by WOO X Research
What is SocialFi?
SocialFi is a new community platform that integrates social and DeFi functionality. This model allows users to interact socially on the Web3 platform while reaping economic benefits. The core value of SocialFi lies in empowering content creators, influencers, and normal participants with greater control over their data and freedom of speech – all while earning profits through their participation in social media activities. This structure amplifies sovereignty over one's data and brings a new economic dynamism to social media.
In Web2, it's the community platforms that profit from user data by providing services. As opposed to this, Web3 leverages blockchain technology to let users retain the value of their data, keeping it in their crypto wallet instead of having it centralized on the platform. This empowers users to gain economic returns directly from their social interactions and influence, thereby strengthening their control over their data and economic sovereignty.
The earliest initiation of a SocialFi platform can be traced back to a16z's investment in Bitclout in 2021. This was followed by the development of KOL communities like Only1 and Monaco. However, these early endeavors didn't sustain in the long run.
The Bitcoin price is fluctuating at high levels, and overall market conditions seem not to show much improvement, while the SocialFi sector is gaining momentum:
- The TVL (Total Value Locked) of the SocialFi hub Base continues to establish new all-time highs, exceeding $5 billion.
- The off-exchange price of FriendTech's points has surged.
- Farcaster, complimented by Vitalik, has just completed a funding round led by Paradigm.
- Xterio's founder, Jeremy Horn, a well-known GameFi publisher, has announced his plans to establish a SocialFi platform.
Given these signs, we might be on the brink of another SocialFi explosion.
Which SocialFi projects are worth paying attention to?
FriendTech
FriendTech is a decentralized social application built on the Base chain. It allows users to purchase "shares" (Keys) of KOLs on X using ETH. The value of these shares is directly proportional to the square of the sales volume. After purchasing, users can directly communicate with the KOLs and potentially profit from reselling. Additionally, the platform distributes points to actively participating users, with potential airdrops offered as an incentive for user participation.
In August 2023, the market atmosphere was subdued, with Bitcoin's price hovering around $26,000. FriendTech, driven by Paradigm's seed round investment and a high Ponzi-like pricing mechanism (Bonding Curve), along with widespread imitation, emerged as the leading trend in SocialFi.
However, as the excitement waned, market attention declined, trading volume plummeted, and FriendTech gradually disappeared from public view.
See the chart below for FriendTech's revenue changes, with time on the x-axis and revenue on the y-axis. Revenue peaked from August 2023 to November 2023.
FriendTech is planning to extend its services beyond X to attract more new users. The influx of funds into FriendTech is due to the imminent launch of v2, which has seen a rapid $8 million increase in locked-in-value within a week, and a single-week growth of 25%. V2 was released on April 20, 2024.
Officials were also planning to issue $FRIEND tokens and conduct airdrops based on points, to continually attract users and maintain operations.
The optimism towards FriendTech is also reflected in its OTC price. The current OTC price per point lies between 5 to 6 USD, while it was merely 1 USD at the beginning of the year. As a leading player in SocialFi, FriendTech's subsequent developments remain our primary focus.
Sofamon
Sofamon, a new social application on the Base chain, gained attention with the announcement of its completion of a seed round of funding on April 4th. Participants included Polychain Capital, Seed Club Ventures, and Inception Capital. Angel investors included Nick White, the Chief Operating Officer of Celestia, former Coinbase engineer 0xBeans, and George Lambeth, co-founder of Divergence Ventures.
How to get started with Sofamon?
To get started with Sofamon, you link it to your Telegram account and create a unique rabbit avatar. You can customize your rabbit avatar by buying and selling various wearable items. After personalizing your avatar, you can create a set of exclusive stickers on Telegram, showcasing your collection to others.
How can users make money?
Users can make money by buying and selling accessories. Each item in the shop has a price curve (Bonding Curve). This means that as more people buy the accessory, its price increases. This pricing mechanism is similar to that of FriendTech.
From the description above, one might think Sofamon is only a sticker app. However, it provides more than that:
- Social Currency: Using expensive emojis shows higher buying power, similar to owning valuable NFT avatars.
- Launchpad Gold Digger: Buying Sofamon props earns points for participating in the Eigenlayer lottery. Winners get early access to buying props from Eigenlayer.
- Brand Collaboration: Sofamon plans to partner with various projects and brands to create unique assets combining NFTs, memes, and gold digger features.
Although the current range of decorative items on Sofamon is limited and mostly launched by the official team, more artists and projects are planned to be introduced. This will increase the platform's diversity and enrich the social culture, making Sofamon a new trend in the crypto community.
Currently, Sofamon's total locked-in value is 900 ETH, with the most expensive accessory, the Node Sunglasses, priced at 8.1 ETH.
Farcaster
Even Vitalik Buterin, the founder of Ethereum, has been actively using and promoting Farcaster, which is expected to complete a funding round led by Paradigm soon, with an estimated value of about $1 billion.
Farcaster's data structure is divided into three levels:
- User Identity Layer: This is the foundational layer. Users' identities are stored on various blockchains, such as ETH and Optimism (OP).
- Social Data Layer: User data generated in social processes will not be stored on the blockchain but rather in the server network made up of Hub nodes. This design contributes to efficient and scalable data processing.
- Application Layer: Projects within the ecosystem can develop their applications. This layer provides flexibility and room for innovation.
In January this year, $Degen quickly became popular in the Farcaster community, creating a unique tipping culture. In this system, community members use the number of comments along with the "DEGEN" tag to tip quality content they like. Many active users reach a daily tipping limit of thousands of dollars.
This mechanism not only encourages users to post valuable content on Farcaster but also fosters active interactions within the community. In this way, $Degen introduces a new way of participation and reward to the Farcaster community, strengthening connections among users and the cohesion of the community.
The price of $Degen has increased more than tenfold, and attention to Farcaster has also grown, with daily active users and protocol revenues reaching historic highs. The number of users is approaching 50,000, with protocol revenue exceeding $1 million.
Apart from $Degen's role in the Farcaster ecosystem, there's also Drakula, similar to the Web3 version of TikTok. It uses a tipping mechanism to reward content creators.
Lens Protocol
Unlike the platforms mentioned earlier, which are built on Base, Lens operates on Polygon. Launched in 2022, Lens Protocol's core idea is to use the ERC-721 standard to turn personal data, interests, collections, and other factors into NFTs, giving them financial qualities. This setup ensures creators have full ownership rights and allows for circulation across various DApps.
In June 2023, Lens Protocol raised $1.5 million, participated by Tencent.
In March, active users of the Lens platform discovered that they had received an airdrop of $BONSAI tokens in their wallets.
$BONSAI operates on the DN404 token standard and marks the first 404 project on Polygon, akin to the Pandora ERC404 Project. It takes 100,000 BONSAI tokens to exchange for a Bonsai NFT.
Meanwhile, Stani, the founder of Lens Protocol (also the founder of Aave), has been actively promoting $BONSAI on social media, positioning it as the primary economic medium within Lens. Currently, when users on the Lens platform tip and reward creators, the majority default to using $BONSAI as the payment token. Lens is taking inspiration from Farcaster & $Degen, aiming to replicate their success and positioning $BONSAI as the tool for bringing Lens into the mainstream as well as the platform's native token.
Did the appearance of $BONSAI help Lens Protocol? During the first half of the year, the number of daily transactions has grown approximately fivefold. Currently, there are about 30,000 to 50,000 transactions per day, but the number of active users has not significantly increased.
The data suggests that while $BONSAI may not have led Lens into the mainstream, it has indeed attracted the keen interest of existing platform users.
Future Expectations for the Sector:
The high level of protection around traditional Web2 social media platforms comes from people's strong habits of using platforms like Facebook, Instagram, and YouTube.
These platforms exhibit strong user stickiness, offering little incentive for users to switch to new social platforms.
However, problems have arisen on these big Web2 platforms in recent years, acting as catalysts for the emergence of SocialFi:
Unfair Algorithms: Many creators have faced situations where their content is unfairly deleted by the platform, while speeches spreading discrimination and hatred often remain, raising questions about the platform's impartiality. Additionally, users struggle to see content they're interested in due to advertising-influenced algorithms, limiting creators' freedom to produce content.
Creator Revenue Distribution: Traditional Web2 social platforms follow a profit distribution model resembling a large pyramid structure, where top social influencers reap the most profits. Even creators producing high-quality content may struggle to receive appropriate rewards without significant influence, leading them to compromise on their content to meet algorithmic requirements.
Revenue-Sharing Mechanism: While there should ideally be a symbiotic relationship between creators and the platform, not all platforms provide a revenue-sharing plan. Platforms like Facebook, Twitter, and Instagram often do not compensate creators for quality content that attracts significant traffic, leaving creators to rely on sponsored content for income.
The financial characteristics of SocialFi are its primary attraction to users, but they can also pose risks. If the exit mechanism causes severe financial losses for many, it could backfire.
Potential catalysts from the crypto world that could trigger the explosion of SocialFi include:
Elon Musk: Elon Musk's endorsement of $Doge, his favorite coin, is widely known. If Musk integrates $Doge into X, the social platform most used by crypto users, it could ignite a new surge of SocialFi.
FriendTech Token Issuance: FriendTech, which has been at the forefront of the SocialFi wave since its launch in August 2023, has received a positive market response to V2's launch. The issuance of tokens is expected to ignite passion in the SocialFi arena, possibly occurring in Q2~Q3 2024.
Lens Token Issuance: The Lens platform has maintained steady daily posts between 2,000 to 4,000 over the past year. Existing users have continued to operate the community without special financial incentives, indicating a core user group that could be encouraged to regularly use Lens through token issuance. This move would not only benefit Lens Protocol's product but also stimulate other SocialFi protocols.
As previously mentioned, founder Stani has vigorously promoted $BONSAI after witnessing the success of Farcaster's $Degen. It is evident that Stani is quite eager, and it can be expected that Lens could issue tokens within 2024.
The combination of external push from Web2 and the crypto-native pull from Web3 serves as a key factor triggering the explosion of SocialFi. 2024 is poised to be the year it takes off.
—
The content above is neither a recommendation for investment and trading strategies nor does it constitute an investment offer, solicitation, or recommendation of any product or service. The content is for informational sharing purposes only. Anyone who makes or changes the investment decision based on the content shall undertake the result or loss by himself/herself.
The content of this document has been translated into different languages and shared throughout different platforms. In case of any discrepancy or inconsistency between different posts caused by mistranslations, the English version on our official website shall prevail.
