How this startup harnesses the power of DeFi to get content creators paid fasterView transcript
If Web3’s ardent boosters are to be believed, the future of the internet is going to be a much friendlier and more profitable place for musicians and other content creators. But for now, creators are stuck in a Web2 world where most of their revenue comes from putting their content on platforms like YouTube and Spotify – and then waiting, sometimes for months, for those platforms to pay out.
Turns out there’s already a Web3 solution to that problem, and the startup Paperchain is here to provide it. The company is able to pay creators in real time by getting DeFi loans based on their streams and paying back the loans once the streaming platforms pay.
Paperchain uses NFTs, not as art or collectibles, but as programmable collateral for these loans. Each of the non-fungible tokens the company creates is an aggregate of streams and artists, and since launching in 2017, it has issued over $1 million worth of NFTs.
The company gets paid through partnerships, so the service doesn’t cost the creators. It recently partnered with UnitedMasters, giving the music distributor’s 10,000 artists the option of getting instant payment for their Spotify revenue.
We caught up with Paperchain’s founder and CEO, Daniel Dewar, to find out what’s next for the company and what other opportunities he sees on the horizon for creators in a Web3 world. Here’s what he had to say.
This interview has been edited for length and clarity.
How Paperchain uses DeFi loans, opportunities for artists in Web3, and why NYC is the ideal place to build a startup00:00:00
Business of Business: First off, what is Paperchain? And how does it work?
Daniel Dewar: Well, the easiest way to think of it is Paperchain is an instant payments wallet for creators. So for creators on Spotify, or TikTok, or YouTube, it allows them to get instant access to the revenue that they're making on those platforms.
They can sign up and once they create their wallet and issue their Paperchain card, money starts getting paid out every single day, and they can spend it, they can withdraw it, they can earn interest on it. It's really designed to match the speed of content payments with the speed of light content creation and consumption.
What is the delay on that, typically, if someone does not have something like Paperchain?
I mean, it varies by platform. But to deal with, say, an artist on Spotify, at best, you're two, three months behind the actual activities period. So, you know, where that becomes an issue is particularly in video content and viral content and things like that, it really comes back to this idea of velocity and virality and the speed at which you need to be able to respond to things in the market.
So it's all well and good that you can have your content out there that's generating income, but what happens when suddenly interest explodes or you go viral?
Ultimately, that means that there's more pipeline revenue for you. And that usually means also that you need to then think about production, like, how are we going to capitalize on what's happening in the market today? So how can we maybe shoot the next video? How can we reinvest back into content? How can we double down our marketing? And typically in the current cycle, you're not going to get access to that new income for another two months.
So, that leaves you with credit cards or different types of loans or other sorts of debt products to be able to then finance this cycle of being able to constantly meet the demand of the market. With Paperchain that goes away, because now you have the ability to tap into it straight away, and you can reinvest immediately back into marketing, production, promotion, whatever you need to be able to capitalize on what's happening with your fans and audience in the market today.
What are the Web3 aspects of your business?
So this is the backbone of the financial infrastructure and the way we actually finance these payments. The way you would do this traditionally, is you would go to a fund or a bank, and you'd get a credit facility in place. So, we would go to a bank and say, I need $10 or $20 million, and we're going to use that to be able to finance these cash flow payments to all of these artists that we're working with.
And, you know, there's a lot of things that come with that. One is exclusivity over that facility. There's costs and liabilities of maintaining that facility and having that on your balance sheet. There's penalties for under utilization. There's a cost of refinancing. There's a lot of liabilities that come with actually just having that and maintaining it.
I got really interested in Ethereum and Web3 and smart contracts way back in 2016, and that was when this idea of decentralized finance was coming down, particularly decentralized lending. And this idea that you could, in a very programmatic way, be able to access financing and cash based on the assets that you held in your crypto portfolio.
“It's really designed to match the speed of content payments with the speed of light content creation and consumption.”
And so, typically, the way you would access it through these protocols is you would take your Ethereum or other cryptocurrencies and pledge that as collateral and based on the value of that be able to draw down a certain amount of value. We saw the opportunity to be able to say, well, what if instead of crypto, what if we could take data from Spotify or YouTube and say, well, this data really represents a future payment from Spotify? Can we collateralize that and be able to access the value of that and pay it out to the users? And so that's the mechanism that we've used. We've paid out a million dollars using this mechanism so far.
So, for us, it's about decentralizing the credit facility aspect to be able to offer a much more efficient product and really just deliver a better payments experience for the creators.
You guys use NFTs as part of that process as well, right?
Yes. In our stack NFTs aren't PFPs, they’re not collectibles – it's not media. They're really just synthetic receivables or poof of future payments.
So what we're doing is we're tapping into these data sources from these content channels and, say Spotify, and we'll timebox it over a period of time and say “okay, this data or these streams represent, say, $10,000 in future payments from Spotify. They're due in 60 days.” So we're going to actually represent that as an NFT.
This NFT is really just the access point or the representation of that data and the future value, as well as associated legal rights to that. And so what we'll do is then say, “Okay, this data, this NFT represents this future payment, we're going to pledge this as collateral to the protocol, and you're going to give us back $10,000 that we can then use to pay out to our users.”
Where in this process does Paperchain make money?
So, we charge a fee based on the volume that gets paid out. The way we set up our commercial commercialization is actually at the B2B layer. So, we work with a number of content platforms for integrations as well as content distribution platforms, and then subsequently use them to access their artists or their creators as customers of ours.
So we'll charge the fees to the content platforms, because, ultimately, we believe that this should be a no cost money product down to the end user. And so all the commercialization happens at the B2B level. The end result for the creator is that it's a no cost money product that just becomes the fastest and easiest way for them to access their content income.
So, you have partnerships with the content platforms, is that right?
Last year, we signed a partnership with United Masters, which is one of the largest independent music distribution platforms. We have a number of others in the pipeline and are expanding our B2B partnerships. And we also have data integrations with Spotify, Apple Music, and YouTube, and are now opening up and exploring data opportunities with TikTok as well as Twitch.
Since you guys are involved with working with DeFi, and with crypto, does the volatility of crypto affect what you're doing at all?
No, because we wanted to avoid a lot of the volatility aspect of it, which is why we worked with select protocols that can work with stablecoins. These are coins that are pegged one to one to the U.S. dollar. So, that enables us to redeem them at a one to one ratio.
Also, on the other side of it, the assets that we're introducing into these ecosystems are all price stable as well because they're all based on U.S. dollar amounts. So if we're introducing an NFT that has a notional value of say, $10,000 that doesn't fluctuate based on any sort of price or cryptocurrency volatility, it's always $10,000. And then they're paying out stablecoins, which are worth, say, $10,000, and, again, we can redeem them one to one.
Once we get those stablecoins in the current product, we actually redeem them and convert them into USD and pay that to the users through our wallet. And, again, that just makes it the fastest and easiest way for them to access it. Because it's in USD, they can use that card for purchases or withdrawal from an ATM. It keeps it very clean.
How has the idea for Paperchain evolved over time? My understanding is that originally, you were actually looking at tracking copyright on blockchain, and then it sort of evolved.
Yeah, that was the first iteration of it. When I first started thinking about this was 10 plus years ago, working in music studios back in Australia. It was always the same challenge with working with managers and artists and producers, and was, well, we'll shoot the video when the next YouTube check comes in, or, you know, we'll do the next production session when the Spotify check comes in.
As artists, and as creatives, there's no shortage of cash needed to purchase equipment or organize tours, or to invest in production or marketing. And just the rate at which you need to do that now and the way the payments never caught up, it just never matched.
“As artists, and as creatives, there's no shortage of cash needed to purchase equipment or organize tours, or to invest in production or marketing. And just the rate at which you need to do that now and the way the payments never caught up, it just never matched. ”
When I first started reading about Ethereum, and smart contracts and this idea that these could potentially be interesting systems for things like tracking copyrights, or maintaining ownership. But really the end goal of all of that was to have a clearer idea of who owns what, and to be able to get funds to them faster. Because that's one of the biggest problems with actually paying payouts in a lot of cases is the complexity of ownership and then the changes of ownership every year. But if you had a way of being able to track that, then you could certainly be able to distribute those payments in a much more easy way.
As we started building that component out, we recognized that we needed to stay closer to the money and actually just provide an easy way to access the money, which is sort of where the evolution came from.
The first product we built, which was at the end of 2018, was actually more of like a pure web three DApp. So it had MetaMask integration, and as a user, you could go in and select which assets or videos or songs you wanted to finance and publish them to a marketplace, and as an investor, you could go in and finance specific artists and creatives.
But in 2018, the market was very different. Everyone's like, “what's MetaMask? I don't know what token isolation is, I don't know what Ethereum is.” So, it was probably a little too early, and so we just decided to scrap all of that, and we've sort of abstracted that out of the product now.
So, as an artist or creator, it's just like, it's just you have a Paperchain wallet and USD, and you have the card and you get USD and you get paid. We've just made that process as simple as possible.
In terms of where we're at now, I think now's the opportunity, because we have a lot of interest from our artists and creators to start incorporating more of the Web3 element back into the product and to get paid in stablecoins and get paid in Ethereum. Now the evolution is, okay, well, how do we incorporate that back and now become the place where not only are you getting paid out for your web to content, but here's a way for you to access Web3 income as well, and be able to have a wallet experience that allows you to view and accumulate and aggregate all of that income into one place and become, again, the fastest and easiest way to access it.
What kind of new opportunities are you seeing for creators in Web3, now that that has grown into something that people really want to be a part of?
I think obviously the NFT sales and the volumes that come around that particularly around like video, and NFTs and music NFTs really started to blow up this year.
It's created an interesting opportunity to be able to look at different ways of releasing content and monetizing content, as well as the secondary sales that flow on from that. The first iteration of that i s “Okay, I have a song, and it's going to be represented as an NFT, and I'm going to sell it on this marketplace.” I may sell it for .1 eth, or .5 eth or 1 eth, or maybe even higher, if I'm lucky. So, that becomes a really interesting way to do direct sales.
But outside of that, I think they're starting to think about ways where it becomes much more than just a selling tool and becomes more of a community building tool and ways that you can work around monetization into fan and audience building that enable fans and audiences to also participate in monetization of content and assets that you're putting into market.
That's what I'm seeing from the creators that we're working with, and again, it's just about responding with a product that can help enable and facilitate access to it.
What do you see as Paperchain’s future role in all of that?
Right now the reason why people are interested and the reason why people are signing up is because they want instant access. So that's solving problem number one is how do I get faster access. But over time, I think in a lot of cases, either for supply chain or for product issues, I think that payment cycle in the relationship between creators and platforms will become a bit more direct. I think their payment flow will speed up over time. But in the interim, our opportunity there is to just build the best wallet experience for creators.
One of the reasons that I'm so interested in the Web3 space, and one of the things I think has the biggest potential is actually the wallet itself. Because wallet in the Web3 sense, it's not just a place where you store money, this is also your passport, or an access point to what I see is the future of social networks, future media networks and platforms, and future finance networks.
We’re getting people in because they want the instant payments, but what we're really starting to do is optimize for that experience. So okay, the money is here, but also then building out the rail so this is the place where you can start to have that be interoperable, and start to connect with all these different social and media and finance networks. As more users come on board, and also as their income starts to grow as well, they're looking for an opportunity to say, “Well, what does this do that my bank product doesn't do?” And so it's really starting to see us developing what the banking layer looks like in Web3 for creators.
In terms of what that could mean, for creators going forward, I think there will be a much more direct relationship between creators and their audience than we're seeing right now.
We're already starting to see little bits of it with different ways of being able to tip and the facilitation of tipping directly and things like that. But I've seen some really interesting experiments around artists and creators creating their own small token economies, that fans or audiences can get air dropped or purchase and then those then get staked into different types of yield generating contracts as well.
There's wealth creation happening not only for the creators, but also for the audiences and fans. And so as I think about how we can support that and the ways that we can implement those types of products into our system as well. Again, it's just I think it's still very early in how creators are using Web3 in terms of monetization and audience building, but they're really fascinating piece is just that there's a lot of opportunities to mix social network with financial products and create some really interesting dynamics between creators and their audiences.
I'm just going to take a step back for one moment, because you mentioned earlier working in music studios. So what is your background that led you here?
I used to be a mixing record engineer. So, working in studios, that's the person who either sits behind the mixing desk or sets up all of the microphones on all the instruments and captures the recording, which was great, but it was never enough to have a sustainable career, I'd say.
So, I was looking for other opportunities and ended up in data and analytics. And, you know, the company I worked for was a startup in Sydney, in Australia. We were working with large brands and advertisers doing purchase path modeling, and media attribution and things like that. And I was always fascinated by what brands and advertisers were doing with data, the amount of data they were capturing, and the way we could build ROI models for them based on all of that, and just how that wasn't happening in the music industry.
But what has happened since the advent of even downloads, but then the advent of streaming was it's become such a data driven industry.
The entire monetization model, not only for music, but most modern content, whether it's streams, or views, or clicks, or impressions, or downloads, all of that data is largely available in real time. But I just didn't see that it was being leveraged in any kind of way, even just to draw better insights into audience building, though I think that's changed now. But, more importantly, how could this be used in a way that could actually build a more interesting financial environment for creators and build more financial products and opportunities for creators?
One of my co-founders used to run a record label ,and there was something on his mind for a long time. And so we just started talking about, well, if the data is there, how can tap into it and then connect it to a financial product? Once Ethereum came out and we started seeing the opportunities to create different types of digital assets, it just seemed like a really good use case for the technology.
Yeah, and then you've also got a lot of, I imagine, transparency for creators, once you're dealing with blockchain. It's very easy to see where everything is coming from and why and where it's going.
That's one of the really interesting aspects, and this goes back to the idea of ownership in Web3. Transparency and being able to view into certain either money change or finance flows is critical.
It's one of the things particularly in the music industry, that's been so opaque for a long time. As an artist, I get a statement every three months or every six months from my label, and I get a payment. But in some cases, that's all you get is just like the dollar value, and then that's it, the money's in my account, and I don't have full understanding of where that is coming from or the value of what my assets are earning across different platforms – none of that is there. It's just been abstracted and held by the intermediary layer in the industry for such a long time.
This is still occurring even at the platform levels for say, like TikTok and Snapchat and other social media as well. So if we can, if we can be able to have a product that enables direct payments to the creators, and so they can receive the funds directly, but then also be able to provide some transparency into where that is coming from and how their monetization actually works across the internet, then it just becomes a much stronger product for creators and really becomes a business model innovation for the creators.
Paperchain is based in New York, is that correct?
I've been in New York for five years now, and we're very much a New York based company.
What is it like being based in New York and running something that is so technology focused? You find that obviously there's an artist community in New York, but do you find that there's a Web3 community that you can be a part of, as well?
New York was perfect, because it sort of had everything. If I think about other cities, where this could be interesting, if we're focusing just on the U.S., LA has the creative community but doesn't have the technology or the finance. San Francisco has the technology, but It doesn't really have the creative community or the finance, whereas New York has finance, technology and creativity all here.
So, it's been the perfect spot for us to be able to launch and to build. For anyone building any sort of product, New York is perfect because everyone is at your doorstep. Your potential customers are at your doorstep or your potential partners are at your doorstep. It's just everything is there for you.
Even hiring and talent, everyone wants to come here and build and particularly in Web3 as well. When Consensys built out their big office space here in like 2017 or 2016 whenever it was and just expanded the team, I think it attracted a lot of really interesting people to the city and people have kept building. It's a great place for talent and being able to pull together and put together an interesting company that's looking at the future of technology.