The $11.7 million price tag on 3LAU‘s sale of 33 collectible NFT — non-fungible token — versions of his 3-year-old album, Ultraviolet, on Feb. 25 has become a beacon for the music industry over the past three weeks. There’s clearly money to be made in digital collectibles and now there’s a rush to break into the market. But artists beware: Exponential growth like this is not sustainable and many of the people who were involved in NFTs early on do not expect these exorbitant sale prices to continue.
“I think it will be very difficult to replicate again,” says 3LAU about his $11.7 million haul – an NFT record until digital artist Beeple sold a single piece for $69 million on auction at Christie’s on March 11, the third-highest sale price for a piece of art by a living artist in history. “This was an experiment that was wildly successful beyond my wildest imagination.”
Despite a slew of other recent NFT successes from Deadmau5, Grimes, Shawn Mendes and others, Dee Goens, co-founder of NFT marketplace Zora, concurs. “I’m not sure if the crazy amounts of money that creators are earning in the five, 10-minute spans of these wild opens — I don’t know if that’s sustainable,” he says. “I’d be excited if it was for creators, but I think that overlooks the real opportunity here which is to build permanence and perpetual equity in media on the internet.”
NFTs allow the creator to set a perpetual royalty during the “minting” creation process that will allow them to get paid for third-party sales, a feat not possible with any current digital (or physical) good. The average royalty rate is set between 10–25% according to Goens. That means NFTs can deliver artists lifetime royalties with every future sale.
Right now, the NFT market is booming thanks to rare sorts of collectors: millionaires — and some billionaires — who made fortunes investing in cryptocurrency in its infancy. They are the Ethereum and Bitcoin “whales,” or individuals who hold enough of the currency to sway the market, and they have made their imprint on the early days of the NFT explosion with these headline-grabbing sales.
“What 3LAU did, that’s not to the masses,” says Dean Wilson, Deadmau5’s manager. “That is 10, 15, crypto billionaires who are in this space, scooping up the Beeple artwork. That doesn’t feel like a sustainable business.”
3LAU acknowledges that the whales are having a disproportionate impact on the massive sales we’ve seen so far, but he believes that the customer base will continue to expand as more artists launch NFTs. “A small percentage of our audience is our fan base and a large percentage of it are people in crypto who are also our fans today,” 3LAU says. He’s now focused on making his future NFT drops more affordable to the average fan, he says, specifically for those who supported his NFTs before the market exploded. 3LAU’s latest drop last Friday with digital artist Slime Sunday had NFTs available for $333 — not cheap, but a far more affordable price point for average music fans.
“Now what it’s about for me is how do I get my real fans into the space and get them excited about it?” 3LAU says. “And how do I make this affordable for everyone and give everyone the ability to show patronage? If you’ve purchased a lot of stuff in my collection in the past, we want to give you the first right of refusal on something that’s maybe cheaper in the future.”
While those whales are dominating news headlines, there is a quietly developing market for smaller digital artists who are pulling in a sustainable income, according to Mike Darlington, founder and CEO of indie electronic label Monstercat, which was the first label to hold an NFT drop back in January. “What people aren’t realizing is that there’s this massive amount of artists that might only have 50 buyers, but are now generating $4,000, $5,000, $10,000 a month in revenue that they can live off of,” Darlington says of the digital art market that kicked off the NFT rush.
Long before musicians began pulling in six or seven figures from NFTs, digital artists were pulling in sustainable revenue; in 2020, the NFT art market pulled in $12.9 million in sales — largely from smaller auctions and lower fixed prices — accounting for 24% of the overall NFT market, according to a study from nonfungible.com and L’Atelier. In 2019, the NFT art market generated $456,885 in revenue.
“The idea that an artist who has 4,000 fans can suddenly be supporting their family, that to me is why this is so incredible,” Darlington continues. “They can create whatever type of content they want to create, you’re not creating it to fit into the mold of what you’re being told is what’s popular right now, because you only need 50 fans that care about you that are paying $400 or $300 a month.”
That burgeoning art market hasn’t translated over to music yet, and many questions remain about rights issues like royalty splits and copyright protections for music-based NFTs that have yet to be answered. But when average fans can easily pick up a collectible version of an album for a set price under $1,000, it will make the NFT market palatable and interesting to a much wider audience and sustainable in the long run. Relying solely on big spenders to push NFTs forward can only last so long.
“Discussions are being had around, how do we create a low barrier to entry?” Darlington says. “When we say low barrier to entry, we mean you’re not forced to own Ethereum, you’re not forced to own cryptocurrency. You can use a credit card and at a low cost. These pieces of art don’t need to be thousands of dollars.”