Republic Launches Security NFTs, Giving Music Fans Shares to Artist Royalties

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In Brief
  • Financial services firm Republic has sought to rectify the inequities between artists and record labels by creating a novel blockchain platform for fractional investors

  • They are creating an NFT marketplace for artists to share ownership of music with fans

  • These NFTs will be governed by the SEC

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In a partnership with Opulous, the financial services company Republic is forming Republic Music to create, produce, and share royalties from music through NFTs.

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Republic, the financial services company, is offering music fans and artists the privilege of benefiting from the creation, production, streaming, and licensing of music, through its blockchain platform Opulous. For $100, listeners can invest in what Republic calls Security NFTs, which differs from other NFT offerings in the sense that Republic is touting these NFTs as a type of security, i.e. it passes the Howey Test, by being something that can be invested in, with the possibility of returns further down the line.

Artists will be able to raise production funds directly from fans, and the fans having a share in the music is expected to incentivize streaming and engagement. According to Pialy Aditya, Republic’s chief strategy officer, all investors will be part of an LLC by investing in the new platform. Aditya sees this investment as an opportunity to turn fans into owners. Initially, investors have the opportunity to be part of rapper Lil Pump’s new single called “Mona Lisa,” and the new single from KSHMR, the EDM artist new. More artist onboarding is expected to be announced throughout the month of Oct 2021. 

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How are S-NFTs different from NFTs

This venture by Republic sees the pioneering of a novel framework that combines blockchain technology and S-NFTs. S-NFTs will be under the regulation of the SEC, and investors will need to comply with relevant Know-Your-Customer and Anti-Money Laundering regulations. 

NFTs become subject to SEC oversight through a process called “fractionalization,” which is a fairly novel concept in the world of NFTs. This means that multiple investors can buy portions of it, instead of one person owning the whole thing, in a sense changing the item’s status as a piece of artwork, much like unregulated NFT, to a security. The notion of fractionalization has existed in the non-NFT world for some time. One example is a company called Masterworks, which fractionalizes physical works of art for investors. This company registers its offerings with the SEC.

What does Republic’s move mean for NFT marketplaces

Security NFTs may cause problems in marketplaces like OpenSea, because a special license is required to sell securities, and there are tax reporting implications. OpenSea itself could get registered as an issuer of securities to work around this problem. A marketplace, called Fractional.art is already a significant player in the fractional digital artwork space.

By making NFTs into securities, a wealth of new opportunities are created for artistic individuals. Artists could potentially offer more than royalties; they can offer tickets, merchandise, and other more conventional “non-security” NFTs to their fans. 

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