Original author: Gao
Original source: web3 world
SocialFi is currently on the fringes of the crypto market, lacking a killer app
SocialFi has the advantages of protecting personal privacy and promoting the redistribution of traffic value
The currently active SocialFi projects mainly fall into two categories: social protocols & graphs and social applications.
Future SocialFi projects need to lower the threshold for use and incentivize high-quality content. The future is promising.
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).
At present, the market value of SocialFi tokens is only US$1.7 billion, accounting for about one thousandth of the total market value of cryptocurrency. It is far lower than mainstream tracks such as GameFi and NFT, and its status is relatively marginalized. At the same time, there is no real killer in the SocialFi track yet. , Dominant applications are still in their early stages. Referring to the strong monetization ability of social traffic in the Web2 world, we believe that SocialFi still has a lot of room for development 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, Huoxin, 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, Changpeng Zhao predicted in Fortune magazine that SocialFi and GameFi would become the main driving forces for progress in the blockchain field in 2022. History ultimately did not develop in the direction he predicted, but some high-quality projects emerged in the SocialFi track, such as the extremely ambitious Web3 social protocol service layer Lens Protocol and the Lens-based application Phaver.
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 24-hour agreement fee once jumped to the third place, only Second to Ethereum and Lido. However, due to the crudeness of its token economics, its Keys trading volume has dropped sharply. At the same time, the project team has been slow to conduct token airdrops of points, which has gradually worn away the patience of users.
Data source: Dune
1.2 Market size
There is no doubt that the social track in a broad sense has a trillion-level market size. Even if the user group is limited to the Web3 community, the market prospects are extremely broad. However, the current Web3 community still mainly uses traditional social software such as Twitter, Telegram and even WeChat. The scale effect is particularly significant in the social track: even if a better solution emerges, the inertia formed by existing social networks will also push users away. Staying on the original platform and migrating to a new platform will face great resistance.
Taken together, 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 look forward to the arrival of SocialFi’s singularity in the future.
2. Industry map
2.1 Social Protocol & Graph Layer
Social protocols are somewhat similar to concepts such as ID cards, mobile phone numbers, and QQ numbers in the Web2 world. Social protocols can be used to effectively aggregate users’ social relationships. At the same time, application layer projects can also directly inherit the fixed social relationships in the social protocols. , without having to rebuild it in a new scene.
2.1.1 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 nearly 370,000 users in the past year since its launch, and the number of daily active users is also steadily improving. Lens completed a 15 million financing in June 2023, with Web2 social giant Tencent participating in the investment.
Lens daily activity data, source: Dune
2.1.2 Firecaster
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 ETH 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 Hubs 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 silky functionality of traditional social media.
Farcaster has just been opened to the public in October 2023. In just a few months, it has gained 210,000 users and achieved remarkable results. This 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 largest number of users on the social graph circuit, with nearly 1.3 million users owning profile NFTs alone. 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: 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 related to its airdrop expectations), and its user growth has tended to stagnate 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.
There is no doubt that Friend.tech’s current economic model is destined to not last long, because it can neither retain users through long-term high-quality content output to achieve profitability, nor can it meet the exposure needs of advertisers. However, this low-threshold, publicity-oriented way of acquiring customers is worth learning from 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 it is currently unlikely.
Friend.tech share price growth diagram
2.2.2 Phavers
Phaver is a social platform based on Lens and is currently the largest application in the Lens ecosystem. His core concept is to allow users to truly own their own social assets. Users can stake tokens on content they think is of high quality. The more people pledge, the better the quality of the content. Both creators and users who pledge 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 influxing into invalid interactions, Phaver also created an original grading system that requires users to complete email verification, purchase NFTs, or pledge governance tokens before they can be eligible to exchange points for governance tokens.
Through the above mechanism, Phaver realizes incentives for contributions in publishing high-quality content and discovering high-quality content, effectively realizing value capture.
Since Phaver was launched two years ago, it has accumulated more than 120k wallet connections and has 30,000-40,000 daily active users. In addition, as a multi-chain application, Phaver will soon be connected to the Farcaster protocol and issue governance tokens. It is foreseeable that it will become a strong competitor of 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 also natively builds Web3-specific elements such as token issuance and NFT into the App, which greatly lowers the threshold for users to participate in the hype of on-chain tokens. This design has inspired a wave of fomo craze among the user community, and has even given birth to high market value Meme tokens such as $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 network 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 Users’ growing demand for personal privacy and freedom of expression
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 the server "governor" can still ban an individual's account 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 is the increasing censorship of the Chinese community or various problems on Twitter, they are making people think about how to protect personal privacy and freedom of speech on social platforms, which gives tracks like SocialFi an opportunity to take advantage of. In the near future, we may have the opportunity to see projects that are equal to or even surpass Mastodon in the SocialFi track.
3.2 Redistribution of traffic value is SocialFi’s core competitiveness
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. Countless wealth myths have emerged from the raging short video wave on the Internet today. However, in the process, platforms such as ByteDance and Tencent have taken away most of the traffic value, while the creators and consumers involved lack effective countermeasures. means. Projects such as Phaver try to change this profit distribution pattern so that the value of traffic can truly be captured by creators and consumers.
4. Conclusion and outlook
Compared with Web2 social platforms, SocialFi has natural advantages in terms of privacy protection and data value distribution. However, due to the high threshold for using blockchain applications, the mere step of creating a wallet stumps most users. In the future, SocialFi projects should put aside their modesty and think about how to spread decentralized social networking to a larger group while applying new technologies. On the one hand, they should optimize the operation process, reduce user learning costs, and improve user experience; on the other hand, they should also use Only by leveraging Web3's unique token mechanism to incentivize high-quality content and high-quality creators can long-term user retention and positive feedback loops be achieved.
