Author: Wendy, IOSG Ventures

Friend.tech is a decentralized social application based on the Base chain, which combines fan economy and on-chain gaming. Users enter specific rooms to view content by purchasing the token "KEY," and an increase in the number of user purchases will drive up the price of KEY. The platform and room owners evenly distribute the average transaction fees collected during the buying and selling process.

On August 11th, Friend.tech announced its official launch on Twitter, shortly after which it announced that it had secured seed funding from Paradigm. Despite the bleak market conditions, it captured a large amount of traffic. As of now, Friend.tech has accumulated over 11 million transactions and has over 500,000 user addresses. The design of its mechanism has also enabled the project team to generate over 21 million USD in revenue in just two months.

With the explosive popularity of Friend.tech, the team's short-term high returns, and the remarkable results it has brought to Base TVL, similar products on L2 and other public chains have emerged like mushrooms after rain.

From the perspective of user data and revenue, Friend.tech is currently leading the pack. However, the user experience is often criticized, with issues such as slow loading, lag, and delayed data updates significantly affecting user experience. In other similar products on different chains, we can also see some improvements and reflections. For example, the TVL of TOMO and New Bitcoin City has exceeded one million USD, even though they were launched later than Friend.tech. This demonstrates their own reflections and improvements, resulting in a loyal following.

So, how did Friend.tech become a phenomenon from design to operation? This article discusses and summarizes the characteristics of Friend.tech and several other similar projects on multiple dimensions such as product design, operational methods, and pricing models, in line with the product lifecycle and development process, attempting to reveal its underlying logic at the core level.

Inception: Relationship Migration and Simplified Design

After logging into Friend.tech using Apple ID or email, users are prompted to connect their Twitter accounts. This is crucial for establishing early relationships in social applications. Building new social relationships from scratch is extremely difficult, and the migration cost for users is high. Similar practices can be observed when Meta launched Threads, a new social product benchmarked against Twitter, with a design that connects with the relatively mature social application Instagram. Users can register and use Threads through their Instagram accounts, reducing the resistance to user acquisition.

In the early stages, Friend.tech used invitation codes to create a sense of scarcity and market attention. Initially, individual users received less than ten invitation codes, and as the number of invitation codes gradually increased, a large number of users entered the platform. Twitter was the main platform for the spread of invitation codes, once again proving the importance of Web2 platforms in the early stages of sociafi product launches.

In addition to the migration of social relationships, Friend.tech also has some innovative designs to lower the user usage threshold. On the second day of the product launch, the app embedded the official Base bridge page, allowing users to connect to wallets such as Metamask within the app and make direct transfers from the Ethereum mainnet. This greatly reduces the user entry threshold and the complexity of transfer transactions. In contrast, for another Web3 social protocol, Farcaster, users need to pay a 12-year fee through fiat currency channel USD when registering and logging in, which undoubtedly hinders the entry of some new users.

Friend.tech adopts the implementation form of PWA (Progressive Web App), allowing users to open the webpage in a browser and save it to the desktop without the need for downloading and installation. This is relatively simpler and faster compared to the development of a complete app program, and to a certain extent, it also avoids the obstacles that may arise from distribution through the App Store in terms of regulation and listing. In terms of wallets, FriendTech collaborates with Privy and adopts an MPC wallet, ensuring that the team does not have access to user private keys, and users do not need to sign transactions each time.

Development: Speculation-Driven Social Financialization

After users settle in Friend.tech and activate their accounts by transferring at least 0.001E, they can purchase their first key at a price of 0. Later buyers' key prices are determined by the formula: (S^2) /16000, where S is the total number of keys. The design of the price curve ensures that each entrant will drive up the price, and the magnitude of the increase by later entrants will be even higher. Since the purchase quantity is an integer, the actual price curve is discrete rather than continuous, resulting in higher actual purchase prices and lower selling prices. The choice of 16000 is made by the team considering the number of potential market participants and liquidity. Over 95% of room populations are less than 50 people, with prices below 0.156ETH, making it relatively easy to participate.

On August 15th, the official announcement of the distribution of one billion points over the next six months led to an increase in user participation and a surge in TVL due to the expected token airdrop incentives. This propelled it to become the application with the highest TVL on the Base chain. However, the uncertainty and lack of transparency in the rules and weights of point distribution also sparked discussions among users on social platforms. The platform guides user behavior through the expected point airdrop, with the amount held being the most significant indicator of weight. The recognized indicators that affect points include:

• Total amount held
• Trading frequency
• Number of keys held
• Activity level
• Number of followers
• Self-holding ratio of keys

In terms of the trading mechanism design, the platform charges a 10% transaction fee for each buy/sell, with half (5% of the total) allocated to the Friend.tech team and the other half (5%) given to the room owner as operational incentives. The fee sharing mechanism allows the platform and top blue-chip KOLs to profit more. For example, Racer, a developer of the highly acclaimed Friend.tech, has already earned over $440,000 in transaction fee sharing in just two months.

However, as the number of users increased and the project's popularity rose, various phishing and rug events occurred from time to time. On September 30th, froggie.eth tweeted that they had been targeted in a SIM card hack, resulting in the loss of over 20 ETH in their FT account. As of October 5th, a total of 234 ETH was stolen from 4 FT users, with hackers using similar methods to infiltrate FT accounts through SIM card attacks and sell all the Keys in the accounts. Even with the addition of 2FA, hackers used account theft malicious code, a JavaScript script, and tricked target users into adding it as a bookmark. When users executed the bookmark on the FT page, the malicious code tricked them into stealing their 2FA verification and tokens related to Friend.tech and the embedded wallet Privy. This means that users' FT addresses and related funds were stolen. Similar products on the AVAX chain also experienced hacker attacks, with vulnerabilities in their smart contracts leading to the theft of all TVL. The hackers later agreed to return the stolen 2.9 million USD worth of AVAX tokens (approximately 90% of the total amount).

Improvement: Positive Externalities and Value Creation

Enhancement of Trading Facilities

As the demand for trading data and behavior increases around Friend.tech, an ecosystem is gradually forming. Developers have created various tools, such as the data dashboard FriendMEX provided by Paradigm engineers, which visualizes KOL token prices and monitors new users and transactions. Parsec and Arkham have developed dedicated data dashboards for FT, as well as automated bots for sniping. Unibot launched the FriendTech Snipers bot, supporting two modes: User Snipe, which allows users to set a list of usernames and snipe when they create new keys, and Auto Snipe, which automatically snipes new keys created by users who meet the minimum follower and fan count requirements, without charging transaction fees. The emergence of FT funds in ETF form has enriched the entire ecosystem. For example, Herro raised 120 ETH as an initial fund to purchase top blue-chip keys, integrate room content information, and promise future airdrop sharing for fund holders. This operation allows for obtaining the increase in top keys with a relatively small capital cost, sharing future expected airdrop returns, and to some extent, reducing volatility and risk.

Improvement of Product Features and User Experience

Tomo, a socialfi similar to Friend.tech on Linea, takes an app development route instead of PWA, resulting in a smoother experience. There are some differences in product design, with the chat area divided into private and group chats. Holding a person's key allows users to initiate one-on-one private chats with KOLs, while all information in the group chat channel is publicly visible. The price curve for Keys is also much smoother, with a relatively slow price increase. The most significant difference in price design compared to FriendTech is that before KOLs join the platform, their votes can be bought and sold. Half of the 10% transaction tax will be given to KOLs, who can claim it upon logging in, serving as an incentive for KOLs attempting to join. The other half goes to the protocol, significantly increasing protocol revenue. Once KOLs join, votes are renamed as keys, and the feeds stream can view popular votes and keys. If a KOL does not join within six months, their tax revenue will be distributed to holders. This mechanism indirectly encourages front-running and makes it difficult for room owners to control prices, potentially leading to a lack of motivation for management and recharging. In terms of wallet security, TOMO uses the AA wallet and also integrates the official Linea bridge, receiving support from the Linea project team, which not only helps with promotion on Twitter but also joins TOMO's platform.

New Bitcoin City is positioned as the Friend.tech on Bitcoin, also using PWA development and supporting BTC, ETH, and AVAX payments. It migrates holdings and social relationships from Friend.tech and Star Arena, making holdings on the other two platforms still valid and aggregated when logging into New Bitcoin City. Compared to Friend.Tech, it offers richer functionality, with group chats supporting voice/red envelope/GIF/image uploads, as well as the ability to post messages and content rewards in the public square, similar to Twitter dynamics. The group chat also includes five simple mini-games. To address the trust issues brought by the (3,3) gameplay in Friend.tech, NBC has made agreements at the contract level to enforce a 30-day lock on (3,3) behavior. Room owners can define the minimum entry threshold, fragment keys, and customize key transaction fees. Currently, the default is 8% for the room owner and 2% for the platform. NBC also supports one-click bulk key purchase or sending (3/3) requests to multiple people, similar to Blur's sweeping function. In addition to traditional invitation codes, it has also added a commission rebate design commonly used by exchanges. However, the overall design is overly complex, and as part of a team's multiple product lines, NBC's ongoing development and operation still need to be verified.

Other public chains and L2 have also made similar attempts, such as Friend3 (@Friend3AI), a socialfi game on the BNB chain that has been open-sourced and audited by PeckShield. As of September 18th, it has achieved over 12k+ MAU and over 20,000 transactions. Cipher on Arbitrum has a total user base of over fifty thousand, with over 270,000 transactions and a total amount of approximately 2500 ETH. In reality, due to the network effects and stickiness of social products, a successful product is difficult to completely replicate. If a product does not have innovative design in user experience or reward mechanisms, most similar products are just a flash in the pan.

Conclusion and Outlook

Short-Term Traffic and Long-Term Value

Since the first day of its launch, there has been ongoing discussion about whether Friend.tech is a Ponzi scheme. Critics believe that the unsustainable price curve of Friend.tech in the short term is driven by speculation or token incentives, and the long-term user stickiness of Friend.tech, given its active trading in the short term, is a question worth considering. However, it cannot be denied that from a purely financial speculation perspective, a square price curve is indeed unlikely to have a long lifecycle. In reality, user behavior within Friend.tech is not solely speculative. Many room owners have empowered keys in various ways, such as sharing alpha information, creating tools, organizing online-to-offline events, and airdropping gifts, effectively realizing the role of knowledge payment and fan economy products. Some activities are also conducted based on the connections built within Friend.tech. For example, Knowledge Planet, a similar platform, generates annual revenue in the billions solely through a similar model and a 20% transaction fee. In a similar scenario, Friend.tech has indeed effectively fulfilled the role of social interaction and provided tangible value beyond price fluctuations, demonstrating clear positive externalities.

Similar to the NFT summer sparked by NFTs in 2021, NBA star player Stephen Curry of the Golden State Warriors and top singer Justin Bieber spent a fortune to buy BAYC avatars, and companies like Li-Ning also participated in the NFT craze, breaking barriers and attracting new users. According to a report by iResearch Consulting on the business model and trends of China's influencer economy, the associated market scale of the fan economy exceeded 4.1 trillion yuan in 2020 and is expected to exceed 6 trillion yuan by 2023. Under the product design of Friend.tech, the fan economy may become a driving factor for its expansion to a larger user base. Currently, with half a million users, Friend.tech has achieved $20 million in protocol revenue and $40 million in TVL. With the development of AA wallets, MPC wallets, and other technologies, the user threshold for Web3 social applications is further reduced, and the huge market of the fan economy will unfold for Friend.tech and similar product models.

Balancing Social and Financial Attributes

Products like Friend.tech have brought new imagination and expectations to the SocialFi product industry. Compared to social protocols like lens and CyberConnect, Friend.tech has a stronger sense of participation and fun. Its price mechanism and on-chain transactions create a fair and open gaming environment, while the incentive mechanism can promptly guide and adjust user behavior, encouraging broader liquidity and value exchange. Undoubtedly, its stronger financial attributes are a significant reason for its massive traffic. User speculation and profit-seeking behavior serve as a huge driver. Beyond speculation, its knowledge payment (transaction fee sharing) design motivates room owners to operate, leading to the creation of high-quality content and social relationships, which in turn contribute to user retention and token price appreciation.

On the other hand, the chat content in its rooms is not on-chain, indicating that a good SocialFi product does not need to blindly pursue full data on-chain. Balancing data sovereignty and a good user experience is a common consideration at the application layer.

New Opportunities for Web3 Application Layer

In 2016, Joel Monegro published an article titled "Fat Protocols," which proposed a different value capture model for blockchain and the internet. In the internet era, most of the value was captured at the application layer, such as Google, Facebook, Alibaba, and Tencent, while the underlying protocols like TCP/IP and HTTP could not capture value. In contrast, blockchain concentrates value in shared protocols, with only a small portion distributed at the application layer, leading to the concept of "fat" protocols and "thin" applications. This logic was widely recognized in the previous cycle, but as the infrastructure such as public chains becomes more mature, the relationship between protocols and applications is not necessarily "fat" and "thin" but rather "before" and "after." A solid infrastructure needs to find suitable application scenarios to leverage its technical advantages and capabilities. Therefore, how to build Web3 applications and attract users has become a focus for various public chains.

With the explosive growth of Friend.tech, the team's short-term high returns, and its remarkable results in bringing Base TVL, similar products on L2 and other public chains have emerged one after another. The maturity and development of major L2 solutions, along with their technological advantages and narratives, are well-known in the market. In this context, the introduction of applications and users has become a concern for major L2 public chains. Therefore, with the premise of security assurance through certain audits, many L2 official platforms have expressed their welcome and support for application projects on their social media platforms. For example, the Linea team officially joined TOMO and promoted it on social media, and the founder of AVAX personally supported the FriendTech-type project Stars Arena, even providing crisis public relations support after Stars Arena was hacked and all assets were stolen. This demonstrates the infrastructure project's desire for the emergence of explosive applications in its ecosystem.

The emergence of Friend.tech also prompts us to continuously consider what makes a good Web3 application: user-friendliness (low entry barriers), strong entertainment value, and better UI/UX; the continuous iteration of the team and the choice of infrastructure are crucial for long-term development; Web3 application entrepreneurs should consider how to lead from being the first to adopt a new paradigm to continuous industry innovation, capturing the value of the protocol and achieving the cold start of the first generation of Web3 social products, leading to a longer lifecycle. We support, encourage, and are pleased to see more attempts and innovations at the application layer. Although many products still have some issues, continuous reflection and exploration will guide us closer to the correct form of Web3 applications, ultimately achieving the goal of mass adoption and broader impact and success.

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