On what Story can and can’t solve

"In the year 2035, AGI was invented, plunging human society into chaos. Contrary to the bold claims made by AI researchers in the past—that AGI could be fully controlled—the AGI models have now moved beyond human oversight. These models, ignoring laws and regulations, autonomously learn from all data available in both the physical and digital worlds, advancing rapidly toward superintelligence.

There are no longer any productive roles left for humans. While some AGI models reward humans for providing data, most of them learn from data without permission. Although humanity has made various attempts to use blockchain to combat the excesses of AGI, it seems nearly impossible to prevent unauthorized data learning now that AGI has escaped human control."

1. Story Protocol Cannot Solve Everything

Recently, PIP Labs, a core contributor to Story Protocol, garnered significant attention by raising $80 million in a Series B round led by a16z. Story Protocol aims to solve various issues with existing IP assets by tokenizing IP and onboarding it to the blockchain.

There is a common misconception at this point. Because blockchain is inherently a transparent and fair system, some believe that combining blockchain with IP might solve real-world issues like the frequent unauthorized use of IP. As the AI industry's scale grows, there are increasing suspicions of AI companies using data without permission. Since Story uses AI as one of its key promotional points, many people assume it could resolve these issues.

The truth is, Story cannot solve these problems. The issue of unauthorized IP use is a real-world problem, and no matter how securely an IP is registered on the blockchain, there is nothing the blockchain itself can enforce if someone uses it maliciously without permission. This is a matter for the law to address. Story Protocol also acknowledges this reality—it is not a tool to prevent dystopia but rather a protocol to accelerate utopia.

2. Accelerating IP Utopia

2.1 What Story Can Solve

So, what issues in the IP market can Story Protocol address? The current IP market faces several challenges:

1. Complex Licensing Processes: When an individual wants to create new content based on someone else's IP, the process can be very complex. To use someone else’s IP, you need to contact the owner and negotiate various terms such as the type of license, scope and region of use, royalties, and fees. While this might be easier for large corporations with resources, it creates a high barrier to entry for most individuals.

2. Revenue Distribution Disputes: Despite royalties being specified in licensing agreements, disputes are still common due to various factors. For example, misunderstandings about how royalties should be calculated can lead to disagreements over gross revenue, net profit, discounts, shipping costs, and tariffs. Companies may also manipulate accounting to reduce the amount of royalties paid.

3. Legal Barriers: The laws and regulations surrounding IP registration, protection, and use are highly complex and costly. These legal hurdles can be significant barriers, especially for many individuals.

4. Cross-Border Complexity: IP laws and regulations differ from country to country. To handle IP internationally, multiple legal requirements from different countries must be met, increasing complexity.

As the world becomes increasingly digital, the number of digital IPs is also growing. However, the IP industry still faces limitations due to traditional systems. Story aims to address these challenges and make the IP market more efficient by tokenizing IP on the blockchain.

2.2 Blockchain Meets IP

Just as blockchain made money programmable and more efficient, Story seeks to make IP programmable and expand its potential. Here are the benefits of using blockchain in Story Protocol:

1. Borderless Platform: Blockchain is inherently borderless. Anyone worldwide can easily tokenize their IP on the Story Network, and registered IP can be utilized and monetized efficiently across the globe, creating value without geographical limitations.

2. Smart Contract-Enforced Royalties: The protocol can enforce policies through code. By using smart contracts, Story ensures that royalties generated from IP use are distributed more transparently and fairly than in traditional systems.

3. Easy Onboarding: Although not a unique advantage of blockchain itself, Story offers a legal framework and SDK to make it easy for IP owners, creators, and developers to onboard.

4. Scalability is Less of a Concern: One of the most common criticisms of blockchain compared to legacy systems is its low scalability. While scalability is crucial for payment and finance projects, which involve frequent transactions, this is less critical for IP. Since speed is not a primary concern in the IP industry, adopting blockchain does not highlight scalability limitations, turning a potential drawback into a relative advantage.

3. But… How?

Now that we've explored what problems Story Protocol can solve in the IP industry through blockchain, how exactly can it achieve this? Let’s dive into the basic concepts and architecture design of Story.

3.1 Terms

Story Protocol includes a variety of terms that might confuse new users and developers. Understanding these terms and their relationships is crucial for grasping the bigger picture. Below is an initial overview of these terms, which we will explore further to see how they interact:

• Story Network: The core blockchain of Story, built on the Cosmos SDK and compatible with EVM.

• IP Asset: An IP registered on the Story Network as an ERC-721 NFT, following a metadata standard tailored for IPs, including the author, relationships to other works, attributes, etc.

• IPFi: Applications within the Story ecosystem that are based on various IP assets.

• IP Account: Deployed from the IP Asset Registry once an IP asset is registered, this is an ERC-6551 (Token Bound Account) linked uniquely to the IP asset. It stores IP-related data (such as metadata, ownership details, royalty tokens) and executes modules.

• Module: Smart contracts with various functions that the IP Account can execute. Key modules created by the Story team include the Licensing Module, Royalty Module, and Dispute Module.

• Licensing Module: Handles licensing-related tasks, such as generating License Terms from License Templates, attaching them to IP Assets, minting License Tokens, and registering derivative IPs.

• License Template: A coded legal framework containing terms like commercial use permissions, transferability, royalty percentages, etc.

• Programmable IP License (PIL): The first example of a License Template created by Story Protocol.

• License Term: Variations created based on the License Template. For example, even if two terms are based on the same PIL, one might have a 5% royalty while another has 10%.

• License Token: An ERC-721 NFT minted by anyone when an IP owner attaches a License Term to an IP Asset. These tokens can be burned to register a derivative IP.

• Derivative IP: A derived IP that has a parent IP asset. For example, a comic book created based on a specific BAYC NFT could be registered as a derivative IP under that BAYC.

• Royalty Module: Determines how revenue flows between the parent IP and derivative IPs. Parent IPs have two revenue sources: fees from license minting and royalties from derivative IPs.

• Liquid Absolute Percentage (LAP): A default royalty policy defining the minimum royalties that a parent IP should receive from its derivative IPs.

• Dispute Module: Manages disputes involving malicious IP assets.

• Registry: While the IP Account manages data specific to an IP asset, the Registry manages the broader states within the Story Protocol. Key registries include the IP Asset Registry, License Registry, and Module Registry.

• IP Asset Registry: Manages IPs registered on the protocol and deploys the IP Account when an IP is registered.

• License Registry: Manages actions related to licenses, such as registering License Templates, attaching License Terms to IP Assets, and registering derivative IPs.

• Module Registry: Maintains a global list of modules and hooks.

By understanding these terms and their interactions, you can grasp how Story Protocol works to address existing IP market challenges through blockchain technology.

3.2 Example

To better understand how the elements mentioned earlier interact and function, let's walk through a simple example. Please note that this is a hypothetical scenario, not a real case.

Registering Original IP

1. A company like Marvel registers its Marvel Comics as an IP Asset on the Story network. During registration, they can set License Terms using one of the License Templates, such as the PIL. In this case, they choose a License Term that allows commercial use and sets a 10% royalty, attaching these terms to the IP Asset when it is registered.

2. As soon as the IP Asset is registered, the IP Asset Registry deploys an IP Account associated with it.

3. Each IP Asset comes with 100 million Royalty Tokens, which determine the proportion of revenue that can be claimed from that IP.

Registering Derivative IP

4. Walt Disney decides to create a "Thor" movie based on the Marvel Comics IP. To do so, Walt Disney pays a fee (or zero fee) to mint a License NFT.

5. Walt Disney can then burn the License NFT to register a Derivative IP, specifying the royalty rate.

6. Since Marvel set a 10% royalty on Parent IP1, it will receive 10% of the 100 million Royalty Tokens from Derivative IP2, which amounts to 10 million IP2 tokens. Additionally, Marvel can claim 10% of any revenue generated by Derivative IP2.

7. Derivative of Derivative IP can also be registered.

Revenue Structure

8. Each IP Asset can claim Royalty Tokens from derivative IPs based on the set royalty percentage, and thus claim a share of the revenue generated. This follows the revenue structure of Story’s default (and only) royalty policy, LAP (Liquid Absolute Percentage).

9. In the example, IP1 has a 10% royalty rate, and IP2 has a 5% rate. Therefore, IP1 holds 10% of the Royalty Tokens from IP2 and IP3, while IP2 holds 5% of the Royalty Tokens from IP3.

Disputes

10. Unauthorized IPs can sometimes be registered on Story. For instance, suppose Derivative IP2 was registered not by Walt Disney, but by a similar-sounding entity, "WalfDisney," raising concerns of plagiarism. In such cases, anyone can set a tag and raise a dispute without permission.

11. Whitelisted Arbiters review the dispute and make a judgment. As mentioned earlier, legal disputes involving IPs are real-world issues, and thus need to be adjudicated by appropriate entities.

12. If the IP is found to be illegitimate, it is tagged (e.g., with "plagiarism" in the figure), halting its revenue generation. The same tag can be applied to any associated derivative IPs.

13. If the IP, previously deemed illegitimate, resolves its legal issues, the dispute initiator can remove the tag.

4. Ecosystem

Story Protocol not only makes IP registration and usage easier, more efficient, and transparent but also, as an EVM-compatible blockchain, allows various applications to interact with IPs. Let’s look at some key applications within the Story ecosystem.

4.1 Creator Platforms

• Magma: A collaborative art platform where creators can register their works as IP on Story.

• Sekai: A platform that enables writers to incorporate illustrations, audio, and music generated by generative AI to match their stories. Creators can register the IPs created on Sekai on Story, monetize them, and utilize them further.

• ABLO: A platform where creators use generative AI to collaborate with major brands to design apparel. As it is based on Story, the processes of IP registration, royalty distribution, and IP investment are seamless.

• Color: A marketplace for trading various IPs and licenses within the Story ecosystem.

4.2 DeFi / IPFi

• Unleash: An IPFi platform that allows for IP license issuance and fractionalization, IP launchpad services, and a lending protocol within the Story ecosystem.

• PIPERX: A decentralized exchange for trading ERC-20 tokens on the Story Network.

• Ethena: Although the details are not yet public, Ethena’s USDe is expected to be used as a stablecoin on the Story Network.

• Verio: Supports restaking of Story Network’s PoS tokens, and facilitates the use of liquid vIP tokens as attestations for IP Assets.

4.3 AI

• Mahojin: A platform that uses generative AI to create images and makes it easy for creators to remix content by modifying the prompts. AI model owners can earn revenue by providing models, and Story’s infrastructure is particularly beneficial when other creators' content is involved in the remix process.

• Ritual, MyShell: MyShell allows users to easily create AI apps and chatbots. The partnership enables AI apps created on MyShell utilizing AI model hosted by Ritual to be registered as IP Assets on Story.

• RingFence: Protects users' internet usage data and enables monetization by selling it for AI model training.

5. Challenges Ahead

5.1 Tokenomics

Tokens should help achieve the goals of the protocol more efficiently. Although the detailed tokenomics have not yet been disclosed, Story has a native token called IP. The $IP token serves as the PoS token and is also used for gas fees on the Story Network.

However, if $IP is used solely for staking and gas fees, its tokenomics won't differ much from other L1 networks. The value creation in the Story Network comes from registering derivative IPs and paying royalties. Therefore, providing $IP incentives to users who participate in these activities could greatly help with the initial bootstrapping process and support long-term sustainability.

Here are my proposed utilities for the $IP token:

• PoS security

• Gas fees

• Incentives for derivative IPs paying license fees: Rewards for creators who register derivative IPs and pay licensing fees

• Incentives for royalty payments: Rewards for creators who pay royalties to parent IPs

• Incentives for prominent parent IPs: Rewards for creators of parent IPs that generate significant value through derivative IPs

• Native yield from license fees & royalties: Distributing a portion of the revenue generated by Story to $IP stakers

By providing $IP incentives to creators of parent and derivative IPs in various ways, Story can onboard high-quality IPs and a wide range of remix IPs. Considering that $IP incentives will decrease in the future, sufficient revenue stream must be established beforehand. If a portion of this revenue provides substantial returns to $IP stakers, sustainability can be achieved.

However, there are also some points to consider when designing the token's utility. It is essential to avoid rewarding fake activities aimed at earning token incentives, such as merely creating IPs or registering meaningless derivative IPs that do not contribute to value creation. Furthermore, even if incentives are given for value-creating activities, it must be carefully distinguished whether the revenue generated is genuine or simply a form of wash trading.

5.2 Onboarding IP

The core of Story is onboarding key IPs. If existing major IPs join Story, it will attract numerous derivative IPs, creating significant value and generating a flywheel effect that brings in even more IPs.

• Companies that own major IPs might not see a strong reason to use blockchain. Therefore, the Story team will need to effectively persuade these companies of the benefits of adopting blockchain technology.

• The Story foundation might offer grants to bring in well-known IPs. While this is not necessarily a redundant action, if the selection and size of these grants are haphazard, it could be detrimental to other token holders, so caution is needed.

5.3 AI Use Cases

Aside from IP, AI is also a critical part of Story's narrative. For creators, utilizing genAI to remix IPs registered on Story makes it much easier to create new content. However, additional features may be needed for AI models learning from data. For example, data intended for training should not be made public before payment is received. Therefore, when data is first registered on Story, there should be a feature to keep it private and only make it available to entities that have paid the licensing fee.

5.4 Legal and Regulatory Integration

As emphasized throughout this document, Story cannot enforce anything against unauthorized use of IPs. Therefore, if malicious activities are detected, a well-integrated legal dispute process, both on-chain and in real-life, should be established.

6. Final Thoughts

As AI technology advances and the world becomes more digital, the IP industry will continue to grow. By incorporating blockchain into the IP industry, Story could become the key infrastructure that makes the IP sector more efficient and transparent.

Story cannot prevent a dystopia; it can only accelerate a utopia. However, the closer the IP industry moves towards a utopia, the farther it will be from a dystopia.