Audius Has Big Numbers by Crypto Standards but Can It Take On SoundCloud?

The Takeaway:

The music industry has problems the right blockchain application could fix, inching open the door for mainstream crypto adoption – at least that’s the dream.

Audius is an Ethereum-enabled music distribution service that takes aim at recognized startups such as SoundCloud and Spotify. Its creators hope that offering a more attractive deal for musicians should help Audius build a stable of musicians so strong that users will come in droves.

According to the Audius block explorer, the network has seen between 30,000 and 50,000 unique users per day since the end of October – a not-insignificant sum in the emerging world of Web 3.0. (For context, according to its third-quarter earnings report, Spotify has 144 million paying users.)

“It’s just been kind of real and exciting to see this response,” Roneil Rumburg, co-founder and CEO of Audius, told CoinDesk in an interview. “Especially in COVID-19, these [musicians] are really hurting. You can’t tour. Most revenue streams have dried up.”

Audius had a big surge in interest at the end of October when it announced a distribution of the network’s AUDIO token, marking the end of its beta network phase. It gave away 50 million AUDIO tokens to 10,000 super users, mainly the artists who are using Audius, but also to some listeners who play a lot of tracks and offer a lot of feedback.

“The most exciting thing about Audius to me is that it’s not trying to create a new ecosystem with the same players (i.e. DeFi or NFTs),” Jesse Grushack, a ConsenSys alum and pioneer in the blockchain music space, told CoinDesk over Signal, referring to decentralized finance and nonfungible tokens. “It’s bringing in a totally ‘virgin’ crypto community that until the release of $AUDIO probably had no idea they were using crypto.”

What is Audius?

Like a lot of the creations in this industry, it is two things. There is the company and the network. The company has raised funds from various venture capital firms in two separate rounds, first from General Catalyst and Lightspeed Capital and second from Multicoin Capital and Blockchange.

The network is a series of two kinds of nodes, one which hosts content and another that indexes it. On top of that network, there are apps that allow users to interact with the content.

The main app is the Audius web and mobile apps made by the company, but there are a few others already. Anyone can build an interface that interacts with content on Audius.

Artists and fans use the different applications to post content and stream it. To a small degree, users contribute to the useability of the network. When they are active online, the network might direct other users to copies of content that users have temporarily stored for other users who want to access the same file (much in the same way BitTorrent has for years).

How does Audius fit into the crypto world?

Audius is governed on the world’s second-largest blockchain, Ethereum. It uses an ERC-20 token, AUDIO, for governance and as a security mechanism. Node operators and artists have to stake AUDIO tokens in order to unlock different kinds of features and earning opportunities.

While in beta, Audius used the POA Network, an Ethereum sidechain, to run its content management. In late October, it announced a partial move to the Solana blockchain, which bills itself as incredibly fast and inexpensive.

It’s the latest case in point of the “one network, many chains” thesis articulated by crypto evangelist Andreas Antonopoulos.

Additionally, payments are managed over the network using a basket of stablecoins. Or, it might be better to say, they will be. Monetization is not a major part of the Audius use case here in the early days, but the functionality is there when the time is right.

What kind of token model does Audius use?

Once upon a time, Audius had a two-token model, but that’s because when the team first started laying out the vision there was really only one stablecoin, tether (USDT).

So Audius invented this notion of a stablecoin just for its platform called LOUD. However, by the time the company rolled out the beta network, there was a plethora of stablecoins, a trend that has only continued.

Now, Audius only uses the AUDIO token for governance, security and unlocking features.

Like many networks, node operators need to post AUDIO tokens in order to earn future token emissions in its inflationary system (and as a protection against poor performance or malicious performance on the system). According to a Medium post, Audius created 1 billion AUDIO tokens at genesis with 41% designated for the founders and the project and 36% for investors.

The Open Audio Foundation controls another 178 million tokens designated for network growth, though it only has access to 65 million AUDIO immediately. Most everyone’s genesis tokens are under some kind of vesting schedules. 

As of this writing, the liquid supply is only a bit over 65.6 million AUDIO, according to CoinGecko.

There’s currently an emission rate of 7% of new tokens, all of which goes to node operators for now, though Rumburg told CoinDesk that the Audius team hopes the community will vote to spread those emissions around to various stakeholders. (And obviously based on the numbers above, the team and investors have an enormous amount of vote weight there.)

How do musicians use Audius?

Camoufly is an electronic artist who has a lot of tracks posted on Audius, going back to October 2019. 

“I saw a big help coming from them with the launch of $AUDIO,” Camoufly told CoinDesk, “so all the music and work I’ve put on the platform has definitely paid back!”

Right now Audius is mainly a way for new artists to build an audience. The site is dominated by EDM artists, with hip-hop as the second-largest genre (and hardly any acts from other categories, thus far). It’s also overwhelmingly underground, but it has a few acts with strong followings, such as Skrillex.

“I think both of those groups have been very eager, excited to embrace new platforms because they both had a very difficult time breaking into the mainstream to some extent,” Rumburg said.

The project has described itself as picking up where SoundCloud left off, as a way for music junkies to discover unknown acts and have the thrill of knowing new acts first.

“Since I am an indie singer-songwriter, which is not the typical kind of music you will find there right now, it’s still possible people will check you out,” Noir Yon, a Berlin-based artist told CoinDesk over email. “I hope it will grow bigger and more and more musicians of different genres will consider to upload their music in addition to other platforms as well.”

Obviously, the network doesn’t really become sustainable until it has people spending money over it one way or another, but Rumburg notes that first Audius needs a lot more tracks and a lot more artists. When that happens, the team can start to roll out different approaches to monetization to see what works.

On that front, Audius opens up a plethora of strategies for artists. They can create interesting new ways of enlisting fans in helping them to grow their brands. So, for example, they can “lock” tracks, only allowing access to users who have, for example, shared one of their other songs or who hold one of their personal tokens.

Personal tokens have been a big theme in 2020 and Rumburg said that for now Audius is functioning as a sort of Switzerland for such tokens – it’s open to allowing any of the personal token networks to run on Audius.

It’s theoretically possible to create any kind of rule for unlocking music. If more robust clients get built to access the Audius network (imagine video games that draw from it for background music or live-streamers who add it to their shows), that opens up other categories for rules and incentives that artists can provide.

A key goal is to make Audius a way for artists to distribute music and earn the lion’s share of income that their music earns. Still, not many of its artists have opted into monetization yet.

What do node operators do?

Storage nodes need to have at least two terabytes of storage and a fast internet connection. Discovery node operators need to be able to store an IPFS-based directory of content. Together, they help users find the content they want as fast as possible.

For now, all new token emissions go to operators of these nodes.

Isn’t there a problem with copyright and piracy on an open service like Audius?

In October 2019, The Verge went into detail about the history of intellectual property disputes in music and how Audius fits into that persistent story. 

It has been true since the earliest days of the web: there’s a category of user that is always happy to share content they have no right to.

Rumburg told CoinDesk that Audius already had a tool for rights holders to use that enables requests directly to the node that is hosting disputed content. 

“In the future, we envision there will be an arbitration system that allows the network to openly and transparently resolve disputes of this nature, alongside things like getting revenue shares and splits right if there is a dispute among track owners,” Rumburg wrote in an email.

Apple Music, Spotify and Pandora may be good at making sure the right people get paid and the wrong things never get posted, but it is also worth noting that there are ways in which the existing infrastructure has railroaded creator rights in other ways. 

Since the pivot to streaming, audio metadata legibility to end-users has become quite poor, robbing behind-the-scenes performers of credit and fans of the ability to get truly obsessive about the finer details.

And most reasonable people agree there’s something off about who gets remunerated in the music industry. 

“When only 12% of the recorded music income goes to the people responsible for it,” Grushack, the ConsenSys alum, wrote. “We can’t sit around and pretend that industry is doing a great job.”

What’s the chief obstacle for Audius?

The problem for all applications like this is they need lots of users to obtain network effects. Audius just needs more people coming on. That will attract more artists who will in turn attract more users. This is always the hard part.

It took a long time for Spotify to reach profitability and that has always been tenuous. Apple Music has a variety of unfair advantages.

Music has consistently been a tough area for technology, but the internet keeps trying.

This early, the fact Audius uses crypto is unlikely to make it especially more attractive, but its openness might help if it can build buzz. It’s making a similar pitch that other blockchain-based music projects have made before it: the music industry is unfair to artists and this can fix it.