Token economics in music cannot be ignored

The concept of "token economics" is used to describe the logic, mechanisms, systems, and motivations that guide crypto assets. It includes everything from the technology behind the asset to its economic characteristics to the psychological or behavioral effects the asset has on buyers, sellers, and other market participants over time.

When we talk about blockchain music, we tend to take a purist approach, which is to put the music itself above all other aspects of the project. It is tempting because music is the force that unites us and creates our mission and goals. However, if we are to create a sustainable industry that benefits everyone involved, we also need to consider token economics.

It’s no secret that the music industry is in a state of flux. Traditional ways of making money from music are no longer as lucrative as they once were. Artists and record labels are increasingly looking for new sources of revenue, and crypto tokens offer one potential avenue for monetizing music.

Token economics encourage users to buy and hold a coin, making the entire project more likely to succeed in the long run.

Ultimately, crypto projects are built on foundational layers that include economic, technological, and social dynamics, and supply and demand calculations are where these elements come into play.

Supply and demand are two of the most important economic forces. Supply and demand are fundamental to token economics, and they give us a good indication of how valuable a particular token or cryptocurrency should be. Supply is controlled by token liquidity, market cap, and unique holders; demand is determined by the token's cultural popularity, utility, or growth potential.

The basic concept is this: when the available amount of a cryptocurrency goes down, its value goes up. When the number of available tokens decreases, there is deflation; we call this scarcity. When the amount of a cryptocurrency goes up, its value goes down - inflation, but this is based on the initial demand. If total demand is zero, supply is meaningless. In fact, if the only thing that mattered was supply, we could create a new coin every day and its value would keep going up (assuming all other things remain the same).

Token utility is where things get interesting.

The more a token is used, the more valuable it becomes. The use case itself doesn’t need to be large or over-promised; during the ICO boom, we saw a staggering number of tokens that promised utility that was nearly impossible to achieve and rarely based in reality — leading many to be wary of utility promises from a project’s token economics.

Utility just needs to be real, practical, and clear. For example, governance utility in a community that benefits members, like a DAO, can be an important utility that provides a token value when more people want to participate and direct the collective effort and energy. Buying and trading assets, staking and farming for additional financial benefits, tokens representing fractional ownership, etc. are all popular working concepts of token economics utility.

A popular utility can help a project reach an inflection point of cultural impact. This is due to something called the network effect. The basic idea behind the network effect is that the value of a good or service increases as more people use it. This is because as the size of the network grows, so does its value to each individual user. Utilities can earn tokens there, and once viral demand occurs, there is no limit to what can be achieved.

The potential utility of tokens in this ecosystem is endless. For example, imagine a world where musicians are rewarded for their work directly by the fans who appreciate it. Instead of record labels and other gatekeepers taking a large portion of the revenue, artists could be compensated directly by the people who love their music. This is just one potential application of blockchain technology in the music industry — there are many more.

In the music industry, token economics can help create a more transparent and efficient system for distributing and monetizing music. For example, by issuing tokens that represent a stake in an artist’s work, fans can more directly participate in the success of their favorite artists.

In this context, we can’t treat token economics or the value of a token as an afterthought. Creating and producing blockchain music is great, but if we can’t find a way to make it valuable to people, it won’t go very far. The economics of the token itself will determine the future of blockchain music tokens just as much as the music behind it, because at the end of the day, artists still need to get paid and the industry still needs to run.

Tokenization offers a way to create a more direct connection between artists and their fans, while also providing a more transparent and efficient system for distributing and monetizing music; the ethos of crypto and blockchain in music goes beyond the financial aspects, but these cannot be ignored if we want to build a lasting ecosystem.

We need to think about how the economics of a project can incentivize people to participate and help it grow. We need to create systems that benefit artists, fans, and other participants.