Author: Juliet Tang, Investment Analyst at Huobi Ventures

Each bull market has a different ignition engine, and behind each bull market engine lies the long and tortuous development process of the bear market. The frenzy of MEME, the summer of DeFi… With the development of Web3 technology and infrastructure, the social track has also ushered in new development opportunities.

Will the Web3 social track be the next bull market engine?

As a track that requires developers' imagination to be fully utilized at the application layer, social, identity, NFT, DAO, fans, and more can all be classified into the category of Web3 social. The social track is still in its early stages, and with the launch of the Cyber token, Twitter's rebranding, and creator incentive programs, the market heat of the social track is gradually rising.

The social application Friend.Tech on the L2 chain BASE quickly gained popularity after its launch on August 10th, with over 120,000 registered addresses and over 20,000 active addresses in less than 20 days since its launch.

Applications like CyberConnect and Lens Protocol have also attracted a large number of users and market attention.

This article explores the current development status of Web3 social, the characteristics of track products, and also analyzes several leading projects in the track. In addition, it also studies the risks and challenges faced by this track. Overall, the future of the Web3 social track looks promising, with good investment potential and development prospects in this sector.

This research report is produced by Huobi Ventures, the global investment arm of Huobi, integrating investment, incubation, and research to identify the world's most outstanding and promising projects.

Why focus on social?

The crypto track has always been seen as an interdisciplinary science combining computer science, finance, cryptography, mathematics, and more. However, due to its short history, incomplete infrastructure, varying regulatory standards, and certain learning curves and costs, it has not yet achieved widespread popularity and use on a global scale. With the construction of smart contract public chains represented by Ethereum becoming more perfect, the development of on-chain Dapps has exploded since 2020. As shown in the figure below, the cumulative number of DeFi user addresses has exceeded 40 million. DeFi has led users to on-chain interactions, and its real and convenient application scenarios have driven the construction and development of on-chain economy, attracting and nurturing a group of on-chain "Degen". Since 2021, blockchain games and NFTs have led a new wave of users, and the new on-chain gameplay, the token economic design of the Ponzi effect, and the diverse value system have helped the Web3 field attract a large number of new users. In the gaming sector, due to its gold farming effect, it has attracted a large number of Web2 game players and low-income populations from the third world, while NFTs, due to their identity value, collectible value, and brand value, have attracted a large number of collectors, art enthusiasts, and traditional brand merchants.

Cumulative DeFi user addresses on the entire chain

Since 2022, the market has begun to enter a long bear market. The heat of previously popular tracks such as games and NFTs has declined, and the Ponzi economic model has rapidly collapsed due to insufficient incremental growth. The growth of Web3 users has reached a bottleneck. Currently, Web3 innovation is still ongoing, with developers continuously exploring new possibilities in various fields such as infrastructure, zero-knowledge proofs, payments, identity, and DeFi 2.0. However, the small number of users is still one of the core problems facing the development of the Web3 field. In today's bear market, a large number of ecosystems and their projects are facing the dilemma of having completed construction but lacking real users. Excluding various airdrop studios and multi-wallet users, the actual number of on-chain users may not be optimistic.

From the supply side, the current development of Web3 needs to expand more application scenarios and create more ways to attract new users. Currently, it seems that the social track is likely to become the next track to ignite Web3 users. From the demand side, the social track has already proven its super potential in the traditional Internet field, with a huge user base and commercial value being fully realized in this track. From the early days of MSN, to the middle period of Facebook, Instagram, and later TikTok, each iteration of the social track has accompanied the birth of Internet giants and has stimulated a large number of upstream and downstream employment opportunities in the industry. As people's awareness of the privacy value and commercial value of data ownership increases, more and more voices are calling for users to control their social information and data through Web3, allowing users to enjoy the value of their own identity and behavioral data. Therefore, the exploration of social projects in the Web3 field is one of the most promising and commercially valuable topics in the near future.

With the maturity of ecosystems such as Cyber Connect and Lens Protocol, the entire social sector ecosystem is becoming more and more magnificent. The entire social sector is in the early stages of an explosion, and some social projects have recently attracted market attention. For example, the crypto industry's largest KOL, Elon Musk, taking over Twitter, has brought global traffic to the crypto field through his repeated endorsements of Dogecoin and the inclusion of Bitcoin in Tesla's official documents. Although he has stated that Twitter will never issue tokens, speculation about social identity, token rewards, and payments around Twitter has been widely discussed in the market. In addition, Lens Protocol completed a $15 million financing, Instagram and other Internet social giants issued NFTs, and the Cyber token was simultaneously listed on multiple leading exchanges, expanding the industry.

Characteristics of the social track

For Web3 social, there is currently no unified definition. We can classify all products involving the publication, exchange, and user characterization of information between people into the social field. From the current development achievements, it mainly includes social public chains, social graphs, social identities, various types of social applications, service tools, and more.

In the Web2 field, traditional social platforms such as Twitter, Instagram, TikTok, etc., already have a large number of users and have spawned mature and rich business models. When we mention Web3 social, we need to verify the necessity and feasibility of the development of Web3 social. Compared to Web2, Web3 has a small user base for social development and is currently in the exploration stage in terms of technology. Overall, this article believes that the key factors for the development of Web3 social include:

1. Anonymity and resistance to censorship

One of the biggest advantages of Web3 social compared to Web2 social is its anonymity and resistance to censorship, a feature that has already been verified as a user demand. In the Web2 field, data is held by centralized institutions, and users may be subject to arbitrary scrutiny of their data, forced deletion, and modification of their social speech, etc. Essentially, Web2 social is still a social model under a regulatory system, where users cannot protect their privacy. In contrast, decentralized Web3 naturally has the characteristics of protecting user privacy and resisting centralized institutional scrutiny, meeting the demands of users to protect their privacy and maintain their own security.

2. User ownership of data

In the social model of Web2, user data ownership belongs to centralized platform institutions. Platforms can create user profiles, analyze user behavior preferences, and then deliver corresponding advertisements and products to maximize traffic monetization. At the same time, the data itself also has certain commercial analysis value. In the Web3 field, user ownership of data can be used to obtain commercial value from data traffic. From the user's perspective, projects that make it easy for users to realize the value of their data have a certain appeal. In fact, this model has already been attempted in the business model of Web2 and has achieved some success. For example, Pinduoduo provides cash rewards for watching videos and inviting friends to participate in "cutting prices" (essentially new user acquisition) to obtain cash rewards.

Currently, there have been many attempts in the Web3 field in this area, such as Nostra based on the Bitcoin Lightning Network, Lens based on Polygon, and multi-chain protocol CyberConnect, all of which are attempting to return data ownership to users. This article believes that in Web3, due to the diversity of tokens, the volatility of token values, and the richness of token economic design, the commercial value realization of data ownership in Web3 can derive many interesting gameplay methods that are very attractive to users, potentially surpassing the wealth effect and user acquisition effect created in the previous round of blockchain gaming bull market.

3. Simplicity and ease of use

One of the elements of social projects is to achieve abundant and free flow of information within the community, which relies on a large number of users. How to introduce a large number of users is the biggest challenge and opportunity for Web3 social projects. One of the important reasons for the limited development of the crypto field is the small user base. Firstly, there is a certain learning curve for users to enter the crypto field, as users need to have a certain level of computer and encryption knowledge to participate in on-chain interactions. Secondly, compared to Web2 user tools, current crypto projects are more complex and less simple and convenient to use. Taking an EOA wallet as an example, the complex mnemonic and storage methods, potential phishing and private key theft risks, software update iterations, and compatibility issues all affect the user experience. Blocking a large number of Web2 users from entering the crypto world also means that once the problem of learning costs and entry barriers is solved, the birth of a social project that is simple to use and allows users to operate without feeling it will bring huge user traffic.

4. Composability

In Web2 social, due to the existence of various centralized institutions, a huge data island has actually been formed. The huge data islands formed by various large data islands have data access permissions and pricing rights, and other projects in different categories need to obtain permission from the data ownership institutions to use the data or build applications on it. At the same time, there are compatibility issues and potential competitive relationships between the various large data islands, and as a result, many Web2 applications are not interconnected, and users often have to register new accounts and re-accumulate information and data when using a new platform. This article believes that ideal Web3 social products may have the opportunity to solve the problem of data islands. Efforts such as POAP and ENS to depict user profiles can be seen as attempts to solve the problem of data islands. In the future, there may be more simple and barrier-free standard protocols that help users easily control data ownership, while also being compatible with access to most protocols, which is one of the key exploration directions for DID in this field.

Overview of leading projects

According to different project types, social projects mainly include social graphs, social applications, and tool projects.

Social Graphs

Social graphs play a foundational role in Web3 social, providing common standards and data sources for other application projects. Social graphs should have rich data sources, extensive composability, and low barriers to use. From this perspective, the necessity of building new public chain social projects or native social projects on obscure public chains is not significant, as it adds isolation from other mature ecosystems. Currently, the mainstream choice for the development of social graphs is to build universal standards for social identities on mature chains, including projects like Lens Protocol, CyberConnect, and RSS3.

CyberConnect

CyberConnect is a multi-chain social graph that can verify and store user interaction data, providing users with personal profiles, social graphs, and smart contract wallets. It also offers standard API data interfaces for other Dapp developers to facilitate user data migration across multiple Dapps. Currently, CyberConnect has integrated with Polygon, Linea, and Optimism, and is expected to integrate with networks like Arbitrum in the future. As of August 8, 2023, the total number of accounts reached 368,000, with a total of 738,000 user interactions, and over 1.25 million user profiles.

Despite the current subdued market conditions, CyberConnect's daily average traffic DAU remains above 10,000, indicating significant overall traffic.

Lens Protocol

Lens Protocol is a social graph protocol developed by the AAVE team, a well-known DeFi lending project, built on Polygon. It allows anyone to create non-custodial social profiles and build new social Dapps. Users can create their own social profile NFTs through wallet integration and interact with other users. They can also build interactive Dapps on the Lens platform, where interactions are recorded on the Lens social profile.

The image below shows some projects in the Lens ecosystem, with over 100 projects built on the Lens ecosystem, including various social, gaming, media sharing, DAO tools, ad management, messaging, knowledge payment, and lottery Dapps. Although most ecosystem projects are still in the early to mid-stage of development, the overall richness in terms of quantity and types is very high, even surpassing some public chains. Overall, the Lens-created on-chain social ecosystem is very creator-friendly.

As of July 2023, over 110,000 addresses have obtained Profile social cards. The cumulative number of users on Lens is over 360,000, with a total of 21.93 million transactions. The peak of transactions and user numbers occurred in February 2023, possibly due to the participation of a large number of retail investors or airdrop studios. Currently, the daily on-chain transactions range from 15,000 to 20,000, with 3,000 to 5,000 wallet addresses participating in daily interactions. Despite the bear market backdrop, there is still a significant number of users participating in social track interactions, demonstrating good user data performance and growth potential in this track.

In summary, social graphs serve as the infrastructure and common tools for the entire social track. A unified, simple, and convenient social graph is beneficial for reducing user barriers and usage obstacles between different Dapps, while also accumulating more users and data. Comparatively, Lens Protocol is built on Polygon, focusing on creating its own social ecosystem, while CyberConnect does not have its own content platform and ecosystem. It supports multiple chains and interactions with multiple applications, actively exploring ways for Web2 users to enter through wallets, focusing on creating open social profiles. Both projects currently belong to the leading projects in the social track, and with further development and launch of Lens Protocol, the social track led by these two projects may enter a period of explosive growth.

Social Applications

Farcaster

Farcaster is a decentralized social platform created by Dan Romero, a former executive at Coinbase. It is built on Ethereum and is positioned as a competitor to Twitter. Currently in the beta testing phase, Farcaster generates and stores user identities on-chain and provides database Hub storage for other information off-chain, achieving a decentralized social interaction experience comparable to Web2 in terms of speed and low cost. Additionally, Farcaster allows users to use a self-hosted mode to approve sending and receiving messages without a gateway, ensuring decentralized implementation. The ecosystem has also built nearly 20 derivative projects, including data analysis, image enhancement, hot topics, related topics, and search engines.

As of August 9, 2023, Farcaster has surpassed 13,000 total wallet addresses, including several prominent figures in the crypto industry. The user growth rate is 2.2% per week, with 2,500 dynamic posts in the past seven days. As an independent social application, it has a good number of users and user activity.

Nostr

Nostr is a decentralized open-source social transmission protocol that allows developers to build Dapps based on Nostr. There are no centralized servers on Nostr, and the protocol achieves information transmission through client and relay designs. Compared to Web2 social, the protocol achieves complete decentralization, resistance to censorship, and user privacy protection. Damus is a decentralized Twitter-like social product built on Nostr, allowing users to enjoy decentralized, anonymous, ad-free features. The product is still in the early stages of development and has received recommendations and support from Jack Dorsey, the founder of Twitter.

As a completely open, anonymous, and decentralized anti-censorship product, Damus has strong competitiveness in privacy and security compared to traditional social products, with a clear market and target customer base. However, to attract a wider range of Web2 users, new product designs and features may be needed.

Friend.Tech

Friend.Tech is a social application deployed on the Coinbase L2 chain BASE and invested by Paradigm. Similar to traditional fan token/creator economy projects, the platform provides creators with fan communities and token issuance services. Users can join a creator's community by holding the tokens issued by the creator. Since its launch on August 10th, the product has quickly gained popularity, with over 120,000 registered addresses and over 20,000 active addresses (users viewing profiles) in less than 20 days.

Users are required to pay a 10% transaction fee for each transaction, with 5% going to the creator and 5% to the protocol. As of August 28, 2023, the protocol has generated over $4 million in cumulative revenue.

The rapid popularity of the Friend.Tech product has sparked market attention and speculation about the social track. The success achieved at this stage is traceable, mainly including the following points:

1. Ponzi economic design for fan tokens

Currently, there are mainly two modes of fan token design: one is the issuance of fan tokens, where users can join a creator's community by holding a certain amount of fan tokens. The price of fan tokens follows market fluctuations, and there may be designs for buybacks, burns, revenue sharing, staking, and other functions. The other mode is the issuance of fan NFTs, where users can join a creator's community by holding NFTs, and the price of NFTs also follows market fluctuations. Additionally, there may be designs for new token issuance mapping, airdrops of new NFTs, or other rights implementation.

In general, prior to Friend.Tech, the buying and selling of fan tokens in token economics were mainly driven by users' love for creators, and the attraction of token price fluctuations was neutral. However, Friend.Tech's introduction of a user invitation mechanism and fan token economics has disrupted the previously lackluster token economy mechanism. Friend.Tech has announced the distribution of 100 million points within six months, with the distribution rules yet to be disclosed. However, it is widely believed that user points are linked to token airdrops. This combined mechanism, along with the user invitation mechanism, promotes user acquisition and encourages users to purchase shares of different creators to generate transaction fees and data. This strategy is similar to Blur's airdrop strategy, attracting users to use the product through long-term point incentives and airdrop expectations, increasing user stickiness and market share even after the airdrop period ends.

In terms of token economics design, based on Laurence Day's widely accepted calculation of the price model, Friend.Tech's fan token price follows a price curve of P=suppy^2/16000. Under this pricing model, price fluctuations will exhibit exponential levels of volatility. Early investors have the opportunity to enjoy significant profits, and this Ponzi economic design will continue to cause price surges until the buying and selling of users reach equilibrium. This is one of the most important reasons for the project's explosive growth in the short term. Similar designs are also reflected in projects like Meme's XEN, attracting users to the market through Ponzi economic token design and early user dividend incentive mechanisms.

2. Early Benefits of the BASE Chain Launch

Friend.Tech was initially built on other chains, and its recent launch and popularity on the BASE and L2 tracks are closely related. Since the launch of Arbitrum in early 2023, the overall performance of the L2 track in the bear market has been very impressive. The subsequent Zksync ecosystem, OP Stack, and BASE have all sparked market enthusiasm. It is expected that this year will also see the launch and token issuance expectations of Starknet, Scroll, and Zksync, along with the upcoming Cancun upgrade. The entire L2 track can be considered the most important and eye-catching track in the crypto industry in 2023, and BASE is also backed by Coinbase, a listed exchange in the crypto industry. Friend.Tech's choice to launch on BASE in the early stages cleverly capitalized on the market's hotspots and timing benefits.

3. Endorsement by Top VC Paradigm

As a top investment fund in the crypto industry, Paradigm's endorsement naturally adds significant value to the project. Even with Friend.Tech's underdeveloped web interface, only a rough beta version, and a lack of various project whitepapers and explanatory materials, the market still trusts the project and has shown a high level of participation, largely due to Paradigm's endorsement. Additionally, the incentive design in the project's points mechanism is similar to Blur's, possibly indicating guidance from Paradigm.

In summary, while Friend.Tech's product mechanism is relatively traditional, its token economic design, customer acquisition strategy, and marketing approach are bolder than traditional social projects. In the short term, Friend.Tech may replicate Blur's user growth path, but as a social product, the long-term realization of social attributes will require observation after the product is launched.

Tool Projects

Social tool projects mainly serve as service functions, mostly targeting projects and Dapps. Examples include Lenscan for browsing data under Lens Protocol, LensDAO for organization and community management, Alertcaster for information alerts in the Farcaster ecosystem, and FarQuest for conducting surveys. Various general auxiliary tools for social promotion, DAO treasury governance, NFT design, account management, and wallet management can also be categorized as social tools.

In general, the social track is a field that fully unleashes developers' imagination at the application layer. In addition to social graphs and application tools, a wide variety of social platforms, fan platforms, and media platforms are also emerging. This track is still in its very early stages, and the enthusiasm and efforts of developers and investors will continue to help this track accumulate results.

Risks and Challenges

The crypto social track has attracted the participation of many developers and capital. While recognizing the opportunities, we should also be aware of the current risks and challenges in this track. The current issues mainly revolve around technology, user growth, and compliance.

Technical Challenges

Social products are generally at the application layer and their development depends on the maturity of infrastructure and technology. As user numbers grow, social products will face higher demands. The development of social applications relies on solving issues such as data storage, cross-chain information transmission, information transmission costs, network congestion, and other infrastructure challenges, which are currently not fully capable of accommodating the emergence of large-scale user social software at the level of Web2.

User Growth

In addition to anonymity and resistance to censorship, why would Web2 users be willing to switch to Web3 social applications? It is clear that not every user has extremely high privacy requirements, and many users can still meet their social needs on existing centralized social platforms. Excluding these users, how to attract more users, or if the target users are only focused on those with privacy needs? If considering using economic incentives to motivate users, how to design an economic model while avoiding falling into an economic closed loop or Ponzi economic dilemma? At the user level, Web3 social has gained good market heat and traffic, but the current heat remains within the crypto community. The question of whether to solve the problems of existing social products or create new functions and demands is a key issue for Web3 social products to increase user numbers.

Compliance

The selling points of Web3 social products, including decentralization, resistance to censorship, privacy protection, user data ownership, and the ability for users to realize data ownership benefits, may also become potential risk points. It is foreseeable that the characteristics of Web3 products are highly likely to attract participants from the black and gray industries, as well as draw the attention of regulatory agencies. As the Web3 track matures and the user base expands, issues such as developer security and potential inquiries from regulatory agencies need to be considered in advance.

Conclusion

The Web3 social track is in its early development stage and relies on the maturity of other infrastructure construction, including but not limited to cross-chain information transmission, data storage, reduced transaction costs, and compliance issues. Currently, social track products mainly include social graphs, social tools, and social applications, with social graphs being the most foundational and social applications being the most diverse in terms of categories. There are a large number of developers experimenting with Web3 social product development, and capital is gradually paying attention to and investing in this track. Events such as the launch of the Cyber token, Twitter's rebranding, and creator incentive programs all demonstrate the increasing market heat of the social track. While the track presents opportunities, it is important to fully recognize the challenges it currently faces, including incomplete infrastructure technology development, bottlenecks in new user growth, and potential compliance issues. Overall, this article believes that the Web3 social track shows promise in terms of development prospects, trends, and market heat. With the improvement of infrastructure, project development, capital aggregation, and token listings, this sector is believed to have good investment potential and development prospects.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。