The Case for Audius and its Audio Token | Deep Dive

Review Date: March 7, 2021

To put it to a soundbyte, Audius works like Spotify on the blockchain.

Audius is crypto-enabled music streaming and hosting platform that launched in September 2019, letting artists upload their songs for free while giving users the tools to browse, follow, and get listening recommendations.

As of the time of this writing, it caters to mostly unknown indie, electronic, and hip hop artists. The company primarily advertises itself as an alternative to popular online audio distribution platform SoundCloud, which has previously drawn criticism for unilaterally removing creator content.

As a decentralized, community-owned platform built on Ethereum, Audius suffers no such drawbacks — not only does it operate in a classic trustless fashion, but it offers free listening at 320 kbps to boot, the same quality that Spotify only offers to premium subscribers.

Perhaps most intriguingly, Audius also stands to meaningfully impact the way musical artists are compensated for their work. The model that’s taking shape over there will eventually see artists pay 90% of the revenues and 10% to the node operators.

Audius has history on its side

Let’s consider the examples of Spotify and Apple’s iTunes — Audius fills a similar niche, all while packing a blockchain environment under the hood.

iTunes shook up the legacy music store business model by partnering with top labels to sell music on a per-song basis. When it launched in 2003 with 200,000 total tracks on offer, iTunes users responded by buying more than one million songs in the first week. Over time, consumers saw the birth of the iPod and the iTunes store, which eventually morphed into the iPhone and a streaming service called Apple Music, Apple’s effort to compete with Spotify.

Spotify was founded in 2006 and currently operates on a freemium model — basic streaming services are subsidized by advertising and free to the user while premium services are available for a monthly fee. These premium services include ad-free listening, offline and mobile listening, and the previously mentioned enhanced sound quality. Spotify pays 70% of its total revenue in royalties to copyright holders, but it does this without any straightforward or intuitive fixed per-play rate.

Payments to artists are instead determined by factors like the user’s home country or the individual artist’s royalty rate. Ultimately this works out to be between $0.003-0.005 per track played — individual artists themselves need to see an average of 250 individual plays of their songs just to earn one buck. It’s not the most transparent method for determining an artist’s livelihood, yet Spotify still enjoys a $48 billion market cap as of March 29, 2021.

So how does this all connect to Audius and its token?

Spotify’s dominance suggests the market will easily bear a young platform that operates in the same space while serving artists first. Spotify achieved tens of billions of dollars in market cap by normalizing the paid monthly subscription for streaming music, and it did it without any straightforward model for making sure artists get their fair shake. Musical artists seeking a more direct route to making a living are going to choose platforms that see them get more of the pie.

At the same time, consumers seeking to make an equitable choice that more directly benefits the creator are going to flock to platforms like this one. According to the Audius block explorer, the platform has seen between 30,000 and 50,000 active users per day since the end of October 2020, compared to Spotify’s 144 million total paying users. The AUDIO token surged in value at the end of Audius’s beta phase. It’s an ERC-20 token that acts as a governance and security mechanism — Audius node operators and artists stake AUDIO to unlock different kinds of features and earning opportunities.

According to Coindesk and Medium, Audius created 1 billion total AUDIO tokens, with 41% designated for the founders and project team members, and 36% designated 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. As of Q4 2020, the total liquid supply is 65.6 million, according to CoinGecko.

The potential drawbacks to investing in Audius

Sustainability is one potential risk here, as AUDIO tokens are unlikely to be monetized until sustainability is achieved. This requires reaching a critical mass of participating artists, engaging and informative content, and active consumers. This is easier said than done, considering that Audius is ostensible competition for giants like SoundCloud, Apple Music, and Spotify. The company is in the position of playing catchup with publicly traded companies with more than ten years of momentum behind them.

A bigger risk may be copyright infringement and piracy, which is certainly a familiar topic within the music industry. Audius claims that it provides a platform for content without claiming any ownership of the content, forgoing the infringement liability and leaving it with the individual users. Audius furthermore says that if copyright disputes aren’t resolved, rights-holders can approach the node operators that host that music and file a local equivalent of a DMCA takedown request (although the music might still live on other nodes beyond the law).

The stage is set for content to live on Audius as long as node operators continue to perpetuate the network, whether or not it was put there with the copyright owner’s consent. Through certain legal lenses, Audius is operating in a gray area where primary and secondary copyright liability laws could cause the company to cease operations.

Given that backdrop, Audius’s central question may not be about copyright infringement liability, but about whether or not it can monetize its platform or secure venture funding to finance any impending lawsuits. That kind of legal action will only accelerate as the platform shifts toward the mainstream.

“Audius is playing a key role in the decentralization of the content economy by attempting to disrupt mainstream audio streaming services,” said Token Metrics senior cryptocurrency investment analyst Forrest Przybysz. “If they are successful, the returns to early believers and investors will be staggering.”

So there you have it: investing in Audius is a double-edged sword, as is any investment. ut in this case we believe the potential upsides are too strong to ignore.

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