Rapid Rise and Fall. Is Friend.Tech Another SocialFi Bubble?

Friend.tech (FT) was officially launched on August 10, 2023, as a SocialFi platform deployed on the Base chain. It was developed by the creators of another SocialFi project on Arbitrum, Stealcam. In just 12 days, FT has achieved astonishing results:

• Attracted nearly 100,000 users, with inflows of 36,300 ETH, approximately $62.2 million USD.
• Processed 1 million transactions, with a transaction volume exceeding 36,500 ETH, roughly $62.4 million USD.
• Generated close to 2,000 ETH in protocol fees, making it the second highest fee-generating platform on August 22, second only to Ethereum.

Amidst the surge of interest on Twitter (now renamed to X) and support from investment firms like Paradigm, one cannot help but ask: What exactly is FT? And does it have the potential to shape the future of decentralized social media?

What is Friend.Tech（FT）？

FT is a social platform that allows users to buy and sell creator Shares (the term “Shares” was dropped and renamed to “Keys” on Aug22). By holding these Keys, you can access the creator’s content and interact with them. In its current version, FT could perhaps be understood as OnlyFans, but limited to text features.

Fueling the FT craze is users’ ability to speculate on the creators’ Key prices. On FT, Key prices are determined by a bonding curve, which dynamically adjusts the price based on the circulating Keys. Therefore, each new Key purchase raises the price, while each sale causes the Key price to drop.

Friend.Tech’s bonding curve is designed to arouse excitement. It gives early investors better deals, which encourages people to join and buy Keys quickly. Because the Key price will rise with increased participation, early participants are incentivized to actively promote the platform, contributing to user growth. This dynamic creates a self-sustaining cycle of hype and expansion, making FT a focal point of interest for the crypto-native crowd.

In addition, creators earn a 5% fee from each transaction, which incentivizes them to promote users to purchase their keys.

How Friend.Tech Took the Crypto World by Storm

Skeptics might argue that Friend.Tech is not novel, as its social features are not innovative compared to mature social media platforms like X.com subscriptions and OnlyFans. Moreover, past attempts at SocialFi such as Steemit, Roll, and BitClout, have all ended in failure after brief periods of glory. Hence, their skepticism is not unfounded.

However, FT amassed 100,000 users and processed $62 million in transactions in just 12 days, sparking debates about whether it could forge a new path.

So far, FT’s strong performance can be attributed to successful execution in the following areas:

（1）Driving FOMO：

Limited Access: To register for FT, users need access codes, which can be obtained from existing members. This sense of exclusivity has everyone scrambling for access codes on Twitter (now X).

Pricing Keys According to A Bonding Curve: As mentioned earlier, the bonding curve favors early participants, thereby inducing competition among users who all want to buy Keys first.

Airdrop Mechanism: Over 6 months, app testers collectively received 100 million points, which are promised to serve a “special purpose” after the app officially launches. This suggests that these points may possibly be convertible into FT tokens. When users accumulate points based on their in-app activity and the number of referrals brought in via access codes, they are naturally incentivized to use and promote FT. This clever strategy not only spurs active user participation but also subtly encourages consistent user habits, thereby improving long-term user retention.

（2）Excellent User Experience :

Using Privy for a Smoother User Experience: Unlike many DApps that require users to link their wallets or set up a new in-app wallet (it is usually quite annoying to remember a 12-word mnemonic), using Privy offers a more streamlined method. New users only need to sign in with their Google or Apple accounts and fund the automatically generated wallet. This effectively reduces the login barrier, alleviates fears that users’ original wallets could be hacked, and eliminates the need for a 12-word mnemonic. Additionally, Privy removes the need to sign each FT transaction, enhancing the overall user experience.

Using Progressive Web Apps (PWA): About 83% of social media actions take place on mobile devices. However, it is usually challenging for crypto apps to be listed on Apple or Android app stores. To address this issue, FT cleverly launched as a PWA, which functions similarly to a native mobile app. Users can directly “download” the app from the FT website. This approach not only circumvents the limitations of traditional app stores, but also ensures a seamless user experience that is consistent with mainstream mobile usage trends.

Lack of Sustainable Incentives

Personally, I don’t think FT is as revolutionary as everyone is hyping it up to be. The current craze is solely driven by an “up-only” Key price. Frankly, this is not sustainable, and FT’s Key price will likely decline in the coming months.

（1）Lack of Long-term, Sustainable Incentives for Users

FT’s primary stakeholders can be divided into three categories：

1. Creators：The motivation for those who actively manage their channels and encourage users to buy their Keys is to earn a 5% transaction fee.
2. Consumers (Fans)：Those who buy Keys to access creator channels are motivated to either access the creator’s content or gain opportunities to interact with the creator one-on-one.
3. Speculators：Those who buy and sell Keys, the primary motive is to make money through price speculation.

Of the three, speculators are likely to be the first to leave. The nature of speculation means that early adopters typically reap significant benefits. However, as the platform matures and the initial hype dies down, speculation activity tends to wane, as active trading becomes less profitable. This is even more so for FT, due to its progressive bonding curve. FT’s stock pricing curve is the square of the supply, which makes its growth more exponential than a typical bonding curve. As the Key price continues to rise, attracting new users to invest will become a daunting challenge.

FT’s ever-increasing content costs are distinctly different from the popular models of other content-based social platforms. Platforms like X and TikTok offer free content, while X Subscriptions and OnlyFans offer exclusive content at a fixed monthly fee.

The pricing strategy means that, on FT, good content is reserved for those with deeper pockets. Therefore, many users may find themselves limited to lower-quality content, thereby leading to reduced engagement on FT. They become the next potential group to leave.

As speculators and consumers exit the platform, they will sell off their Keys, which could lead to a spiraling decline in Key prices. While such a downturn might provide short-term fees for creators, in the long run, there’s unlikely to be enough purchasing demand to provide them with sustainable incentives. With decreased user engagement and less content creation, the rate of attrition among speculators and consumers may accelerate, further dampening the enthusiasm of creators. This domino effect could lead to FT’s decline, as the platform’s value proposition weakens for all stakeholders.

（2）Conflicting Inentive Mechanisms and Business Models

Deeper analysis of creators’ long-term motivations reveals that incentive mechanisms and business models can also conflict.

On traditional content platforms, creators’ main source of income is through sustained user engagement and retention. However, FT proposes a non-traditional model: creators earn income through trading activities, specifically through buying and selling Keys that grant access to their content. This model does not encourage stable, long-lasting relationships, and it seems to welcome churn.

This model might create a misalignment of incentives between creators and users. Creators could be incentivized to take advantage of short-term trading spikes, rather than cultivating deep and lasting relationships with users.

Although creators benefit when consumers buy Keys, the exponential growth in Key price inherently limits the buyer pool, effectively capping the size of the community. Coupled with the fact that creators only receive a one-time payment rather than ongoing revenue, the sustainability of this model is questionable.

Friend.Tech is Doomed to Be A Flash In The Pan

Although Friend.tech broke records with a single-day trading volume of 4000 ETH and 260,000 on-chain transactions on its second day of launch, triggering a wave of hype, the trading volume plummeted after half a month. Friend.Tech could not escape the fate of being a flash in the pan. According to data from DefiLlama, Friend.tech’s protocol revenue on September 1st was $60,000, down more than 96% from its peak of $1.68 million on August 21st. The hourly active user count has also fallen from a peak of more than 4700 people on August 21st to less than 600 people per hour.

Regardless of the ultimate outcome for Friend.Tech, its recent performance offers a major lesson for Web3 builders and investors: While the concepts of decentralization and ownership are praiseworthy, they alone are not the key drivers of adoption or success.

When it comes to user-centric crypto applications, satisfying speculative desires and capitalizing on the allure of “rising digits” often prove to be potent catalysts for initial engagement, while the ideals can operate in the background and gradually roll out.

Ultimately, long-term success requires more than just short-term adoption or ideals. It is based on a sustainable strategy that truly meets user needs and improves lives. For lasting impact, platform creators must prioritize real value and solutions.

Disclaimer:

1. This article is reproduced from [Foresightnews], and the copyright belongs to the original author [JAVIER ANG，blockcrunch]. If there are objections to the reproduction, please contact the Gate Learn team, and the team will process it promptly according to relevant procedures.
2. Disclaimer: The views and opinions expressed in this article represent only the personal views of the author and do not constitute any investment advice.
3. Other language versions of the article are translated by the Gate Learn team. Without mentioning Gate.io, it is not permitted to copy, disseminate, or plagiarize the translated articles.