How EulerBeats could change the way artists get paid

What if you could invest in a song by one of your favorite musicians and then make money every time the track is reproduced?

That’s what the revenue model at the heart of EulerBeats could make possible.

EulerBeats (pronounced oiler-beats) is an Ethereum-based non-fungible-token (NFT) music and art project. The artwork features algorithmically-generated audio tracks accompanied by visuals that are also created algorithmically, using blockchain smart contracts.

The project has drawn backing from Ethereum venture studio ConsenSys and has garnered shoutouts from celebrity entrepreneurs Mark Cuban and Gary Vaynerchuck.

The team behind EulerBeats — best known for Swether, a project that allowed users to create digital NFT holiday sweaters — says it’s not just a new medium for music and art. It’s also a new kind of art market.

Some think that the economic model underlying EulerBeats could be the basis for new kinds of models that artists could use to earn a greater share of the revenue generated by their work.

What is an EulerBeat?

EulerBeats’ first collection, composed of 27 original tracks or “LPs”, is called Genesis. Each Genesis LP has a distinct sound derived from an amalgamation of percussion instruments and different beats.

The music for every track was generated on-chain using a smart contract, which also creates the original LPs and a set of tokens that can be used to reproduce the original LP. The algorithm used to generate the tokens is based on a math function created by Leonhard Euler, a famous mathematician after whom the project is named.

Each track is also associated with a unique piece of art, which is also algorithmically generated on the blockchain using metadata from the actual transaction coupled with Euler’s function. All of the art features five main characteristics: grid size, diagonal lever, horizontal lever, color palette, and shape.

The factor that really distinguishes EulerBeats from other NFT projects is the revenue model built around their reproduction.

EulerBeats uses a token standard called ERC-1155, which creates tokens that are both non-fungible and fungible. So there are two types of EulerBeats: original LPs, which are non-fungible, and “prints” of the LPs, which are essentially copies of the original.

Each Genesis LP can be reproduced a maximum of 120 times.

Each time a print is created, the owners of the original LP earn 8% of the revenues. The owners of the Genesis LPs have made over $2 million worth of royalties to date, according to EulerBeats co-founder Tyler Mulvihill.

A new kind of art marketplace?

Here’s where things start to get more complicated. Of the remaining 92% of the sales revenue, 90% goes into a fund reserved for refunding “burned prints.” (The EulerBeats project gets the remaining 2%.)

But what does it mean to burn a print and why would someone do that? Let’s back up.

First, every print is priced using an automatic pricing method called a bonding curve: as the number of prints for a particular LP increases, the price of issuing its next print also increases — at an exponential rate.

Second, the smart contract will always buy back the prints — using its portion of the sales revenue — for 90% of what it would cost to make the next print.

For example, imagine that you purchased print #8 of an EulerBeats LP. The price to print #9 is 1 ETH. The EulerBeats smart contract will always buy your print for 0.9 ETH. This process, called burning, eliminates that token from the pool.

According to Mulvihill, the bonding curve gives investors some security. “We didn’t do this to create a speculative engine, we did this for downside protection to incentivize people to experiment with our project,” he said.

“The bonding curve is good for creating instant liquidity. It creates a market out of thin air because you can always sell the print back,” Mulvihill said.

NFT collector Beanie (@beaniemaxi on Twitter) bought the very first Genesis track, LP 01, for 300 ETH (nearly $500,000 at the time of this writing). He also owns LP 19.

For Beanie, the biggest appeal of EulerBeats is being able to sell the prints. He has been actively trying to encourage people to buy them by running promotions, hosting drops, and giving away additional art to buyers.

Beanie says he’s made over 200 ETH in revenue on both LPs. Out of the 27 original LPs, his tracks have generated the most revenue.

The economic model incentivizes people to invest and promote the original tracks because as the number of prints in circulation goes up, the price of each print also increases exponentially, according to non-fungible token (NFT) collector Aftab Hossain (@iamDCinvestor on Twitter), who owns two of the original LPs, LP 10 and LP 17.

According to Hossain, people that aren’t sure of the project’s success can join in without feeling like they’re going to lose a chunk of their money by buying a print of their favorite LP track. If they change their mind or don’t see anyone else buying prints, they can always burn it and get back 90% of the cost of creating another print of the LP.

Although he was skeptical at first, Hossain studied the project’s business model and was hooked. “It just kinda clicked for me,” he said.

“They’ve unleashed this economic model on the world that is going to be very foundational in terms of how royalty payments work for artists, both audio and potentially even video and visual artists.”

Mulvihill is convinced that at the heart of EulerBeats is a way for artists to gain financial independence from middlemen. He used to be in a band and said he has experienced how record labels can exploit their artists.

“Musicians and artists have been getting the short end of the stick for a long time and they need ways that they can choose how people get paid and how they get paid without using third parties that take a cut,” he said.

“I actually turned down a record deal at Sony because it was so terrible,” he said, gesturing to his guitar, banjo, and ukulele. “Maybe now I’ll be a musician again and put all my stuff on the blockchain.”

Mulvihill says the EulerBeats business model has the potential to revolutionize the music industry.

“This is going to be a natural progression,” he said. “There are now enough people that own NFTs that we can start building for that community, rather than for people who listen to music on apps like Spotify.”

On March 29, the EulerBeats team is launching its second auction. For 48 hours, the group’s second collection of original tracks titled “Enigma,” will be for sale.

Unlike the Genesis collection, Enigma print tokens will be capped at 160 prints instead of 120. The collection will feature different music and art and will be priced on a longer, flatter bonding curve. The team says this will allow more users to join the community by making prints more affordable before the exponential curve becomes too steep.