Can Blockchain Fix AI's "IP Problem"? With Story Protocol co-founder Jason Zhao

This episode dives into Story Protocol's ambitious blockchain solution aiming to fix AI's complex "IP Problem," exploring how it tackles creator rights, compensation, and the future of the $61 trillion intellectual property market.

Introducing Story Protocol: Tackling the $61 Trillion IP Market

• Jason Zhao, co-founder of Story Protocol, introduces the core challenge: Intellectual Property (IP) is a vast, yet highly inefficient asset class. He emphasizes that IP extends far beyond typical creative works like movies and music, encompassing scientific research, brand identities (logos, trademarks), and potentially even genetic data.
• Zhao quantifies the market at approximately $61 trillion, highlighting its ubiquity in daily life despite its inefficiency. He argues that the current system for licensing even simple IP (like a hypothetical Darth Vader lunchbox) involves prohibitive costs (legal fees potentially exceeding $10,000), complex negotiations, and opaque auditing processes.
• Strategic Insight: The sheer scale ($61T) and inefficiency of the current IP market represent a massive disruption opportunity. Investors should note the potential for blockchain solutions to unlock significant value by reducing friction in IP licensing and management.

Story Protocol's Blockchain-Based Solution

• Story Protocol aims to build a global, on-chain IP repository. This system allows creators to register their IP, define specific usage terms (licensing rules), and enable automated enforcement across integrated platforms. The core principle is "your IP, your rules," registered once and potentially monetized across the internet.
• Zhao draws an analogy to decentralized exchanges (DEXs): "Imagine if you had to pay $10,000 to swap two tokens on a decentralized exchange... no one is going to do anything." This highlights the need for drastically lower transaction costs and complexity in the IP space, which Story Protocol aims to provide via blockchain infrastructure.
• Technical Context: Blockchain provides an immutable, transparent ledger ideal for registering IP ownership and tracking licensing agreements automatically via smart contracts, potentially reducing the need for costly intermediaries and manual enforcement.

The Critical AI Intersection: From Lawsuits to Win-Wins

• The rise of AI as a dominant content creation tool intensifies IP challenges, leading to numerous lawsuits (e.g., creators vs. OpenAI). Story Protocol positions itself as a solution to move beyond this adversarial "lawsuit hell" towards productive, win-win relationships.
• The protocol aims to enable granular permissions, allowing IP holders to specify terms for AI training (e.g., allowing training in exchange for revenue sharing or attribution). This creates a structured market for AI training data, benefiting both AI model developers and original IP holders.
• Actionable Insight: The conflict between AI development and IP rights is a major friction point. Solutions like Story Protocol that offer structured, transparent licensing frameworks for AI training data could become critical infrastructure. Researchers should track the development of on-chain IP registries and their potential to resolve these disputes.

Expanding Use Cases Beyond Traditional Copyright

• While initially focused on copyright (movies, books, music), Zhao reveals Story Protocol is already seeing adoption for other IP types due to its open, decentralized nature. He stresses that the protocol's flexibility allows for unanticipated applications.
• Example 1: Gina Bank (Genetic Data): This company uses Story Protocol to allow individuals to register and control their genetic data on-chain, particularly relevant after incidents like the 23andMe data issues. Users can set terms for how their anonymized genetic information is used by labs or AI, potentially monetizing it while retaining control and privacy.
• Technical Context: On-chain registration provides verifiable proof of data ownership and consent, crucial for sensitive data like genetic information. Smart contracts can automate royalty distribution if the data is licensed.
• Example 2: Abau (Trademarks/Brands): This app partners with brands like Balmain and Crocs, allowing users to remix fashion items using AI. Licensing deals (e.g., for custom Crocs Jibbitz) are managed, and revenue splits are settled using Story Protocol's infrastructure, demonstrating its utility for trademark licensing.
• Strategic Implication: The application of Story Protocol to genetic data and trademarks signals a much broader potential market than just creative content. Investors should consider the protocol's potential as foundational IP infrastructure across diverse industries.

Deep Dive: David Goyer's "Incension" Universe on Story Protocol

• Legendary Hollywood writer David Goyer (The Dark Knight Trilogy, Foundation) is building a new sci-fi universe, "Emergence," entirely on Story Protocol via the ecosystem app "Incension." Every asset (characters, ships, lore) is registered as an IP "Lego" on the protocol.
• This approach flips the traditional Hollywood model. Goyer retains ownership and sets the licensing terms, allowing the community to create derivative works (stories, art, etc.) based on the core IP. If these community creations generate revenue, Goyer receives a share via automated on-chain royalties, creating aligned economic incentives.
• Zhao contrasts this with the traditional studio model where creators often receive minimal upside (e.g., < 1%) even for massive successes. Story Protocol enables creators to function more like entrepreneurs, owning and directly monetizing their franchises with their communities.
• AI Integration: Goyer is embracing AI within this framework. The terms for using "Emergence" IP in AI training and generation are set via Story Protocol. This allows AI to expand the universe collaboratively, with outputs tracked and commercialized according to Goyer's rules, presenting a "win-win" alternative to Hollywood's current fear of AI.
• Actionable Insight: This high-profile collaboration serves as a critical proof-of-concept. Success here could significantly accelerate adoption among other major creators and potentially legacy IP holders looking for new engagement and monetization models.

Challenges with Legacy IP and the Rise of IP RWAs

• Integrating pre-existing, "blue-chip" IP (like Marvel or Harry Potter) onto Story Protocol faces significant hurdles. Decades of complex, off-chain licensing deals create a tangled web of rights ("genealogy") that is difficult to port accurately onto the blockchain. Zhao notes that sometimes legacy IP holders avoid deals because auditing existing rights is too costly.
• While direct licensing of legacy IP is complex, Zhao highlights IP RWAs (Real World Assets) as a more immediate pathway. Story Protocol's ecosystem project, Arya, focuses on acquiring rights (initially music) and bringing them on-chain.
• Example: Music RWAs: Arya crowdfunded $7 million in 9 minutes to acquire fractional ownership and royalty streams for songs by major artists like BTS, Blackpink, Justin Bieber ("Peaches"), Sabrina Carpenter, and Miley Cyrus. Revenue streams (e.g., from Spotify) flow to on-chain token holders via Story Protocol.
• Technical Context: RWAs represent off-chain assets (like song royalties or eventually master rights) tokenized on the blockchain, enabling fractional ownership, liquidity, and automated royalty distribution.
• Strategic Distinction: Unlike Treasury Bill RWAs (which Zhao deems less transformative), IP RWAs unlock access to a previously inaccessible asset class ($61T IP market) and enable new functionalities beyond just yield, such as potential remixing rights tied to ownership.
• Investor Takeaway: IP RWAs represent a tangible way for blockchain to interface with high-value legacy IP now. The strong demand seen by Arya suggests significant market appetite for fractional IP ownership and yield, opening doors for deeper future collaborations.

AI, Remixing, and the Attribution Challenge

• Connecting AI outputs back to specific source IP for compensation is complex. Zhao breaks down the attribution challenge into three levels:
• 1. Training Data Level (Pre-training): Attributing output to vast, internet-scale training data is extremely difficult and potentially meaningless due to overlapping sources (e.g., multiple firefighter books, Wikipedia). Story Protocol is not primarily focused here.
• 2. Fine-Tuning Level: This involves training a base model on specific, often proprietary datasets (e.g., Goyer's "Emergence" lore, Picasso's art). Attribution is more feasible here as the IP is distinct. Story Protocol sees a market opportunity in licensing proprietary IP for fine-tuning, especially as base models become commoditized.
• 3. Output Level: Detecting when a prompt explicitly requests IP (e.g., "in the style of Studio Ghibli"). This is the most straightforward level for attribution and microtransactions (e.g., charging a small fee per Ghibli-style generation).
• Actionable Insight: Understanding these different levels of AI attribution is crucial. Solutions focused on fine-tuning data licensing and explicit output-level detection appear most viable in the near term for Crypto AI researchers and investors evaluating IP management protocols.

Case Study: The Studio Ghibli Viral Trend

• Zhao discusses the recent viral trend where users employed OpenAI's image models to transform photos and memes into the distinct style of Studio Ghibli. While generating marketing buzz for Ghibli, he argues this model is unsustainable and potentially harmful.
• Downsides:
• Uniqueness: The massive attention is likely a one-off; subsequent styles won't receive the same "free marketing."
• Loss of Control: Ghibli, known for meticulous brand control and high craftsmanship, loses control over how its style is used and represented, potentially diluting its brand equity.
• Lack of Compensation: The original creator receives no direct economic benefit despite their style driving the trend.
• Jason's Perspective: "Ultimately you cannot play whack-a-mole with the internet... we should have more creativity not less, but then it also presents an economic conundrum." This highlights the need for systems that enable creativity while ensuring fairness and sustainability.

How Story Protocol Could Address the Ghibli Scenario

• Registration & Terms: Studio Ghibli could register its IP style/assets on Story Protocol and explicitly set terms (e.g., "No AI Training Allowed," or "AI Training/Generation permitted with X% royalty").
• Enforcement Paths:
• Compliance: AI companies (like OpenAI) could respect these on-chain terms (potentially driven by regulations like the EU AI Act's opt-out requirements). Royalties could be automatically collected and distributed via Story's royalty module.
• Non-Compliance: If terms are ignored, the on-chain registration provides stronger evidence for legal action, demonstrating clear intent and potentially leading to greater damages compared to unregistered IP.
• Output-Level Solution: For explicit prompts ("make image in Studio Ghibli style"), Story Protocol could facilitate microtransactions, where OpenAI (perhaps via premium plans) pays Ghibli a small fee per generation, settled seamlessly on-chain.
• Strategic Note: While requiring AI company cooperation, Story Protocol provides a framework and technical rails to make compliance easier and non-compliance riskier, shifting the balance towards creator rights.

Engagement with Foundation Model Companies (e.g., OpenAI)

• Jason confirms early-stage conversations with players like OpenAI. He notes that while foundation model companies want broad data access, they are also disincentivized by costly lawsuits and PR battles.
• Evidence suggests willingness to pay: OpenAI has already struck licensing deals with entities like Reddit and Fox. Zhao believes that if Story Protocol can offer a seamless, cost-effective way to license IP at scale, it becomes a compelling ("no-brainer") solution for these companies.
• Investor Perspective: The willingness of major AI labs to pay for data is a positive signal. Protocols that can efficiently broker these deals at scale are well-positioned.

IP Portal: A User-Friendly Gateway

• Reflecting Story Protocol's philosophy of not just building infrastructure but also demonstrating its use, they created the IP Portal. It acts as a user-friendly, web2-style interface for non-technical creators.
• Functionality:
• Allows creators to easily drag-and-drop various file types (images, text, music) to register their IP on Story Protocol.
• Provides simple tools to set licensing terms (permissions, royalties).
• Acts as a central hub to browse all IP registered on Story, regardless of the originating application (e.g., art from Magma, stories from Incension).
• Enables registered IP to be discoverable and usable across the entire Story ecosystem (e.g., for t-shirts on Abau, comics on Sekai), facilitating monetization.
• Strategic Purpose: The IP Portal lowers the barrier to entry for creators, aiming to bootstrap the supply side of the IP network and showcase the protocol's value proposition directly.

Core Challenges: Legitimacy and Scale

• Zhao identifies two critical, intertwined challenges for Story Protocol's success:
• Scale: Like any network (Visa, Mastercard), Story Protocol needs a critical mass of valuable IP and active users (creators, consumers, AI companies) to achieve network effects and become truly useful. Overcoming this "cold start problem" is essential.
• Legitimacy: The protocol needs recognition and integration with existing legal systems and institutions (e.g., US Copyright Office, WIPO). It aims to augment, not replace, the current legal framework by making it more efficient through technology, similar to how stablecoins make fiat currency more programmable.
• Investor Consideration: Success hinges on achieving both scale and legitimacy. Progress in partnerships with major creators (Goyer), traction in IP RWAs (Arya), and potential integrations with traditional IP bodies are key milestones to monitor.

AI Agents and Programmable IP

• Story Protocol's software-based nature makes it inherently suitable for AI agents. Zhao notes early experiments where agents are licensing IP from Story to improve their training data and even registering their own AI-generated creations (music, art) back onto the protocol.
• He posits that just as agents need software-native money (crypto), they also need software-native IP infrastructure. Since agents primarily produce IP, Story Protocol could become the system for them to register, manage, and trade IP amongst themselves, forming an "agentic economy."
• Future Trend: While acknowledging agent technology is early, the need for "programmable IP" alongside programmable money for autonomous agents presents a significant long-term opportunity for protocols like Story.

Proof of Humanity and AI-Generated Content

• Distinguishing between human-created and AI-generated IP is crucial. Story Protocol is exploring integrations with Proof of Humanity protocols.
• Technical Context: Proof of Humanity systems aim to verify that a specific digital identity (like a wallet address) belongs to a unique human, combating bots and Sybil attacks.
• This integration could add metadata indicating if the registering wallet is verified as human. Zhao clarifies this is distinct from verifying if the content itself was AI-generated (a human could register AI art). However, it's a step towards providing more transparency about provenance.
• Research Angle: The intersection of on-chain IP registration and proof of humanity solutions is a key area for development, potentially enabling policies or markets that differentiate based on human vs. AI origin.

Future Predictions (1-5 Years)

• Jason predicts several key developments if creator-centric IP models gain traction:
• Revenue-Sharing AI Models: Emergence of viable foundation models that explicitly share revenue with IP holders who contribute training data (e.g., users opting in their name, image, likeness), creating community-owned or incentivized models.
• Agent Monetization: AI agents generating unique IP (art, music, trading strategies) and monetizing it via platforms leveraging systems like Story Protocol.
• Creator Likeness Licensing: Social media creators using AI to augment their presence (AI likenesses) and licensing these likenesses out seamlessly (e.g., for ads using licensed AI deepfakes of influencers like MrBeast), enabled by programmable IP rights. K-pop and other digitally native creator economies are prime candidates.
• Investor Takeaway: These predictions point towards new economic models powered by programmable IP: AI training data markets, agent-driven IP economies, and scalable digital likeness licensing.

Conclusion

The discussion underscores blockchain's potential to structure the chaotic intersection of AI and IP, offering a path toward fairer compensation and controlled innovation. Investors and researchers should monitor the adoption of protocols like Story, as they could reshape AI data licensing, creator compensation, and the emergence of new, digitally native IP economies.