Social finance emerged, but quickly fell.

Author: Tim Copeland, THE BLOCK

Translation: Elvin, Chaincatcher

Abstract:

• Decentralized encrypted social media applications have made positive progress this year, focusing on scalability and opening up to more users
• The attention on social finance platforms has increased significantly, but failed to retain users

This year marks a significant step forward for a new wave of encrypted social media applications, with some applications opening up access and others gaining considerable traction.

These applications can be roughly divided into two categories, with some overlap. The first is the so-called "decentralized social," including social media applications running on decentralized networks, aiming to give users more control over the applications and avoid being controlled by a centralized entity.

The second category is called "social finance," where applications embed cryptographic functions in a very direct way, bringing monetization to the core of the application. FriendTech leads the development of such applications.

Decentralized social app opens up

As decentralized social applications rely on complex infrastructure still under development, these applications often have restrictions on new users. However, as these platforms become more confident, they are beginning to open their doors to a wider audience.

For example, Ethereum co-founder Vitalik Buterin spends most of his time on the decentralized social media app Farcaster, which became completely permissionless in October, meaning anyone can use the platform.

"This year, decentralized social has moved from the alpha stage to the beta stage. Both Lens and Farcaster will enter a more open and ready-to-expand stage, making 2024 the year to understand the actual needs of users, as we will get rid of whitelists and strict quotas," said Joonatan Lintala, CEO of Phaver, a social media platform based on Lens.

"In a sense, it's bad that it took so long to get there, but the bear market is for hibernating, so the timing should actually be good. Now it's up to Phaver and other user-layer applications to figure out how to put these charts to good use and truly add value for users, including those outside the crypto bubble," he added.

Although Lens has not fully opened its doors, it has made significant progress this year. In April, it launched Momoka, allowing it to move a large amount of data storage off the Polygon blockchain it operates on. This move is aimed at enhancing its scalability. In July, it released the second version of the protocol, providing broader functionality.

Despite these improvements, Lens still lags behind Farcaster in adoption, partly because Farcaster's doors are wide open. According to a November research report by The Block Pro, Lens has 126,000 profiles, while Farcaster has 196,000 registered IDs.

Farcaster's daily user count has been rapidly increasing. Image: Block Pro/Dune Analytics.

"Farcaster is known for attracting users seeking quality discourse and a community-oriented environment. In contrast, although Lens provides rich features for creators, its current engagement is relatively low," noted The Block Pro researcher Brad Kay.

Social finance emerged, but quickly fell

While decentralized social platforms are slowly expanding, social finance platforms have emerged and developed rapidly.

FriendTech is an original application that integrates financial engineering. It provides a space where users can purchase keys to access closed group chats of influencers. The price of the keys is on a bonding curve, meaning the more keys purchased, the more expensive they become. So what about the kicker? Each transaction incurs a 10% fee, shared by the platform creator and the influencers.

This financial incentive model has sparked much speculation. According to a dashboard created by a data analyst named Crypto Koryo, since its launch in August, 843,000 users have spent a total of 12 million ETH in 12 million transactions. According to DefiLlama, this has generated $59 million in fees, with half distributed among its user base. Despite a decrease in activity over the past few months, the platform's smart contracts still lock up $35 million in value.

"The massive growth we saw in September was amazing. Similarly, without new retail and a bear market, FriendTech was able to generate more revenue in a short time than the largest DeFi protocols like Uniswap, Lido, and even the Ethereum chain itself," pointed out Crypto Koryo.

The activity is driven by two main themes. First, users want to make quick money by buying keys and selling them at higher prices. The bonding curve mechanism means prices can quickly become expensive, offering potential high returns, but also the risk of losses due to bad trades and high fees. A user named Vombatus accumulated their own keys and eventually dumped them all at once to users who also bought their keys, earning nearly $2 million.

The second assumption is that the platform will airdrop at some point based on activity. This concept is supported by the platform's point system, which awards points to users based on their activity, with many users speculating that this will be used to determine eligibility for potential airdrops. So far, this has not happened.

"Once FriendTech becomes 'mainstream,' it's interesting to observe the behavior of different groups. After most 'crypto Twitter' joined, we started to see non-native crypto groups join, such as OnlyFans members, musicians (including Pussy Riot), sports stars, and even Web2 media companies," added Crypto Koryo. "This is because monetization is an issue for content creators in both Web2 and Web3."

Following the success of FriendTech, other platforms have emerged, offering similar products. Stars Arena, based on Avalanche, is one of the most popular games, but it has struggled to regain momentum after encountering a $2.9 million bug and internal team disagreements. Other applications (such as New Bitcoin City based on Bitcoin Layer 2 NOS) offer more features than FriendTech, but none have been able to attract a similar user base. The daily transaction volume of these applications is much lower now, while FriendTech still maintains its lead.

StarsArena's daily transaction volume at its peak was higher than FriendTech's, but this situation did not last long. Image: Dune Analytics/Crypto Koryo.

Looking ahead

While introducing decentralization and cryptocurrency into social media has been challenging from both a technical and creating sustainable financial mechanisms standpoint, it seems that such an approach does have potential audiences.

Saurabh Deshpande, a researcher at Decentralized.co, pointed out on Twitter: "Blockchain as a payment rail means Web3 social networks can reward global users without platforms exploiting user data or serving ads."

Deshpande added that the core concept of compensating users for the content they post on social networks does have value.

He noted: "We haven't reached this goal yet, but we will gradually achieve it by leveraging features such as ownership, composability, permissionless access, and governance."

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