web3: Hi-Fi vs. Lo-Fi IP
What is the best way to decentralize intellectual property?
In the art & collectibles world of web3—the nascent era of the Internet defined by things like decentralized networks, blockchain, and permissionless activity—you’ll notice that some creators are including free commercial licenses to their work with sales of their NFTs, or even giving it over to the public domain right off the bat.
That seems crazy, right!? How does that benefit them? Are they just that generous?
While I don’t think that creators should ever be releasing their full rights, web3 has many incentives for creators to allow permissionless use of their work by releasing partial commercial rights and licenses. This is called decentralizing your intellectual property. The strongest case for decentralizing the IP of your creation is that it reduces the friction against your memes spreading within the greater culture. And if your memes gain notoriety, you will always be recognized as the original artist, thus likely making your original creation and future work that much more valuable.
The classic example is Bored Ape Yacht Club granting a free commercial license to any and all Bored Ape NFTs that you own. This brand is mere months old and has already generated insane traction & revenue, in part because of the network effects of many Bored Ape owners freely creating derivative content based on their original Bored Apes.
Let’s say you have an artwork or a project with intellectual property that you want to decentralize. What’s the best way to do that? There are many ways to skin this cat. You can include a commercial license with your NFT sales, like BAYC. You can also dedicate it entirely to the public domain via a CC0 license, much like Nouns and CrypToadz (both projects with art by gremplin).
Before we get into details, let’s address how to think about IP.
What is intellectual property and where does it come from?
When you create an artwork, you are actually the progenitor of two things:
The actual, physical artifact that you created. I call this the genesis media from which all potential derivatives will follow. An example would be the film Star Wars from 1977, directed by George Lucas with a runtime of 121 minutes.
The intellectual property captured by the genesis media. This is the idea of Luke Skywalker, defined by how the character looks & acts in the movie.
OK, now how do I decentralize the IP of my project?
In the web3 era of permissionless activity, you will probably benefit from at least considering to grant commercial rights to your IP. Let’s assume that people making derivatives of your project is inevitable (because it kind of is, and is actually a good sign that people connect with your work). You have to have a perspective on how you’re going to treat this derivate work that uses your creation as a basis. Do you want to freely allow anyone to use your IP? Do you want to keep it completely gated, reserving all of your rights entirely?
Let’s say you want to allow derivatives at one level or another. The best tactic for decentralizing your IP is going to depend on two things:
Your goals for the project.
How conceptually detailed your genesis media is.
Genesis media can vary greatly in how complex its intrinsic lore is, and this should inform which approach to licensing you’ll take with your decentralized IP. For instance, a fully public domain CC0 license may be very advantageous for some projects, but potentially disastrous for others.
Lo-fi vs. hi-fi IP
Your IP can gradually vary from low-fidelity to high-fidelity. This is not a clear-cut either/or distinction, but rather like a sliding scale. The guidelines are as follows:
Low-fidelity IP: The genesis media is a conceptually simple artwork leaving the fans to construct their own diverse narratives around the art.
High-fidelity IP: The genesis media is a complex artwork giving fans a detailed basis of what the IP is and is not before it becomes something completely different.
Neither of these categories are better than the other, they just benefit from different approaches to decentralization.
Examples: Bored Apes, CrypToadz, Mickey Mouse
The genesis media is often a simple, relatable piece of media, like a drawing of a character. No CryptoPunk has any intrinsic story different from any other: each one, though unique, is no more or less than a single image! They rely on their owners and fans to construct narrative around them. As long as derivatives recognizably look and feel like the original media, fans can use their imagination to make the genesis media into anything from superheroes to children’s cartoons.
Let’s take a look at some licensing scenarios for lo-fi IP.
All rights reserved (Larva Labs)
Larva Labs, the creators of the famous CryptoPunks, are notoriously protective of their lo-fi IP. Because the collection is so simple and iconic, derivatives are common and enforced (or not) according to usual copyright law. Derivatives that closely resemble the original collection without modifying them very much (like CryptoPhunks) are usually issued a DCMA cease-and-desist when they try to make money. This is a divisive move in the NFT world, as some argue that Larva Labs’ enforcement of their copyright goes against the spirit of web3.
In fact, Pixel Vault’s PUNKS comic is a direct derivative of CryptoPunks. PV has taken the original lo-fi IP and made it into a growing hi-fidelity fictional universe. But because they changed the genesis media enough to the point of creating a completely new IP without directly using LL’s copyright, Larva Labs is not likely to be able to substantiate an infringement claim against Pixel Vault.
Partial/semi-permissioned licensing (BAYC)
Again we return to the legendary Bored Ape Yacht Club, where Ape owners have full, non-exclusive commercial license to the genesis media that is their NFT artwork, as well as the Ape character IP contained within. This is a genius move by the BAYC team, because it allows Ape owners to have a stake in the visibility of the BAYC brand, thereby increasing the valuation of all Ape NFTs. Some very successful semi-permissioned derivatives that Ape owners have made include Jenkins the Valet and Bored Ape Seeks Yacht Club, both of which add lore and depth to the lo-fi Ape genesis media.
However, this approach is not without some drawbacks, including a lot of legal gray area (how does licensing aftermarket sales of Apes work?), and the BAYC team does not allow derivatives to use the official brand name or logo/visuals, which some argue is counterintuitive.
Public domain CC0 (CrypToadz)
If you have a collection of NFT avatars like many of our lo-fi examples, and you dedicate the genesis media and the underlying IP to the public domain, that means anyone can freely create and monetize derivatives. No catch whatsoever. This complete absence of legal friction allows the project’s memes to spread very easily in a way that mimics the memes you see scrolling your social media timeline (although the genesis media for those is often copyrighted by the original owner - people just don’t care. Pepe the Frog is a great example).
Because the core value proposition of these collectibles is the tradable NFT, owners of each NFT may encourage you to make derivatives of the CC0 IP, thereby in theory raising the secondary sale price they could command for their NFT. Compared to the BAYC licensing model, CC0 is completely open to anyone, not just the owner, and has no legal gray area.
Even if a number of derivatives are bad or offensive, the original media will likely still appreciate because no one person or organization is gatekeeping what the IP is. And even these less desirable derivatives still help the genesis media and IP appreciate, due to higher visibility and more people working with the property.
Best decentralization method: CC0 or semi-permissioned
Because lo-fi IP is pretty much a blank slate, it is almost always better to decentralize it. You want the simple, easily transferrable meme of your IP to spread and give way to derivative content so that the cachet of the IP itself becomes as valuable as possible. You don’t need to worry about not being recognized for your work, because using NFTs allows anyone and everyone to trace the objective provenance of the genesis media back to you forever.
Because more and more NFT collections with lo-fi IP dedicate commercial licenses to their holders or to the public domain entirely, the market is quickly coming to expect those terms. It is reasonable to assume that a new lo-fi IP project that entirely reserves all rights may have some trouble with scaling their brand, unless they’re based on an existing IP. The only reason CryptoPunks are sustainable reserving all rights is because of the historic status of the collection.
Examples: MetaHero, Star Wars, the Hidden Lakes Cinematic Universe
The genesis media in hi-fi IP is usually an artwork with much more depth, where more is at stake—commonly media like films, books, and comics instead of static images. Narratives, worlds, and characters are most often created first, and then those core values and qualities of the genesis media are interpreted by new creators when making derivates. Have you ever seen a dedicated fanbase shout “not canon!” at a derivate work they don’t find up to snuff, or not in the spirit of the genesis media? These IPs rely much more on preservation of their brand, and when they’re intentionally decentralized, they benefit from centralized quality assurance practices.
Let’s see what options there are for licensing hi-fi IP.
All rights reserved (Marvel, Star Wars)
Hi-fi IP is almost always entirely gated according to your usual copyright standards, where only the original creators are allowed to create derivatives. This is the most common, simple, and obvious decentralization solution for hi-fi IP—that being, to not decentralize it at all. When your genesis media is made up of fleshed out characters, aesthetics, music, and beyond, it can be a very risky thing to decentralize the IP and allow strangers to work with your art.
Marvel doesn’t want anyone using Spider-Man to promote hate speech in derivative work, and they definitely don’t want anyone but themselves to make money from the characters they own. This isn’t necessarily bad, but the coming world of web3 may make owners of these IPs feel that they need to adjust to decentralization.
Partial licensing/semi-permissioned (MetaHero, Hidden Lakes Cinematic Universe)
Pixel Vault’s MetaHero brand is a great example of semi-permissioned hi-fi IP licensing. MetaHero’s canon lore seems to be centralized and being built by their core team of creatives—and this is a good thing. The genesis media for MetaHero are the 144 “Core” MetaHero Identities, which exist as avatar NFTs. Each of these incredible illustrations probably has a detailed backstory, and their appearance is used as the basis for the more numerous generative MetaHero NFTs. These include Bored Ape-style licensing and are assumed to be unofficial canon.
License for owning a Core MH Identity: No IP rights are granted. Owners of Core MetaHero NFTs may use the genesis artwork (the NFT image of the character) commercially on t-shirts, merchandise, and etc, but only Pixel Vault themselves may produce new media featuring the character.
License for owning a Generative MH Identity: Again, similar to the BAYC license, owners of generative MetaHeroes can freely create & monetize new stories and media featuring their depicted characters.
This is the right move for Pixel Vault, because they seem to have a clear, decisive vision for the MetaHero property that they want to protect. While their core team builds it up in the long-term, licensed derivatives will add cultural & financial value to the official Pixel Vault offerings, the MetaHero Universe, and their community. To my knowledge, MetaHero is the first time a high-fidelity intellectual property has ever been intentionally decentralized to its community. (Disclosure: I am invested in the Pixel Vault ecosystem, including MetaHero)
Public domain CC0 (famous literature & mythology)
Hi-fi IP is usually only ever released to the public domain after the creator’s death. Some recognizable examples of CC0 hi-fi IP include everything from the Wizard of Oz and Alice In Wonderland to ancient mythology. There’s no one gatekeeping what the fictional universe is and isn’t. This allows unprecedented creative freedom to take the IP in very weird and new directions.
However, for living creators looking to build such a story world from scratch with a decentralized community, releasing the genesis media into the public domain will mean accepting the risk of it something completely different or unintended. A character may morph into something at odds with their genesis appearance, or an unsavory group may try to co-opt the IP for nefarious purposes. It is also more difficult to capitalize on all of the material benefits that reserved rights and web3 can give to creators.
Best decentralization method: semi-permissioned or closed IP
As you can tell, it is much, much easier to decentralize low-fidelity IP than it is for high-fidelity IP. Intentionally building a conceptually and artistically consistent fictional universe will almost always require centralized gatekeeping of some kind. But why should complex projects have to miss out on the potential benefits of decentralization? What if you want to have the open-source benefits of CC0 but also want to be able to direct the fictional universe and validate derivatives for quality control?
Decentralizing hi-fi IP
One brand-new solution for decentralizing hi-fi IP in a way that protects the parent brand, removes legal gray areas, and gives most anyone a low-cost and accessible way to freely creative derivatives is called proof-of-stake licensing.
How it works is simple. Instead of risking your hi-fi IP in the public domain or creating legal gray area for your users with semi-permissioned licensing, this structure may effectively decentralize your brand in a low-risk way:
Form a DAO around your hi-fi IP. This DAO will have an exclusive transferrable license to your intellectual property.
Distribute licensing tokens to members of the DAO.
Allow DAO members to stake their licensing tokens in exchange for an unlimited, non-transferrable commercial license to the IP on a project-by-project basis (this means they will be able to create any kind of media, product, or service using the IP).
Following this base proof-of-stake model, there are a lot of practices and standards you can implement into the DAO to incentivize your community to freely create derivates from the genesis media, direct it artistically, and control its quality:
Mandate that licensed creators keep the rights to their genesis media (the art/artifact) while any new IP they create in their derivative also becomes a part of the parent IP for use by other stakers.
Mandate that the DAO collects a small percentage of revenue generated by all derivatives in exchange for the license and membership.
Build a project registry so the entire organization has visibility into what’s being worked on in the IP.
The idea with these measures are as follows, respectively: 1) to incentivize new creations, 2) to capture material upside for the entire DAO by introducing a passive, scalable revenue stream, and 3) to implement an accounting and quality control mechanism without sacrificing the creative freedom and rapid scalability of CC0 IP.
There are probably many more practices you can implement on top of the base POS principle. But the model’s core value proposition is that it removes legal gray area (you are either a licensed creator or you aren’t) and can lay the groundwork for an aligned creator-fanbase community working from a shared incentive.
I will write another article about this model in the near future, going into more detail regarding advantages and drawbacks. In the meantime, you can read more about proof-of-stake licensing in this whitepaper about the HIDDEN ONES DAO, our NFT collectible decentralizing a high-fidelity film IP.
Right now in the web2 world, if you want to acquire a license to use a Marvel superhero or even just a character from a small independent book, well… you can pretty much forget about it. Even if your derivate idea for a sequel would be even better and would make more money than the genesis media. Assuming you’re able can get your foot in the door to use someone else’s IP commercially, licensing is legally, logistically complicated and expensive. You’ll often be in talks just for a single rights vertical like merchandising, film, or book rights, and you can’t move out of that lane you’re given. You’re also likely limited to creating what the IP owners deem acceptable.
As we’ve talked about, web3 approaches to licensing solve some of these issues and open up mindblowing opportunities for creators and communities. Intellectual property is a useful tool, and it exists for a reason. It gets a bad rap when Disney uses it to crack down on sale of unlicensed derivatives. But in web3, they should be encouraging most of those derivatives!
The more deeply involved you get with this technology, the more you’ll feel that it can fundamentally change pretty much everything interact with daily, including the media and art we consume. But nothing is perfect. This new world of decentralized IP brings with it new possibilities and also new challenges—and because it’s so early, most of either have yet to be discovered! 👾