Over the past few years, Cherie Hu has become one of the music business’s most reliable prognosticators – the kind of specialist who knows exactly where the market is going, and how it’s going to get there. As the founder of Water & Music, a research platform and newsletter dedicated to music’s overlap with the tech industry, she’s delivered meticulous research on subjects like social tokens, non-fungible tokens (NFTs) and conventional music tech startups to an army of devoted subscribers.

This article is part of Road to Consensus, a series highlighting speakers and the big ideas they will discuss at Consensus 2022, CoinDesk's festival of the year June 9-12 in Austin, Texas. Learn more.

Late last year, after participating in a crypto accelerator program called Seed Club, Hu began reorganizing that community around tokens, rather than Patreon subscriptions. The result was the Water & Music DAO, or decentralized autonomous organization – an online space centered around a homemade cryptocurrency.

The Water & Music roster features leaders from just about every major music project in crypto; if you care about music and tech, odds are you’re already a member.

Ahead of her panel at Consensus 2022, Hu spoke with CoinDesk about the state of music NFTs and where things might be headed from here.

This interview has been edited and condensed for clarity.

Water & Music just announced a report about music in the metaverse – what most interests you right now, in that space?

I've thought about this a lot with any technology, and especially with Web 3: What forms of music creation, or consumption, or monetization feel native to a given technology, and not just just copying and pasting a business model that already exists?

I'm excited by what happens when music creation becomes a lot more tactile. There's a startup called Wave XR that did this early on – they've since pivoted – but they would partner with artists on making these interactive, immersive worlds around their music in VR, such that you could literally pick up stems, and depending on how you interacted with them or moved them around in the space, it would trigger different kinds of sounds. It was making or remixing music through movement. That idea is super interesting to me – I feel like there's so many different ways that you could play around with that in these virtual environments.

I personally have done a lot of research in the past on music and gaming, and there's a lot of hype in the industry about the commercial opportunity. Like, Travis Scott making millions in a Fortnite show, or Lil Nas X in Roblox.

But I think game worlds as new storytelling mediums are even more interesting to me. The best games are not just interactive, but also very personal and dependent on the player. So what happens when you take a more standard, linear way of telling stories through music – like a song – and put it in this kind of interactive environment? How does that change the way that you communicate the underlying narrative, or the way that fans or players or members relate to that narrative?

Do you feel like that Travis Scott Fortnite show was a watershed moment for the virtual concert idea? It felt sort of unexpected at the time, but in retrospect it feels like the start of a trend.

Timing also, of course, played a huge role, because it was right at the start of the pandemic. I remember a ton of articles being published around then, being like, “this format is the future of concerts.” I guess just because there were no IRL alternatives. And so even even looking at Epic Games, and how they evolved their music strategies since then, I think they've only done that kind of concert with a very small handful of artists.

I think Ariana Grande is the only other artist who they did a concert of that scale, in terms of making it fully immersive, interactive. And they hosted a bunch of other music events in the no-combat battle royale part of their game, but they were just YouTube videos embedded in a screen, so it wasn't very interactive.

The main takeaway there is that I don't think that model is the future. Putting on shows of that scale is super expensive, and then because it's expensive, game developers only want to partner with the biggest celebrities to make it worthwhile. So that model doesn't seem super accessible to me.

I was super intrigued by the very DIY, customized nature of a lot of the Minecraft festivals that were happening around the same time. And there it's kind of the opposite model: Anyone can spin up their own Minecraft server and create their own world, invite people in. It's more or less completely open. It's also a lot less “custom” in the aesthetic – there's so much you can build in a Minecraft world, but it's very much a specific Minecraft aesthetic.

That's more where I see the future going, in terms of tools that enable more artists to make their own worlds. Minecraft isn't free, but in terms of access to building these custom worlds, it’s just much more accessible.

I remember in the early days of the pandemic, after the Travis Scott collaboration with Fortnite, there was a Minecraft show with 100 Gecs and Charli XCX that felt a lot more lo-fi. Less slick, more customizable and accessible.

To Fortnite’s credit, for the Travis Scott show, it felt unique to the game world. This is also a big challenge, and something that we’ll look into for this next season: how these experiences mesh, or don't mesh, with IRL experiences. I think music livestreaming, the demand for that has kind of stagnated or gone down. There was a lot of hype for online concerts in general, and tons of startups were spinning up around it, but I think general activity or demand has gone down.

Or if you look at metrics on Twitch, in their music category, it's kind of stayed the same over the last year or so. I don't know if part of that is the novelty wearing off – part of it is also, COVID notwithstanding, actual IRL music experiences and concerts like coming back. So in terms of people who want to build these experiences online, I think there's even more pressure, but also an imperative to make sure it's genuinely interesting and can only really be experienced online and in a digital environment, without physical constraints.

There’s also the caveat that most metaverse “concerts” aren’t really live – they’re typically just pre-recorded, right?

Yes. The audio is prerecorded, but people's avatars you can see reacting in real time. The social part of the quote, unquote concert was live, but the performance part was not. In terms of future music metaverse experiences, in terms of what the tech allows for today, I think there's a lot more active experimentation and cool things that can also be done at the social layer and not just at the performance layer.

Where does crypto fit into this, if it does at all?

There's a whole school of thought around what the metaverse requires to be realized that is inseparable from Web 3. I think one core theoretical underpinning of the metaverse is this notion of interoperable identity, and I think that also connects really well to what a lot of people are building for in Web 3, which is being able to have this platform-agnostic identity model, platform-agnostic assets and data ownership that you take with you. It's not centralized or dependent on any one platform.

There's been a lot of discussion and interest in the idea – in gaming, for example – of being able to have an avatar, or some kind of NFT or PFP [profile picture] travel with you across game worlds. And then of course, in gaming, there's already an established economy around virtual goods, and like that driving revenue for a ton of games. That also arguably could map well onto NFTs.

On the complete opposite side of the spectrum, you have Facebook/Meta. I would also put Epic Games into this category of an extremely centralized vision of the metaverse. And it's weird because that side of the spectrum uses a lot of similar language. The way that Mark Zuckerberg will talk about the metaverse and how that plays into all the different platforms under the Meta parent company – it is interoperable, in this very centralized context. Like, being able to take your identity and your social graph with you across all these different apps.

Of course, it's still one company owning all that data, and Epic Games is definitely similar. I'm thinking of their Bandcamp acquisition, which was part of a bunch of acquisitions they've done of these more indie art marketplaces catering to indie creators. It’s centralized ownership of this network of indie marketplaces because they want to make it easier for indie game developers to build their own games using Epic technology.

Something that, at least in the music industry, we hope to be able to do through our research, is start to just make people aware that these fundamentally contradictory visions for the metaverse exist.

How does that notion of interoperability or platform-resistance square with existing competition between companies? Why would private companies want users taking assets off-platform? And how would that even work, logistically?

The ironic thing is that because Web 3 is so decentralized, there's no consensus or shared standard on what kind of information to include in an NFT. And I think especially as the music/Web 3 landscape expands, I can see this becoming a problem for interoperability very quickly.

For example – and this resembles a problem in the music industry, without even introducing the complexity of Web 3 – but the vast majority of music NFT platforms, the way they structure their metadata, I think of it as “single player.” It assumes that there's only one minting wallet. [And] not only that there's only one minting wallet, but that there's only one wallet that should receive all the revenue. It definitely favors completely DIY artists – they are their own manager, they do their own production, songwriting, and engineering.

The concept of even crediting collaborators, let alone splitting the revenue with them, is relatively new. Splits protocols on music NFTs have only really started to get used in a more public way in the last couple of months. And NFTs minted on OpenSea – the fields that they have to credit collaborators are completely different from what a more music specific NFT platform like Sound or like Catalog might want to make room for. I don't know if that's competition, per se, as it is because it's decentralized. All these different platforms are going to have their own incentives, the irony being that an NFT minted on one platform might not actually map that well to another platform.

What even is a music NFT in 2022? How can we define that if there are no standards for what kinds of data music NFTs include? And how do you see the market maturing around that?

NFTs are just data containers, at the end of the day. They represent a relationship between the person who minted the NFT and the person who buys it, and show that relationship on chain. The amount of things that you can do with that, and the experiences that you can design around that – the possibilities around that are still so open, and yet there's still so much hype, or attention, given just to this “limited edition, scarce drop” model, or to this kind of “10k PFP” collection model. It's just very, very limiting.

I think as long as you lead with the fact that it's an NFT as the main selling point, your addressable market will have a ceiling. Because then you're speaking only to an audience of people who are much more Web 3 native, who have enough in their wallet, and who are wealthy enough to have some disposable income to spend on something like a music NFT where the value might not be as known. This is very similar to the dynamics of the visual or fine art market.

I think there is a market for Web 3-related music experiences, but ironically I think the word “NFT” will have to take a backseat as a leading indicator of why that project is valuable. If the goal is to reach a wider, more mainstream fan base, I think making the “why” or the “so what” or the resulting experience around that technology clear, to the point where the complexity of the technology takes a backseat – I think that is going to be crucial.

Do you find that there’s still a stigma around NFTs in the music world?

Definitely. Stigma around, financial accessibility, environmental concerns, for sure. And I guess it's a wider Web 3 thing, but there does seem to be a bit more momentum towards L2 chains in general.

I'm still trying to process this whole thing that happened with Yuga Labs over the weekend – I was not happy to not be trying to buy any NFT over the weekend, but the notion of gas fees going to several thousand dollars – in this music, cultural context, thinking about the already negative perception around the technology – definitely doesn’t help from an onboarding and adoption standpoint.

I think the messaging has to lead not with the technology, but the experience around it, and how the experience that the tech enables will be genuinely delightful and not complicated, and not lead to all these roadblocks that I think a lot of fans still run into.