When the crypto community discusses DeFi (decentralized finance), the term is often pigeonholed to finance.
What was once a space for creatives, engineers and tinkerers has instead become a battleground for venture capital firms and hedge funds who use DeFi to take on unprecedented volumes of leverage at the expense of retail investors (as we saw with the collapse of Terra and Celsius).
Even non-fungible tokens (NFTs) are starting to be treated as their own separate category within Web3, belonging more to the art and entertainment industries – as institutions like Sotheby’s and Universal enter – than the original ecosystem of smart contracts they emerged from.
Blockchain founders need to return to the space’s roots of decentralization, while using “DeFi” as a guiding ethos to introduce smart contracts and new incentive structures into legacy industries.
An all-too-familiar story
The music industry is notorious for short-changing artists. In what has become an all-too-familiar story, a musician creates a song that shapes culture, only to have distributors and middlemen profit from their talent, leaving the original creator with few, if any, royalties. Taylor Swift, indie bands, rappers from the East Coast to the West: It seems as though every artist is destined to fall into the same trap from the same vested interest groups. While streaming services were intended to democratize the industry, allowing talent to explode without gatekeepers, artists still see few royalties from the value they create – essentially functioning as “content creators” for tech platforms, in exchange for distribution privileges.
DeFi, not just blockchain, can introduce new incentive structures that re-emphasize the role of the artist. Rather than fractionalizing NFTs (which would make them securities), DeFi infrastructure can provide artists new tools for receiving royalties, including compounding interest accounts and on-chain transparency regarding where their royalties go. A number of great Web3 projects, such as MODA DAO, are looking to remove middlemen altogether so artists can publish decentrally. As the trend toward decentralization continues, NFTs will be a core technology pushing DeFi into the entertainment industry, allowing the deposit of stablecoins, with compounding mechanisms via protocols like AAVE.
Let the best protocol triumph
As the ecosystem has evolved since the “DeFi summer” of 2020 that ushered in the meteoric rise of Chainlink (while mainstreaming lockups and liquidity pools), certain protocols have fared better than others, and the industry has a rough idea of which blockchains and integrations are adoptable. While it is disconcerting to see how hedge funds have colonized DeFi (especially as industry talking-points center on providing financial services to the “unbanked”), there is a silver lining to all the protocol exploits and liquidated leverage: Only the best tech survives.
Artists are often the earliest adopters and promoters of good tech. As a CoinDesk column noted during the publication’s Sports Week series recently, Dr. Dre drove mass adoption of his Beats by Dre headphones by collaborating with NBA players and other celebrities. Likewise, Dre protégés Snoop Dogg and Eminem furthered the role of NFTs in popular culture, with a music video featuring their Bored Apes from BAYC as cartoon characters crisscrossing California. Dr. Dre has also announced plans to build Death Row Records as the first NFT music label in the Metaverse.
The great thing about technology that has triumphed through Darwinistic trial-and-error conditions is that it feels seamless. Artists don’t necessarily need to speak on the nuances of underlying protocol architecture to know when something works seamlessly – few musicians can articulate the audio output of a Funktion-One or Dragonfire Acoustics system, but know it’s a sound that's superior to the rest.
From the ashes of the current market meltdown comes a beautiful melody. It sounds something like “AA-VE.”