RWA Opportunity Overview
Context: Billions of USD of yield un-lockable from the music industry to RWA buyers.
Blockchain technology has been around for over 10 years. We've moved from Bitcoin handling a few transactions per second to modern blockchains processing thousands. Now, blockchain is poised to revolutionise various industries.
The main use case for blockchain is likely to be the tokenisation of legal relationships, especially economic ones. Major financial players are already on board: blockchain is the next generation of the market.
The music industry is vast, global, and touches everyone. Music Protocol focuses on tokenising cash flows from the music streaming market, aiming at a market worth about $28 billion annually, expected to more than double by 2030.
Artists stand to gain significantly. Currently, artists and labels are constrained by limited funding opportunities and are compelled to relinquish more significant returns. In the future, they will benefit from expanded options, enabling them to surrender lower returns.
Problem: Music is an exclusive asset class, accessible only to insiders in the industry.
A key question is which industries will be most impacted by this revolution. For instance, between 1770 and 1800, textile production in the UK increased tenfold due to mechanical looms. Which sectors today could see similar growth with blockchain?
We believe that music is one of the asset classes that can benefit the most from tokenisation, because it needs blockchain's financial transformation the most. Turning music into an accessible asset class will bring liquidity to an essentially illiquid industry, improving the business cycle for key players and granting more freedom to artists.
According to Bain & Company, the lack of technological infrastructure has been identified as the main barrier to the growth of alternative investment into new asset classes. According to McKinsey – “Asset classes that have larger market value, higher friction along the value chain today, less mature traditional market infrastructure, or lower liquidity are more likely to achieve outsize benefit from tokenisation.”
Latency: The current RWA general approach and its limits for the Music IP use case.
The current approach in the RWA world is generally asset-by-asset. Essentially, operators focus on tokenising assets to provide on-chain representation. This makes sense from an operational perspective if the goal is to digitise processes, but it can be a significant limitation when it comes to tokenising economic rights linked to alternative asset classes.
Purchasing tokens that represent an asset assumes that the user has the experience and skills to evaluate that asset. However, this is rarely the case, as the asset classes most impacted by RWAs are often difficult to access, creating a significant entry barrier for retail buyers.
This issue is even more pronounced in the music industry. Despite being a large and widespread industry, it is incredibly sophisticated. Everyone knows the names of their favourite artists or globally famous ones, but almost no one outside the industry understands the intricate system of relationships behind an artist's success and the monetisation of their music. How would an inexperienced person decide how to allocate capital to contracts to earn returns?
This challenge, certainly true for investments in the music industry, is also applicable to many other asset classes subject to tokenisation.