The Beat

Welcome to The Beat, Decential’s weekly breakdown of the music-web3 byway.

Like most things in web3, the music space moves at breakneck speeds, issuing regular bouts of hope, cringe and FOMO. That combination of qualities blur the essence of the movement – the enduring solutions to legacy industry problems and the people building them. Let’s focus on the essence; the rest, as Alex Ross wrote, is noise.

Suing the SEC

For nearly 6,000 consecutive days, Jonathan Mann – aka “Song A Day Mann” – has written and released a song. For the past three years he’s been selling those songs as NFTs.

According to the SEC, though, what he’s doing is illegal. The commission’s recent rebukes of similar initiatives have implicated every single NFT project, putting in jeopardy the futures of creators who rely on NFTs. “This makes me very angry,” he wrote in a Twitter post. “It feels extremely unfair. I don’t want to get sued, and I truly don’t think I’m doing anything wrong. The vast majority of folks creating & selling NFTs are just trying to make a living, like me.”

While the “majority of folks” are simply crossing their fingers, though, he’s pursuing more proactive measures – as Joan Baez once said, "Action is the antidote to despair."

Earlier this month, alongside filmmaker, lawyer and law professor Brian L. Frye, Mann decided to sue the SEC.

Why are they suing? “Because they say these NFTs are defined as securities,” Mann sings in “I’m Suing the SEC,” his original song that served as the lawsuit’s announcement. “And when you buy them, that’s an investment contract. Every single NFT that’s been sold is illegal under this rubric they uphold,” he continues in rhyme.

The “I’m Suing the SEC” music video was minted and sold for 4.26 ETH – nearly $12,000 as of this writing. Emulating the opening credits of an old TV show, the video features Mann and Frye as “Plaintiff” and “Co-Plaintiff,” Morrison Cohen Partner Jason Gottlieb as “Our Lawyer” and Amanda Tuminelli – Chief Legal Officer at the DeFi Education Fund – as “The Brains.” 

Also featured are notorious crypto detractors like Elizabeth Warren (one of Mann’s highest grossing songs is called “Elizabeth Warren”) and SEC boss Gary Gensler – who appears in various forms, like “Muppet Gary” and “Sweet Gary Stay Puft” (the video ends with a doctored I Love Lucy clip of Mann making Gensler breakfast).

Amidst legacy concepts of ownership, a memetic Internet culture that's increasingly at odds with them and the legal murk of blockchain technologies, creators face an increasingly untenable situation.

“We need clarity,” Mann sings, “because what we want is judgment summary.”

Could Mann and Frye establish precedent that brings clarity to this thickening fog? And should they prevail, could they institute a reality in which “all NFT creators will feel safe to experiment and find new ways of making a living on the Internet?”

This Case is About Art

In 2022, Mann sold 4,000 Song A Day NFTs for about $3.4 million (most of which he lost to taxes). “Does this make me a target?” he wondered in his post.

He’s watched the SEC be “exquisitely random” in the NFT projects they pursue. Last September, for instance, the regulatory body took action against Stoner Cats, a collection of 10,320 NFTs that generated $8.2 million in sales. 

The project’s creators parlayed the NFT drop into an animated series (which was the goal of the NFT drop) that features Mila Kunis, Jane Fonda and Ashton Kutcher. Purchasing an NFT gave buyers access to the series and their own “Stoned Cat” avatar.

But by a vote of three to two, the SEC found they’d illegally conducted an “unregistered offering of crypto assets.” Stoner Cats settled, agreeing to a $1 million fine that required them to return money to NFT buyers. “[Stoner Cats] were required to, but did not, register the offer and sale of Stoner Cats NFTs with the Commission,” the SEC’s action read, “and no exemption from registration was available.”

It’s important to note that registering with the SEC is laborious. It entails drafting a prospectus and filing SEC Form S-1, which includes details on the registering company’s organizational structure, a description of its properties and legal proceedings involving the company. It’s complex and costly, and the review process can take months or even years.

“This case is about art,” begins the complaint from Mann and Frye. “More specifically, should art be regulated by the Securities and Exchange Commission? Should artists have to ‘register’ their artwork before selling it to the general public? Should artists be forced to make public disclosures about the ‘risks’ of buying their art? Should artists be required to comply with the federal securities laws, and the thousands of regulations and reams of interpretive guidance thereunder, just to offer their works to the public? Or can artists simply create, and sell, art?”

The complaint continues (bracketed portion is my own):

As part of the lawsuit, Mann recorded “roughly 300 layers that will be programmatically combined into a total of 10,420 individual, unique remixes” of “This Song Is A Security” – the song he released on the day of the Stoner Cats action. He’s submitting the project to court, and its NFTs won’t be released until – or if – the court rules in their favor and agrees that selling them “will not constitute an unregistered security.”

So what are the odds that this new project makes it through the court? Well, the SEC has recently been more favorable to crypto. In May, the commission approved amending filings from various Ether ETF applicants like BlackRock, Fidelity and Grayscale – four months after it did the same for the Bitcoin ETF.

And in the Stoner Cats case, even the two dissenting Commissioners acknowledged that “the vast majority of folks creating and selling NFTs are just trying to make a living.” 

“Artists of all kinds have long struggled to support themselves, and NFTs offer a potentially viable way for them to monetize their talents,” wrote Hester Peirce and Mark Uyeda, those two dissenting commissioners. “The fact that money is involved does not transform NFTs into securities.”

“Were we to apply the securities laws to physical collectibles in the same way we apply them to NFTs, artists’ creativity would wither in the shadow of legal ambiguity,” they continued. “Rather than arbitrarily bringing enforcement actions against NFT projects, we ought to lay out some clear guidelines for artists and other creators who want to experiment with NFTs as a way to support their creative efforts and build their fan communities.” 

Indeed. And perhaps that point would become even clearer if we abstract it away from crypto’s stigma and compare it to selling art – this case is about art, after all.

Before becoming a lawyer, Frye went to art school. So when he became a junior securities lawyer, he “couldn’t help but notice that the SEC’s definition of security looked an awful lot like contemporary art,” he said in a recent podcast interview. “The way the art market transacts with conceptual art is with certificates” where artists “sell the conceptual art in the form of editions represented by ownership of a certificate.” 

Sound a bit like how NFTs are used?

What Frye needed to formalize that connection was a way to activate it. So he created a piece of conceptual art called the “SEC no action letter,” which he ensured satisfied all the criteria of the Howey Test – the benchmark the SEC uses to determine if something is a security and, accordingly, falls within their regulatory purview.

Frye sent the letter to the SEC and “essentially dared them” to tell him why they couldn’t regulate it. The formal complaint to the Louisiana court references Frye’s repeated, unsuccessful attempts to get an explanation. Eventually, he sold the artwork as an NFT, requested clarification of the law again and the SEC still neglected to provide it.

Clearly, the SEC can’t agree on what to think about all of this. But it’s important that they do. This case holds implications for how creative works are produced, sold and regulated in the digital age. It may inform not just the future of NFTs, but also other forms of digital innovation that blur the lines between art, technology and commerce. In this blurry quagmire, there’s an opportunity to create new precedence through action.

Like in last week’s Beat, it’s another reminder that – though we may be victims of an entrenched, exploitative system – we are not helpless against its change. There’s potential in “proactive innovation,” and “solidarity leadership,” and the conviction that “we have to propose, not just protest.”

And in the simple words that Mann expressed in his announcement: “I can’t do much about it, but I can do this.”

Coda

You may have seen that Bob Dylan’s getting a biopic, helmed by the Kwisatz Haderach himself, Timothée Chalamet.

Seeing the trailer – and Dylan’s name mentioned in the lawsuit – reminded me of my complicated relationship with the folk bard. Like him, I’m a small town Minnesota boy. Like most small town Minnesota boys who like music, I grew up idolizing the guy.

Then last year, around the time the Stoner Cats decision arrived, I was doing research that unearthed a heap of cognitive dissonance that muddled my image of Dylan. It cut my idolatry down to size.

It also emphasized the need for proactive experiments, leading to a 9,000-word piece called “This Machine Kills Copyright: Minting a Bob Dylan Song As a Way to Resurrect Folk Traditions.”

The TL;DR is this:

• Copyright helped enable a transformation from music of the folk into music of a folk, incentivizing artists like Bob Dylan to use the folk canon to elevate his own mythos. 

• Dylan borrowed and created in the folk tradition, invoking an "everything belongs to everyone" (his words) spirit – all while copyright helped him accumulate massive personal wealth. Because outside of folk, everything does not belong to everyone.

• Not long ago, Dylan sold his music rights for $600 million. Clearly he's a superlative songwriter, but (especially) in the context of a transmissive music and an “everything belongs to everyone” spirit, it makes no sense for one folk to have all that wealth. 

Today it’s with gut churn and guarded pleasure that I interact with Dylan and his music – feelings that stem from his tainted character (which I illuminate in detail in the aforementioned piece – Joan Baez makes an appearance) and the broken systems that enabled his accumulation of wealth.

To challenge those systems, and to propose a new course that redistributes wealth from one folk to many, the FOLK collective and I recorded, minted and sold a Bob Dylan cover as an NFT.

That means that I, too, am implicated in this lawsuit, and just as eager for clarity as anyone else.

Now go outside and listen to music – it’s a beautiful day.

My name is MacEagon Voyce. For more music and less noise, consider subscribing to The Beat. And if you already do, consider sharing with a friend. Thanks for being here.