Explore the Future of SocialFi

*Forward the Original Title： 探索 SocialFi：谁会引领下一次社交革命？

TL;DR

1. SocialFi is currently on the fringes of the crypto market, lacking a killer app.

2. SocialFi has the advantages of protecting personal privacy and promoting the redistribution of traffic value.

3. Currently active SocialFi projects mainly fall into two categories: social protocols & graphs and social applications.

4. Future SocialFi projects need to lower the threshold for use and incentivize high-quality content, which is promising in the future.

1. Industry Overview

SocialFi is a collective name for projects that use blockchain technology to capture value from social networks. Since various tokens, NFTs and other tools exist in the Web3 world, super individuals in social networks can theoretically monetize their abstract influence easily.

In addition, the high anonymity of the Web3 world also makes it possible to separate online public traffic and offline private life, reducing the cost of becoming an Internet opinion leader.

These characteristics make it theoretically possible for the SocialFi project to become competitive with traditional social media (although we have not seen practical examples yet).

Currently, the market value of SocialFi tokens is only 1.7 billion US dollars, accounting for about one-thousandth of the total value of cryptocurrencies, which is far lower than mainstream tracks such as GameFi and NFTs, and its status is relatively marginal. At the same time, there are no truly killer or dominant applications in the SocialFi field yet, and it is still in its early stages.

Considering the strong monetization ability of social traffic in the Web2 world, we believe that there is still considerable development space for SocialFi in the future.

1.1 Historical Evolution

As early as around 2017, a large number of SocialFi projects emerged on the market, such as Steem, Huobi Chat, ONO, etc. However, the blockchain industry technology at that time was not yet mature and the number of participating users was limited, so most of these projects had died.

In 2020, DeFi Summer attracted a large number of users and funds to the entire blockchain industry. Driven by this wave, tracks such as GameFi and SocialFi began to sprout again. In the violent bull market at the end of 2021, another batch of SocialFi projects, such as CyberConnect, Galxe, Torum, Deso, etc., completed financing. Many of these projects are still active in the public eye, so 2021 can be regarded as the first year of SocialFi.

In 2022, Zhao Changpeng （CZ）predicted in “Fortune” magazine that SocialFi and GameFi will become the main driving forces for the progress of the blockchain field in 2022. History did not develop in the direction he predicted, but some high-quality projects have appeared in the SocialFi field, such as the highly ambitious Web3 social protocol service layer Lens Protocol, and Phaver, an application based on Lens.

In August 2023, Friend.tech successfully emerged from the circle with a new SocialFi model with a strong Ponzi and Tugo flavor, attracting a group of Twitter influencers and even Onlyfans bloggers to settle in. The protocol fee for 24 hours once ranked third, second only to Ethereum and Lido. However, due to the simplicity of its tokenomics, the trading volume of its Keys has significantly declined, and the project party has been slow to issue token airdrops for points, gradually wearing down the patience of users.

Source：Dune

1.2 Market size

Without a doubt, the broader social field has a market size of trillions, even if the user group is limited to the Web3 community, the market outlook is also extremely broad. However, the Web3 community still mainly uses traditional social software such as Twitter, Telegram, and even WeChat, and the scale effect is particularly significant in the social field: even if there are better solutions, the inertia formed by the existing social network will keep users on the original platform, and migration to a new platform will face great resistance.

Overall, the low market value of the SocialFi track of US$1.7 billion is in sharp contrast to the vast profit margins of traditional social platforms. We can expect the arrival of the SocialFi explosion point in the future.

2. Industry map

2.1 Social Protocol & Graph

Social protocols are somewhat similar to concepts such as ID cards, mobile phone numbers, and QQ numbers in the Web2 world. Using social protocols can effectively aggregate users’ social relationships, and application layer projects can directly inherit the fixed social relationships in the social protocols, without the need to rebuild in new scenarios.

2.2.2 Lens Protocol

Lens Protocol is a very distinctive one in the protocol layer. Its core concept is to use ERC-721 to convert personal data, attention, collections and other concepts into NFTs to give them financial attributes. This process is equivalent to materializing the value captured in social activities, giving its ownership completely to the creator and allowing it to circulate among different dApps. It can be said that it fully embodies the native Web3 spirit of respecting the value of data.

Lens also has good user data: it has close to 370,000 users in one year since its launch, and the number of daily active users is steadily increasing. Lens completed a 15 million financing in June 2023, with Web2 social giant Tencent participating.

Lens daily activity data. Source: Dune

2.1.2 Farcaster

Farcaster is one of the hottest social protocols in 2023, and even Vitalik himself is deeply involved in using the protocol and promoting it.

The data structure of the Farcaster protocol is divided into three layers: the first layer is the user identity, which is stored by blockchains such as Ethereum and OP; the second layer is various data generated during the user’s social process. These data are not uploaded to the chain, but It is stored in the server network formed by Hub nodes; the third layer is the application layer, which is developed by projects within the ecosystem. Compared with Lens, Farcaster sacrifices a certain degree of decentralization and focuses more on recreating the smooth functionalities of traditional social media.

Farcaster just opened to the public in October 2023, and has gained 210,000 users in just a few months. The achievement is remarkable, and is mainly due to the circle-breaking effect brought by its ecological project Warpcast, which we will introduce later.

Farcaster User Data. Source: Dune

Farcaster architecture diagram Source: Official documentation

2.1.3 CyberConnect

CyberConnect (CC) is currently one of the projects with the most users in the social graph track, with nearly 1.3 million users just owning profile NFTs.

The core concept and vision of CC are similar to Lens, which is to NFT user profiles and link corresponding social data to NFT. The difference is that CC does not convert all operations such as following and collecting into NFTs, which means that users do not need to pay gas fees when performing these operations, significantly reducing customer acquisition costs.

In addition, compared with Lens, which is deployed on Polygon and is subject to the Polygon user environment, CC’s multi-chain deployment gives it certain advantages.

Since 2023, the number of CC users has experienced explosive growth (of course it is related to its airdrop expectations), and its user growth has stagnated after June.

CC new user data. Source: Dune

2.2 Application layer

The SocialFi application layer covers a wide range, and various streaming media content platforms, share-to-earn, personal currency issuance platforms, etc. can all be included in the scope of SocialFi. At the current stage, making more down-to-earth projects and attracting more users are issues that SocialFi urgently needs to solve, so innovation at the application layer is a top priority.

2.2.1 Friend.tech

Friend.tech allows users to use ETH to purchase “shares” of KOLs who have settled on the platform. The value of the share is proportional to the square of the number of shares sold. After users purchase “shares”, they can gain the right to communicate directly with KOL, and at the same time, they can profit from selling the shares. In addition, Friend.tech also distributes points to actively participating users, using potential airdrop expectations to attract user participation.

Without a doubt, the current economic model of Friend.tech is destined not to last, as it cannot retain users and make profits through long-term high-quality content output, nor can it meet the exposure demands of advertisers. However, this low-threshold, publicity-oriented customer acquisition method is worth learning from for other SocialFi projects.

If Friend.tech can learn from some Meme tokens and build an ecology and improve value capture in a timely manner after gaining traffic, it may be able to come back to life. But at present, it seems unlikely.

Friend.tech share price growth diagram

2.2.2 Phaver

Phaver is a social platform based on Lens, and it is currently the largest application in the Lens ecosystem. Its core idea is to allow users to truly own their social assets. Users can stake tokens on content they believe is of high quality, the more people staking, the higher the quality of the content. Both the creators and the users who stake tokens can receive corresponding rewards. In addition, users can accumulate on-chain reputation for themselves by completing tasks, thereby increasing their points.

However, in order to prevent a large number of bots from pouring in for invalid interactions, Phaver has also created a grading system that requires users to complete email verification, purchase NFTs or stake governance tokens in order to be eligible to exchange points for governance tokens.

Through the above mechanisms, Phaver has achieved incentives for the contribution of publishing and discovering high-quality content, and effectively achieved value capture.

Since its launch two years ago, Phaver has amassed over 120k wallet connections and maintains 30-40k daily active users. As a multi-chain application, Phaver is set to integrate with the Farcaster protocol and issue governance tokens soon. It’s foreseeable that it could become a formidable competitor to Warpcast.

2.2.3 Warpcast

Warpcast is the flagship project of the Farcaster ecosystem. Its interface and usage methods highly restore traditional social platforms, bringing users an extremely smooth experience, which has also made it known as the “Twitter of the Web3 world.”

In addition, Warpcast will also issue tokens, issue NFTs and other Web3 unique elements natively built into the App, greatly reducing the threshold for users to participate in chain speculation. This design has sparked a wave of fomo among the user groups, and even has bred high-market-value Meme tokens like $Degen.

At present, the main purpose of users entering Warpcast is still to dig for gold. After the short-term wealth effect dissipates, it remains to be seen whether it can truly replace Twitter and become the new online home of Crypto Degens.

$Degen token price, snapshot time: 2024/3/5

2.3 Target Sorting

We briefly organize the projects within the track as follows:

3. Industry Growth Drivers

3.1 The growing demand for personal privacy and freedom of speech

In recent years, a large number of Weibo and Twitter users have flocked to the “decentralized social platform” Mastodon. Mastodon is not a blockchain project. The technology it uses is a federated operation of multiple servers.

Different server operators can set completely different rules (for example, some servers can post articles with thousands of words, but some require users to limit articles to less than 500 words), which is very similar to different states in the United States. Users can freely choose to join different servers and comply with local codes of conduct.

Strictly speaking, Mastodon is not strictly decentralized, and server “governors” can still ban individual accounts at will (but you can still choose to join other states). Mastodon has reached one million monthly active users so far, which is unmatched by any SocialFi project, but it also shows that there is still huge room for growth in the future of truly decentralized SocialFi.

Whether it’s the increasingly severe censorship in the Chinese community or the various problems that have arisen on Twitter, people are thinking about how to defend personal privacy and freedom of speech on social platforms, which offers opportunities for sectors like SocialFi. In the not-too-distant future, we may have the opportunity to see projects on the SocialFi track that are on par with or even surpass Mastodon.

3.2 Redistribution of traffic value is the core competitiveness of SocialFi

Just as Defi poses a challenge to traditional banking and exchanges, SocialFi’s ultimate goal is to disrupt existing social platforms’ monopoly on traffic value.

In today’s booming short video wave on the Internet, countless wealth myths have emerged, but in this process, platforms such as ByteDance and Tencent have taken most of the value of traffic, and the creators and consumers involved lack effective countermeasures.

Projects like Phaver are trying to change this distribution of benefits, allowing the value of traffic to be truly captured by creators and consumers.

4. Conclusions and Outlooks

Compared with Web2 social platforms, SocialFi has natural advantages in terms of privacy protection and data value distribution. However, due to the high threshold of using blockchain applications, the single step of creating a wallet stumps most users.

In the future, SocialFi projects should be more user-friendly and, while applying new technologies, consider how to spread decentralized social networking to a larger audience. They should optimize operation flows, reduce user learning costs, and improve user experience. On the other hand, they should also make good use of the token mechanism unique to Web3 to incentivize high-quality content and creators, in order to achieve long-term user retention and positive feedback loops.

Disclaimer：

1. This article is reprinted from [Gryphsis Academy]. Forward the Original Title‘探索 SocialFi：谁会引领下一次社交革命？’. All copyrights belong to the original author [*@localcat15]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.