As SoundCloud is under threat, technologist Mat Dryhurst explains the potential for a blockchain-based tokenisation system to put the platform in the control of the musicians who use it
SoundCloud is in trouble. The music and podcast-sharing site that once troubled the supremacy of the formerly almighty MySpace has spent the last two years flailing, leaving users uncertain and staff insecure. After the collapse of acquisition talks with first Twitter, then Spotify, a troublesome start for their subscription streaming service SoundCloud Go, and ongoing controversies around their sometimes heavy-handed anti-piracy algorithms, the company finally announced this July that they would be closing down offices in San Francisco and London, laying off almost half their payroll in the process.
Into this quagmire steps Mat Dryhurst, sometime collaborator with Pan Records and Holly Herndon, developer of the Saga artist self-publishing framework, with a proposal to radically decentre and redistribute control of the SoundCloud platform through a process called ‘tokenisation’.
In a long post for Medium, Dryhurst proposes launching a new form of ‘sound token’ (with a nod to Mark Fell and Mat Steel, he abbreviates this as $SND) to be distributed among SoundCloud’s existing shareholders and users, which could be used “both as shares to be traded or used to participate in governance decisions, and also as cryptocurrency to be spent on the platform.” The upshot, he claims, would mean “SoundCloud would functionally be collectivised among its users, and require a new governance model to ensure that token holders feel a tangible sense of investment and alignment with the future of the platform and its application to their art and business.”
I caught up with Dryhurst via email to try and nail down the specifics.
What do you mean by ‘tokenisation’?
Tokenisation is the process of registering assets and distributing them in the form of tradable tokens. This doesn’t have to necessarily be done on the blockchain, however it makes things a whole lot easier and more interesting if it is. When done on the blockchain, the universal ledger that facilitates most cryptocurrencies, it is now possible to create and distribute tokens – and in turn distribute and track ownership – to large groups of people who hold these liquid assets.
So, for example, I like a project from Poland called Golem. Golem is building a decentralised processing network, such that if you had a really processor heavy job to do, say render a detailed animation, you could purchase some GNT tokens and pay different individuals running the Golem software to use their surplus processor power to get the job done far faster than one could accomplish on their own. The token in this case is an ERC20 token that runs on the Ethereum blockchain, and many people – including myself – have collected these tokens in order to fund the development of the service. So this good idea is made possible by the existence of the token, as it funds its means of development and also provides the liquid asset that would make the ecosystem for the service tick once built.
One thing to take away from this is that it means visionary projects that may require hundreds of millions of dollars to execute no longer have to sell their business model to venture capitalists. This is very exciting and is also generating a lot of exciting projects. Alternately, it has to be said, the ability to crowdfund at this scale is also attracting a lot of scammy projects that are raising money for future promises with very little accountability.
What makes SoundCloud an appropriate platform for this approach?
SoundCloud does not have a business model. It will likely sell to a company with a different vision for the utility of the platform that will also likely not be aligned with the things that artists and listeners value most about it. Rather than compromise and negotiate an exit like that, tokenising could enliven the SoundCloud community and business model by placing ownership and liquidity in the hands of its users and investors.
This would also require opening up the platform, and potentially decentralising its function so that people had more control of how their work is represented and sold. We would need more features to be able to make best use of the tokens, for example, and attempt to stimulate more business and value exchange as a result.
The idea of tokenising SoundCloud is a utopian one, in which the largest platform for sound creators becomes owned by the people who care about it, and a sandbox for experiments in how artists might be able to make a sustainable practice out of what they do.
This experiment would also be invaluable for the blockchain, as you would see potentially millions of people getting familiar with the use of tokens as assets. If it showed any signs of growth, I could see Twitter tokenising too. Then Uber – why not?
What’s in it for SoundCloud’s founders, board members, and current shareholders?
A potential business model, which they to-date have not managed to provide. Investors and current shareholders will see their stake in the company represented in tokens that they are at liberty to sell from day one. I would wager that they may want to keep hold of them though, as it would represent such an epochal shift that it would stimulate a whole lot of interest and activity around the platform such that the tokens themselves may surge in value.
If we reward something like “quantity of activity”, how do we deal with the problem of spam?
Great point. I would guess that SoundCloud internally has a great deal of experience in ascertaining quality over quantity. Perhaps I should have instead talked qualitatively as an example of how to distribute tokens. There is a chicken and egg problem here: ideally our logic for qualitative engagement would be determined by a governance of users, however we first have to put that government together and need a qualitative rubric to do so. Not insurmountable, but a real thing to grapple with.
One would have to determine a qualitative means to represent the diversity of the community and avoid a concentration of power. This logic would need to be aligned with the right incentive models to make the platform sustainable – so for example, you would want to incentivise people to certify identity on the platform to avoid posting the work of others, and to ensure that transactions would be made to the people intended, so you could offer tokens in exchange for undertaking a verification process. You could also create token bounties, cross-referenced with a catalogue of released works – upload this album of yours to the network and receive x tokens. You could also allot tokens for audience contributions, perhaps by encouraging people with no music of their own to upload to oversee this verification process, Wikipedia style. I alone wouldn’t want to determine this process, but think that it could be coordinated.
How would $SND be exchanged beyond the closed system of SoundCloud? And how would we guard against the possibility of a massive buyout that would undermine the agency distributed among artists and users?
I think that if SoundCloud were to issue a token it would almost certainly be listed on common crypto exchanges. Nothing is guaranteed, but projects of far smaller scale are listed widely.
If you are issuing anything of value, there is always the risk that it may lose value over time – absolutely. There are no guarantees – only methods and speculations as to how we might begin to stimulate value and value exchange within this community.
As for the prospect for someone buying enough to undermine artist shares, it’s a possibility and a risk that you take. I’d wager that it is far less feasible a situation than the prospect of someone buying >50% ownership in most companies, as is currently being discussed between SoundCloud and private equity firms looking to acquire a majority stake in the company. This scenario, however, presupposes that artists would initially have a significant stake in the platform, which sounds like a great ambition, albeit one as fragile as any other.
If tokens grant users decision-making power, how are the decisions that token-holders get to vote on or take action to shape the platform mooted in the first place? What kind of architecture would need to be in place in order for the decentralisation of power to be more than just – if you’ll excuse the pun – a ‘token’ gesture?
Aragon has just released an alpha to allow for anyone to run a decentralised organisation on Ethereum – projects like District0x, for example, are using a combination of Aragon,Ethereum, and IPFS to spawn decentralised marketplaces that manage tokens and use Aragon to coordinate decisions. You can also look to the DAO experiment as a flawed means of managing governance among decentralised owners. Sadly that project was hacked, and eventually led to the Ethereum hard fork in order to rescue the funds lost by initial investors. Lessons have been learned from that time.
It is important to stipulate that this is still in the early stages. I cannot guarantee any of it will work seamlessly, beyond assurances and early frameworks put forward by very smart people in a field that is maturing by the day. My greater point is that the ideas are solid, the tech exists to work it out (and inevitably work out the kinks), and – speaking more specifically to The Wire community and corners of music that we occupy – is it not our mandate to experiment with how this culture is governed, what we produce and how we value it? I’m of the unshakeable belief that to disregard the means of distribution in this day and age is to disregard half of the story of contemporary music.
For independent musicians, I think that the pitfalls of conservatism represent a greater risk than hashing this stuff out and getting excited about what we could do. Even if undertaking such a project were to lead to unintended consequences and speed bumps, wouldn’t that journey in itself be essential, empowering and lively? I’m also fairly convinced that these shifts are going to happen irrespective of our involvement, and so would rather that people in our neck of the woods started grappling with the situation early than find themselves underrepresented again once the cards get dealt in this new ecosystem. I see the present predicament as patently untenable.
Cryptocurrencies have so far proven quite unstable, prone to bubbles – and, some have argued, perhaps constitutively so. Might this threaten the stability of any platform dependent on crypto technology?
Sure – and this comes down to how robustly the token and governance model is designed. There are a number of projects in the crypto space looking to produce what are referred to as stable coins, or namely things that are less prone to this kind of volatility. Check out Makercoin, for example (discussed here by Nick Tomaino). It is not a trivial thing to maintain this kind of stability, Vitalik Buterin has written on this.
On the topic of volatility – I’m not really afraid of that, in all honesty. I’m more afraid of the vulnerability of centralised monopolies, and what that might mean when the musical archive of the past decade is in jeopardy. If the volatility of crypto tokens is a necessary challenge to take on in order to work out a more fortified archive, and also perhaps stimulate a number of different threads in the pursuit of a sustainable and enlivened independent musical ecosystem, then so be it.
I can’t claim to solve the problem of volatility in crypto networks any more than anyone else can, but it is a valid thing to bear in mind. I think that there is a valid argument in suggesting that we could use things becoming a little bit more volatile and high stakes to breathe some life into an industry with stale ideas. In terms of the stability of a decentralised network of music, we can take some assurances in seeing how resilient peer-to-peer models have been in terms of maintaining networks of information.
We’ve all played gigs in the past where we know that everyone who is in the audience is basically just your mates who are also in bands – is there a danger that a SoundCloud-type platform with some features only accessible to people with SoundCloud tokens to pay for them, might start to feel a bit like that?
It’s funny, as I feel that our corner of music at large is basically that scenario in extremes right now. Everyone interested in niche music makes music to some extent, and so rather than looking at such a scenario pessimistically I would suggest that hints at quite an optimistic predicament – in which everyone involved in a culture feels a stake in it, and eagerness to contribute, either with their own creative contributions or financially.
It’s long been obvious that everyone with a vested interest in music has a deeper personal creative connection with it – just look at the playcounts of music-making tutorials on YouTube in relation to videos of the music itself. I remember joking at Ableton Loop last year that the prevalence of “hand cam/home cooking” shots of artist or DJ’s hands are becoming more commonplace at festivals as some kind of implicit acknowledgement that the audience has more of an interest in what people on stage are doing than they may have done historically, as they themselves have the tools and aspire to do it too. I don’t see this as a problem.
But let’s take the scenario that you proposed, at the gig – is the answer to that situation to charge nothing at the door? Were the earliest independent labels acting elitist or aloof to those who could not afford to spend the money to hear their music on record? Of course not. To put it frankly, we can’t have it both ways – in an ideal world I would love for everyone to be able to to enjoy music for free, and for musicians of substance to be valued and rewarded. If we are going down that path, then why stop there? In an ideal world I’d prefer for food to be free. It’s not elitist or discriminatory to expect for art and the scenes that create it to be sustained by those who partake in them.
I do think that tokens, however, open up possibilities for people to contribute in ways other than the financial and be rewarded with access, and I’d encourage more thinking as to how that could work for those whom the menial amount it might cost a month is too steep.
Also, on the question of accessibility, we have to take a broader look. If we don’t find an alternative protocol by which to run independent music, then more spaces will shut down, more local scenes will eventually dissolve, curbing the development of distinct geographic musical identities. We are already perilously close to a situation in which access for the many is limited to being able to listen to online documentation of events and culture that happens elsewhere, among people with the financial means and access to travel and partake in festivals and events in increasingly expensive urban centres.
So I think that there is already a problem of access. Personally, I would way rather try and find ways for people to be able to build a decentralised network of sustainable local scenes that support each other, than throw all that out the window in lieu of giving people free access to files in their bedrooms. That isn’t culture as I know it – or at least it certainly isn’t a utopian vision of how things could run.