (overpriced mp3s?) aren't we?
However, if we compare these numbers to the total market we can see below that the mint of 110 ETH is approximately 40% of the total ETH volume on Sound in the month of December.
And the secondary sales volume of 30 ETH accounts for 25% of the total secondary market for all Music NFTs in December.
I think it's safe to say that once we put into context how small this market truly is we can see that the Criteria drop did have a big impact on the liquidity of the total Music NFT market in December.
Ok, now let’s dive into the numbers on Sound to see if we’re building a sustainable new market and what trends might be appearing in the early days of Music NFTs.
Zooming In on the Activity on Sound
Since putting in a low in June of 2022, songs minted on Sound have gone exponential month-over-month.
Though, as we just discussed, January is showing some serious signs of this market slowing down.
Interestingly, we can see that artists are catching on to this whole Music NFT thing and are consistently entering the space.
New unique artists entering the space have been growing month-over-month since September, and we’ve seen 10-40 new artists join in on the fun every month since December 2021.
The other interesting chart here is that the active artists (unique artists publishing a new song in a month) is growing at a faster rate, meaning artists are sticking around and continuing to create music and publish on Sound.
This wasn’t the case earlier in 2022 when it seemed that artists would try a mint and leave.
It’s also interesting to note that new artists are still entering the space at a similar rate in January, even though mints and volumes are down bad.
Now of course, in order for artists to keep publishing music and for this new sector to remain sustainable we need to see more collectors entering the space.
The good news is that collectors have been piling into this space much faster than artists.
December alone brought in 2,797 first-time collectors from Sound, whereas only 41 new artists entered the space in the same month. A ratio of 68 collectors per 1 artist should be plenty to keep bringing in new artists (assuming that trend continues)!
Similar to the stickiness of artists entering and remaining in the space, collectors are also coming back for more. A total of 7,286 unique wallets collected at least one Music NFT on sound in the month of December.
It’s also important to highlight here that outside of the Sound ecosystem, Royal also had a big December bringing in a total of 3,232 new collectors.
Overall, we’re seeing enough adoption across the Music NFT sector that it makes us excited just thinking about its potential.
The next few months will be extremely important for music NFTs, however, as we’ll want to see a strong recovery after a fairly quiet January, though these things can take time to bounce back
The last thing I want to look into is the purchasing behavior of Music NFT collectors.
If you’ve listened to me on the Web3 Academy Podcast, then you’ve likely heard me talk about my theory that most collectible content (content NFTs) will be free.
Rather than a new revenue stream, it will be a new form of engagement on the internet, comparable to, but on a different level than a share, retweet, or like.
If you listened to the episode with Austin, he also mentioned that music NFTs are likely not going to save the revenue problems of musicians. While it may help and support their income, it should be seen more as a new tool to engage and create experiences with your fans.
We can actually see on-chain that free music NFT collects is becoming more popular. Previous to June 2022, all music NFTs on sound were sold for a price.
Whereas today, 36% of all music NFTs are actually being minted for free, being used instead as a means to create stronger connections with an artist's fans, provide access, build community, or used to create awareness and marketing.
Interestingly, we can see that the bull run in terms of the number of mints is actually being driven by free mints rather than paid.
I think this is a key concept to understand for any musician but also for anyone trying to understand the dynamics of turning content into NFTs.
And by the way, this is not specific to music NFTs. We are seeing a similar trend play out in article NFTs on Mirror as well.
So stay tuned for a PRO report coming out on article NFTs next month!
But to shed a bit of light, In December 91% of all article NFT mints were free. Again, this highlights that content NFTs may not be a new revenue stream, but instead a new form of engagement on the internet.
A final chart before we wrap up is the average cost per mint, excluding all free mints.
We can see below that the average cost to mint a music NFT has dropped significantly from 0.1 ETH down to 0.03 ETH since the first adoption cycle back in late 2021 - early 2022.
If we think back to those days, NFTs of all kinds were still in a speculative mania phase so almost everything was overvalued.
What I like about this current adoption cycle of Music NFTs is that it seems to be more mature and much less focused on speculation.
Instead, artists are experimenting more with the tech and their fanbase and are looking to innovate and set new trends. As we can see from the collector growth, fans are picking up what the artists are putting down. 🤝
I think that 2023 is going to be a massive year for this space and the growth and innovation will continue to push itself to new limits.
I don’t see Music NFTs disrupting the business model of the music industry anytime soon (unfortunately). However, I think it has the potential to do so once the technology matures.
Thanks, PRO members for reading this report, and I hope it was helpful on your journey into web3.
Please share any feedback (if you have minted a music NFT, please share it and your experience) below in the comments and give this article a like if you enjoyed it so I know to write more just like this.
ABOUT THE AUTHOR
Kyle Reidhead
Founder of Web3 Academy and Impact3
Find him: Twitter
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