Original source: TechFlow
Friend.Tech is popular.
This KOL-centric model that allows fans to buy and sell KOL "shares" is not complicated and has a bit of a "Ponzi" flavor; but in the deep bear environment of hot spots and liquidity shortages, Friend.Tech has indeed created a SocialFi craze.
For example, Star Arena, which has quickly become popular on the Avalanche chain in the past week, is still the focus of everyone's attention after experiencing the ups and downs of the Avalanche founder's platform shouting orders and the contract loopholes that wiped out the funds.
Meanwhile, the craze continues:
Starting from Base, the L2, FT imitation projects quickly emerged in other ecosystems such as Avax, Arbitrum, Solana, Polygon and Bnb. These projects made different improvements and innovations based on FT, trying to seize this hard-earned popularity;
When you open Twitter, you will see a large number of Crypto-related topics and accounts continuously discussing and introducing FT and other projects. It seems that you will miss out on 100 million FOM if you don’t participate.
DeFi Summer, a familiar taste
The pursuit of profits, the emergence of copycats, the continued discussion... Does all this feel a bit familiar?
Yes, it’s easy to associate it with the DeFi Summer of 2020.
Chris, a partner of the well-known VC Placeholder, said that Social Ponzi is the new DeFi Summer, and described the development process of current projects such as FriendTech as similar to DeFi Summer:
An experiment --> Traffic pours in --> A viable model begins to emerge --> Attract more attention and improve the experience --> Larger-scale applications emerge --> Get others involved within 18-24 months.
If you look back carefully at the DeFi Summer three years ago, you will find that this development path is indeed familiar.
In June 2020, Compound implemented the "liquidity mining" game on a large scale, attracting many players to provide liquidity; subsequently, multiple different protocols found that this model was feasible, and began to borrow and improve the design of liquidity mining, working on tokens and economic models to attract more people to join.
In the end, the TVL of the entire DeFi track soared from US$1 billion in June to US$10 billion in October, and the number of users also increased sharply; at the same time, the gas fee on Ethereum also hit a record high at the time.
A concept of liquidity mining and a leading project have driven the grand scene of the entire summer and established a solid position for DeFi.
The concept of a social Ponzi scheme, led by Friend.Tech, has led to a number of imitation platforms in different ecosystems. Will it also trigger the SocialFi craze? Practitioners seem to have smelled a similar smell and are looking forward to the arrival of a market turning point.
Craving for traffic, detonating traffic
Although SocialFi's surge in popularity seems to have a similar development path to DeFi Summer, it faces a more stringent market environment - the entire market seems to be more eager for traffic than ever.
When the market went downhill, various L2s emerged in large numbers. With no major difference in technology and performance, each L2 hoped to find a traffic grabber to gain attention and liquidity in the competitive environment.
So we saw that the emergence of Friend.Tech caused Base's TVL to surge, and it quickly came from behind in the L2 competition and gained a solid position.
This desire for traffic is even more evident in the "almost outdated" L1.
Professor Gun, the founder of Avalanche Chain, has publicly expressed his support and optimism for Star Arena more than once since its emergence. Even when all the funds of SA were stolen due to a contract loophole, Professor Gun called on everyone to give the new application some trial and error space and wait for its recovery and reconstruction.
Regardless of whether SA is officially developed by Avalanche or a so-called national platform, the founder’s public support for the platform shows the L1 public chain’s desire for traffic.
A phenomenal application brings the possibility of revitalizing the originally lifeless public chain ecosystem, which is even more precious in the current environment where the spotlight is on L2.
It is the voices and participation of key figures that further confirm the basic logic of social products such as FT and SA to detonate traffic:
By appealing to people’s expectations or incentives, traffic is attracted to complete the cold start of the product; then, appropriate communication strategies are used to trigger more traffic to join and increase the network effect of social products.
Borrowing the theory from the classic communication book "The Tipping Point", a product or topic needs to follow three major rules to become popular:
The Law of the Individual: For a message to become popular, it must be spread through the sociability, energy, enthusiasm, and charm of certain special people.
The Law of Stickiness: Once information becomes practical and personally relevant, it becomes memorable.
Law of Environmental Power: The dissemination and popularity of information requires a favorable external environment.
These three rules become more specific when applied to SocialFi products such as Friend.Tech:
Under this communication logic, we can see that more and more people are joining Friend.Tech. Players who were originally waiting and analyzing the situation began to try it out under the continuous influence and attractive adhesion of some individuals, and eventually it became extremely popular in the context of a bear market with a lack of hot spots.
At the same time, users in FT also chose to exit due to the decline in profits caused by the internal circulation of robots, which naturally provided space for a number of copycat platforms to take over this part of the spillover traffic.
Obviously, Friend.Tech is the first, but it will not be the last. Copycats make micro-innovations, improve the experience or add gameplay based on the original ones in order to better continue to attract traffic, just like what Sushiswap did to Uniswap.
Question Ponzi, Understand Ponzi, Become Ponzi
Friend.Tech has made a good start in terms of communication, but the question is whether it can continue like DeFi Summer?
Compared with DeFi's liquidity mining, although it is also a means of attracting users by providing returns, and earlier liquidity mining has higher returns than later entry, but in terms of income sources, the income of DeFi products and LPs is the transaction fees generated when other users use it, rather than simply the upstream company making money from the downstream company.
Social products such as FT have very obvious Ponzi characteristics, that is, first entrants can more easily make money from later entrants, and the latter may bear higher purchase costs.
Therefore, from the perspective of economic design, FTs are not like DeFi in some places, but more like StepN, which was very popular at the time. Once no more users join, will the entire chain become difficult to maintain and eventually fall into a death loop like most GameFi projects?
But don’t forget that StepN, as a consumer-level crypto application, once successfully broke through the circle and gained extremely high topicality and user volume. Since then, the entire Crypto industry has never seen a similar high-level consumer application.
From this perspective, the Ponzi structure in StepN’s economic design actually played a positive role in quickly acquiring customers in the early stages: those who run first will earn first, and if you don’t believe, you won’t come.
Today, when infrastructure is homogeneous and numerous, and when everyone is looking forward to the social track to produce the next real consumer-grade crypto application, completely denying and questioning the Ponzi structure of Friend.Tech is obviously not a practical option.
Question Ponzi, Understand Ponzi, Become Ponzi.
Under the premise of understanding that the Ponzi structure and the Ponzi scheme are not the same, the proper use of the Ponzi structure to attract traffic has become a necessary path for crypto applications to develop.
In terms of experience, crypto applications cannot compete with mature Web2 products; in terms of compliance, crypto applications walk the line between black and white; in terms of demand, there is no popular and essential need for crypto applications.
So, how can we make users’ perception of the product brighten up and make them take the step from not using it to using it?
The current answer is probably incentives and benefits. The earlier you come, the more benefits you get, and the money-making effect can be used to attract more users. This does have a Ponzi-like flavor, but for Crypto, it is an inevitable part of application development.
The success and failure are both due to the Pang family.
History shows that applications or projects that only do Ponzi schemes but do not continue to provide more external value will not be able to continue to attract users to join, and will either actively Rug or passively die.
At this point, Ponzi is a means, not an end.
Whether Friend.Tech or Star Arena can provide more functions and gameplay beyond revenue, and retain users with practical functions after successful launch to offset the "latecomer disadvantage" problem brought about by the Ponzi structure, remains to be tested by time.
The grand scene reappears?
Can social Ponzi recreate the glory of DeFi Summer? I think it is difficult in the short term.
First, the macroeconomic environment of the two is different. In 2020, the Federal Reserve cut interest rates twice to 0 in March and launched a quantitative easing (QE) program with a total amount of US$700 billion. The flooding of funds also caused the crypto market to be hot. From the figure below, we can also see that the period of low interest rates coincides with the period of DeFi Summer.
At present, we are facing tightening liquidity, withdrawal of hot money and the Fed's interest rate hike cycle. VCs are also extending olive branches to the AI industry. If SocialFi wants to continue to be popular, it does not have the same relaxed environment as before.
Second, the sources of income for the two are different. As mentioned above, the income of DeFI products and LPs is the fees generated by other users when they use them, rather than simply making money from the upstream company; Friend.Tech’s current Ponzi scheme is very obvious, and the existence of automatic robots has caused the cost of latecomers to rise sharply. For users, this is not a very healthy way to make money, and it is more of a zero-sum game.
Without continuous updates of features and more players entering, the fortress is more likely to be breached from the inside.
Finally, the two have different levels of demand. DeFi was born for finance, and the product itself is oriented towards making profits more freely, more efficiently, and more conveniently, which is to some extent a "rigid need for transactions";
In theory, the focus of SocialFi is on Social rather than Fi. Putting aside the benefits, ordinary users have no urgent need to choose an encrypted application that is obviously inferior to mainstream social software in terms of functions and experience. The current situation where Fi surpasses Social cannot be changed in the short term, and it is more likely that they will all disappear after the speculative effect subsides.
But it is undeniable that today's social Ponzi is successful in acquiring customers, and the functions it presents are by no means the ultimate form.
Instead of expecting them to recreate the glory days of DeFi Summer, we should expect them to create glory days through new paths.