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Drop Analysis: Nas on Royal.io

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Written by   5
4 months ago

I've been talking about music NFTs and some of the specific platforms in that space for a little while now. Long story short, I like music NFTs (a lot). Far more than I care about digital art, especially avatar projects. The thesis, mainly, is that music NFTs allow for fans of artists to claim ownership to streaming rights and potentially gain from an artist's rise in popularity. Last week I talked about T-Pain tweeting the issues with the current streaming royalty system. It doesn't help the artist nearly as much as you might think.

There are a variety of different music NFT platforms out right now. In the T-Pain article, I specifically mentioned Royal.io, Sound.xyz, and Catalog.works. There's another one that I'm keeping kind of close to the chest because it's my favorite and I don't want to shill it too much. I'm going to do a members only post about that music NFT platform soon. It's where I've been buying dozens of music NFTs. Until then, today was a big day for my music NFT thesis going forward.

What happened?

Last week I said watch out if/when T-Pain joins one of these platforms. Well, somebody bigger just did. Royal.io announced its first official NFT drop. And the drop is for two tracks off recent Nas albums Kings Disease and Kings Disease II. Nas is a grammy award winning, legendary rapper from Queensbridge, NY. He also happens to be my best friend. That's a joke. But Nas is legitimately my favorite artist. Period. His music has helped shape my world view. It has helped mold me into an anti-authority, contrarian who thinks for himself, questions narratives and doesn't really trust establishments. If you're a regular reader of my stuff, he's probably right up your alley!

Why does this matter?

While Nas is very clearly most well known for his music career, would it surprise you to know that Nas is a wildly successful venture capitalist? Here's a list of just a handful of Nas' VC investments that have made him bank:

  • Coinbase

  • Robinhood

  • Lyft

  • Dropbox

  • Ring (Amazon buyout)

  • Pluto TV (ViacomCBS buyout)

  • Pillpack (Walmart buyout)

Nas is ahead of the curve. Pure and simple. He's a leader not a follower. And his VC portfolio has more mainstream hits than his music catalog. And yes, he's invested in Royal.io now as well. This is going to be another winner for Nasty Nas. I can feel it.

What do these NFTs get you?

As part of the NFT drop, Nas is providing two songs with varying levels of royalty rights. Per 3LAU's Medium post about the drop, this is how the NFT tiers break out for "Ultra Black:"

  • Gold: 0.0143% streaming royalty ownership for $50

  • Platinum: 0.0857% streaming royalty ownership for $250

  • Diamond: 2.14% streaming royalty ownership for $4,999

"Ultra Black" will be dropping Tuesday 1/11 at 1pm EST. The same day, will see the drop for "Rare" at 9pm EST. That royalty structure breaks out like this:

  • Gold: 0.0113% streaming royalty ownership for $99

  • Platinum: 0.0658% streaming royalty ownership for $499

  • Diamond: 1.5789% streaming royalty ownership for $9,999

One thing; Royal.io is referring to these NFTs as "Limited Digital Assets" or LDAs." Likely because "Non-Fungible Tokens" are more confusing as a description. But for the sake of uniformity, I'm going to keep calling them NFTs in this post. Unlike most of the popular NFTs you'll find on Opensea, these NFTs are going to be minted on the Polygon network. And you'll be able to pay with a credit card or USDC stablecoin rather than Ethereum. The natural question that follows would be are these NFTs good investments?

How do I get my money back?

The answer to that question is almost entirely dictated by what your time horizon is. While I would imagine there will be a robust secondary market for these drops, if you're not buying purely to flip, how long before you get a return on your investment? It's difficult to say because we don't know what Nas' royalty structure is with all of the streaming platforms that have his music. If we use the graphic that T-pain shared last week as a rough estimate, we can guess how long it might take to get an actual return. For simplicity's sake, I'm just going to analyze the cheapest option. That's the Gold tier for "Ultra Black."

This is how Statista shows market share of streaming users by platform:

via Statista

Now this is an important distinction: this is an estimate of subscribers, not streams. But it's the best you're gonna get for free research. If we use this as a proxy for Nas' streams breakdown and apply the figures from T-Pain's streams to $1 graphic, we can estimate how long it will take to get $50 back from the streaming royalty for Gold "Ultra Black" holders. Here's that breakout for 10 million total streams:

At 10 million total streams, the payout for Gold holders is projected to be a little over $5. So basically, we need about 100 million streams to get into passive profit on "Ultra Black" at the Gold tier. Since it's release in mid-2020, "Ultra Black" currently has 8,045,403 streams on Spotify. If this is reflective of Spotify's streaming market share, than we can reasonably assume "Ultra Black" was streamed 24 million times last year and half among all of the platforms available. That means at the current pace, it would take about 6 years to get the investment back. Anything after that is house money. And this doesn't take into consideration the collectible secondary market value.

One more thing to consider: there are a lot of assumptions in this post. We're assuming "Ultra Black" will be streamed at the same pace for the next six years that it has been streamed at for the last year and half. This is probably optimistic as the track was released in 2020 and Nas has since released two newer albums. It assumes all of our third party metric estimates mirror the reality for the Nas streaming market. And it assumes the royalty agreements for Nas' catalog are in line with what we saw in the reddit graphic that T-Pain shared.

The bigger takeaway

Now that we have some offering specifics from Royal.io, I am positive that Royal.io is going to ultimately be the winner in the music NFT (LDA) space. Beyond the fact that the platform has the star power backing of 3LAU and Nas, they're just doing a much better job from an execution standpoint as it pertains to usability. While Sound.xyz and Catalog.works are doing super scarce mint total, higher value NFTs on the Ethereum chain, Royal.io is staying cognizant of unit pricing and providing the market a lower cost entry point. Royal is also allowing for credit card sales through the Polygon network.

It is imperative to understand how much better this is for scaling and for user adoption. It means my wife could figure out how to get one of these if she wanted to and she knows pretty much nothing about crypto. To use the platforms on Ethereum, you need to have quite a bit of ETH and you need to understand the gas component of the sale. It's a lot for normal people to have learn. If you can enter your credit card and pay $50 to get a Nas LDA and mint it for virtually nothing, your immediate addressable market is exponentially bigger.

Yes, I'm Buying One

This is a slam dunk for me. I'm a Nas fan. First and foremost. Because of that alone, I want one of Nas' first NFTs. When you add in the streaming royalty component of it as well, it isn't just a digital collectible, it's a passive income investment. Whether it takes 6 years to get the $50 back or 10, I really don't care. I'll know that every time I stream "Ultra Black," I paid myself a little bit. That's pretty damn cool.

Disclaimer: I'm not an investment advisor. None of this is investment advice. NFTS, cryptocurrencies, and STONKS are probably all going to zero. Buy magic internet money and digital beanie babies at your risk.

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