TL;DR: Crescendo enables fan powered price discovery, instant & guaranteed liquidity, and an initial implementation of synthetic royalties.

The way that music NFTs have been priced and monetized to date is unsustainable. The most popular pricing mechanism has been NFTs in the form of editions (our first releases on Decent have been priced this way, too).

With this model, a combination of arbitrary scarcity and community has driven significant hype around releases and has often led to quick sell outs. A surprising externality is that the primary metric of success has become whether editions sell out immediately.

We believe that the value of art should not be judged on a single moment.  Fan bases, songs, and artists grow and develop over time.  Therefore, NFT releases should be dynamic, enabling prices to reflect the strength of an artist’s community without restricting its size.

Building for sell outs has negative implications for creators.  If all editions sell immediately, it means that the creator could have either charged more for each edition, sold more editions, or both.  This makes it difficult for a creator to price their work and leaves potentially significant economic value on the table (scroll to the bottom for more detailed thoughts about editions).

In most releases, collectors are essentially donating to creators or purchasing social influence in, what is today, a niche market.  To catalyze mass adoption of web3 creator platforms and create better outcomes for artists, we need an NFT model that moves beyond strictly patronage.

Decent Crescendo’s dynamic pricing uses bonding curves to take the burden of pricing music NFTs off of artists and make collecting music NFTs less risky for collectors by introducing automatic liquidity. Crescendo enables both artists and fans to capture more value from the communities they jointly create.

How does a bonding curve work?

The core concept of bonding curves is quite simple: the price of a token is determined by its supply.  The more NFTs that have been distributed, the higher the price of the next NFT. This allows the pricing of the NFTs to be dynamic.

For example, say the first NFT to be minted starts at 0.1 ETH. After the first NFT is purchased, the price of the next NFT will increase at a fixed interval - let’s say we are on a linear curve where each interval is 0.01 ETH.

• The next NFT sells for 0.11 ETH.
• The price increases again to 0.12 ETH for the third NFT (and again, and again).

What is really exciting is that NFT holders can also sell back their NFT whenever they want -- instant liquidity! This is because liquidity is guaranteed in the smart contract. For every NFT sold, the price that the next NFT can be bought or sold at will decrease in the same fixed intervals.

• If after the third NFT is purchased for 0.12 ETH, one of the holders decides to sell their NFT, the price for the next NFT will decrease 0.01 ETH back to 0.11 ETH.

With a bonding curve, there is no capped supply on NFTs, but the upward pressure on the NFT price mimics a supply cap as the price to enter gets higher and higher.

If you are interested in learning more about bonding curves, Simon de la Rouviere’s article or the breakdown by Glass Protocol are a good place to start.

How does Crescendo work?

Above describes how bonding curves work to create upside and liquidity for any NFT. But Decent NFTs have a couple different properties than other NFTs:

1. Decent NFTs have a base fundamental value that is equivalent to a prescribed share of streaming royalties from a song (or EP, or album) plus fans share of the curve’s liquidity
2. This fundamental value only exists for a fixed period of time (which we call a listing period) – after which the NFTs return to being a collectible item just like any other NFT

So, what does a Decent Bonding Curve model look like?

It works the same way. Until the end of the listing period.

The price of the NFT starts at an arbitrarily low amount. With every NFT purchased the next purchase price goes up, with every NFT sold the next purchase price goes down.

At the end of the listing period, trading with the bonding curve contract locks. No more NFTs can be bought, and no more can be sold. And there are two pools of capital to be accounted for.

1. The Decent Vault: equivalent to some amount of streaming royalties that Decent has accrued and staked over the listing period for rewards.
2. The Crescendo Smart Contract: equivalent to the amount of ETH within the smart contract from the NFT purchases on the curve.

How does this liquidity get distributed?

Together, the two pools equate to a network value that the artist and the collectors have invested and created over the listing period.

The pool of accrued streaming revenue is a reward to the collectors for supporting the artist and being present in the community at the end of the period. It is distributed equally amongst the number of collectors holding an NFT.

This next part is where we get excited. For a while at Decent, we have been toying with the idea of synthetic royalties. Our definition of synthetic royalties is any way to reward the artist and the fans with net-new revenue streams that grow based on artist popularity or are rewards for community building. In this case, we are taking the network value from the Crescendo smart contract and dividing it up between the artist and the fans as a way to make the value within the community liquid. This is just a v1 (or even v0) of what we want to accomplish, but ultimately is a way to give value back to both the fans and the artist.

Launching with Amanda Frances

Crescendo is our first attempt at a more sustainable and scalable mechanism for artists and fans to engage such that the model mimics and rewards super fan behavior.

We want to keep pushing the boundaries of how fans and artists interact, and we’re excited to be launching our first experiment of Crescendo with Amanda Frances. Amanda is a great emerging artist with a strong vision and appetite for innovation in web3. She is excited about working long term to engage with collectors and create differentiated experiences.

Amanda Frances’ release will go live on decent.xyz Monday, March 21 @ 6 pm est / 3 pm pst.

Read about Amanda Frances’ EP “attachment theory” and how she plans to build a community over time while using the Crescendo model to price her NFTs in her mirror post here.

Closing Thoughts

While we are excited about this step forward we are sure that this is just that, a step in the right direction. Together as a music NFT ecosystem, we will continue to work towards achieving this goal of a symbiotic artist & fan relationship.

We would love to hear thoughts and feedback from you. Join us in our Discord and follow us on Twitter to keep up with and contribute to the Decent community as we build.

P.S. Our thoughts on editions.  The following are the primary reasons why we believe editions can ultimately lead to undesirable outcomes for artists & fans.  We believe Crescendo is a potential solution for each of the below.

1. The size of an artist’s community is capped at the number of editions, and the overlap between an artist’s fans and those who can afford a marked-up NFT is small.  After the mint, this is a two sided problem where community members are one-in-one-out and the principle requirement for those entering is significant ETH, not significant fandom.

2. Limited price discovery hurts artist’s expected returns.  Editions are predicated on a fixed number of NFTs minted at an arbitrary value.  There is nothing inherently wrong with this approach, except the expectation of a sell out means either the supply of NFTs or price must be set below market demand.  Pareto efficient outcomes are therefore determined via secondary trading.

   At mint, artists receive the full value of each NFT sold (or close to it).  In secondary trading, artists typically receive a small creator share.  If price discovery strictly exists in secondaries, artists are only capturing a small percentage of surplus demand (auction mechanisms are also potentially undesirable for this reason).

3. Editions can misalign incentives between artists and their earliest supporters.  Editions only maintain scarcity value if the artist does not release another collection.  If the artist does release another collection, it directly disadvantages that artist’s earliest supporters by lowering the overall scarcity or by in one of two ways:

   First - if a fan just wants to enter an artist’s community, she now has (maybe) 2x as many NFTs from which to choose.  From this perspective, the cheapest NFT across both collections should become the floor price for both collections.  This is unfortunate for someone that previously bought into an artist community for more.

   Second - if there is genuinely differentiated value between the two sets of editions, holders of the first collection have to risk that their NFT will continue to grant them access to the most desirable aspects of an artist’s community.  Fans uncomfortable with that risk are forced to spend more money, buying a new NFT, to ensure full exposure to an artist’s growth.  True fandom should be demonstrated via community engagement, not constant financial commitment.