Investment Pool Dynamics

The Investment Pool is the primary mechanism through which Issuers, such as artists, labels, or rights holders, raise capital on Music Protocol. By issuing Royalty-Linked Notes tied to future cash flows from their music catalogues, Issuers can access financing from Investors.

To create an Investment Pool, Issuers propose key terms, including:

• Underlying Asset Identification: The music catalogue’s cash flow and distribution deals that will generate the royalties assigned to the Investors.

• Expected Yield: The estimated return based on projected royalty income.

• Payment Period: The maturity of the deal and the frequency of royalty payments.

• Underperformance Terms: Optional clauses specifying measures in case of underperformance, such as extending the maturity period.

• Capital Requirements: The minimum and maximum amount the Issuer seeks to raise from Investors.

• Underwriter Due Diligence Report: A comprehensive assessment prepared by the Underwriters, evaluating the catalogue’s historical performance, projected income, and overall risk profile.

• Third-Party Due Diligence Report: An independent external review provided by a third-party firm, which validates the financial assumptions, projections, and overall quality of the catalogue and investment terms.

• Risk return profile: this parameter is defined by the Underwriter according to all the due diligences attached.

When an Investment Pool is ready, Investors can review the terms, assess the accompanying due diligence documents, and decide whether to allocate capital based on their risk preferences.

Issuers are required to stake $RECORD tokens when creating an Investment Pool. This stake acts as a commitment signal and helps cover the Underwriter’s review cost. The remaining stake is redeemable once the Issuer repays the borrowed capital in full.

This dual-layer due diligence process—combining internal review by Underwriters with independent third-party assessments—ensures that each Investment Pool is thoroughly vetted, transparent, and offers investors the documentation needed to make informed decisions.