Summary of key points:
SocialFi originally made a splash by combining decentralized finance with social media, allowing users to monetize content and control their data. However, the industry's initial boom was short-lived. Platforms need to work hard to maintain user engagement and provide innovative experiences that go beyond token speculation.
Platforms like Friend.tech highlight the plight of SocialFi, which relied heavily on incipient FOMO. It quickly lost users due to its failure to provide consistent updates, fresh content, or a unique user experience, resulting in a sharp decline in daily active users and user connections.
For SocialFi to recover and thrive, businesses must move beyond replicating traditional social media models on the blockchain. Achieving sustainable success requires partnerships that integrate innovative user experiences, drive real user engagement and deliver real value beyond speculative investments, and connect Web2 and Web3 platforms.
From hype to reality
For a while, SocialFi was hailed as the next “big thing” in blockchain, merging decentralized finance and social media to create a place where users can monetize content, control their own data, and actively participate in governance platform.
The concept, which combines blockchain with social experiences, promises to create a paradigm shift like those brought about by pioneering platforms like WeChat and TikTok. Just as platforms like ZEPETO and Roblox attract younger generations with immersive experiences in the digital world, SocialFi aims to revolutionize the way people interact, transact and create value online.
Despite SocialFi's potential, initial excitement about it has faded due to declining user engagement, waning interest, and an unsustainable project model. As a result, user activity and engagement have plummeted in once large-scale projects that promised to revolutionize social interaction.
It’s important to understand why this downturn occurred—not to identify bugs, but to summarize opportunities for SocialFi’s recovery. This report takes an in-depth look at the rise and fall of the major SocialFi platforms and their business life cycles, analyzing the trends and challenges that companies must consider as they move forward.
Lessons learned from cutting-edge SocialFi projects
Source: Tiger Research
Dissolution: Giving up control (Friend.tech)
Image source: @cryptokoryo Dune DashboardFriend.tech experienced a complete decline
Friend.tech launched with great fanfare, quickly attracting users through airdrops and version updates (V2). Users are excited about the platform’s unique model, which tokenizes interactions on social media. This creates an instant marketplace for users to trade social influence and engagement. Early adopters flocked to the platform, generating a lot of user activity and token speculation.
Source: @friendtech TwitterFriend.tech’s official announcement on Twitter
However, after the initial success, things suddenly changed for the Friend.tech team. Following the release of V2, the team relinquished control of the smart contract on September 8 and transferred control to an empty Ethereum address. This decision prevents any future updates or implementation of new features.
Although the platform is still running, the lack of new feature updates has caused the platform to lose its novelty and user engagement has declined rapidly. This product stagnation had a direct impact on user loyalty, as the lack of consistent updates caused many early adopters to abandon the platform.
Image source: Fees incurred by DefillamaFriend.tech dropped significantly
As the platform became stagnant, the FRIEND token lost utility and became just another meme coin in the SocialFi ecosystem. By September 2024, Friend.tech's revenue had dropped significantly, from more than $2 million in fees incurred on September 14, 2023, to $71 a year later. With no practical application, the value of the FRIEND token plummeted. This symbolizes the virtual end of Friend.tech’s influence in the market.
The downfall of Friend.tech illustrates the risks of premature decentralization when platform sustainability is not yet guaranteed. This is especially dangerous in emerging markets like SocialFi, where user interest can fade quickly. Businesses should balance decentralization and central control to avoid project stagnation. User retention requires constant innovation and updates to maintain their interest in the product, even if the product has left the decentralized mechanism.
Stagnant: The Decline of the SocialFi Platform (Lens Protocol)
Despite its promising initial prospects, SocialFi faces significant challenges in sustaining long-term growth. Like other short-lived booms in the blockchain industry, many SocialFi platforms floundered after the early hype wore off. Lens Protocol, making waves during the 2024 boom, is a prime example.
Image source: @filarm Dune Dashboard and Farcaster similar mode
Lens Protocol has experienced significant growth in registrations, fueled by FOMO in the market and early excitement about what it describes as decentralized social capabilities. The platform's growth seemed promising at first, with thousands of new users flocking to create accounts. However, once the novelty wears off, growth drops off dramatically. New registrations have plummeted to just 142 in recent months, a sharp contrast to early activity.
Source: NFT Price FloorLens Profile prices are also falling
Another clear indicator of the decline of Lens Protocol is the sharp drop in the price of Lens Profile. During the boom, a Lens Profile could cost over $200, reflecting high demand and high expectations for the platform. Today, the same asset is worth less than a dollar. This highlights the platform's sharp decline in user interest and perceived value.
The sharp decline in asset values shows that SocialFi platforms can quickly lose touch with their users if they fail to provide ongoing value to them. For SocialFi businesses to thrive, they must continue to engage users through meaningful content, community engagement, and practical applications.
While Lens Protocol’s early performance has excited the market, its sharp decline has also sounded alarm bells for companies in the industry. Without a clear long-term growth strategy, even the most promising platforms will fail.
Mature: But the growth rate is too fast and the content cannot keep up (Farcaster)
Farcaster and its app Warpcast attracted a lot of attention early on, with the project raising more than $150 million in funding in May 2024. Additionally, the initial FOMO also led to a surge in daily active users, and the platform seemed poised for success.
Image source: @filarm Dune Dashboard has gone from a daily peak of over 15,000 people in early February to less than 500 new users currently
Despite ongoing infrastructure updates and the potential for decentralization, the platform's inability to grow its user base is indicative of a broader problem with SocialFi - sustaining user interest after the initial hype. Farcaster's new user registrations plummeted, from more than 15,000 registrations in February to 545 in September.
Source: The Block However, Farcaster’s daily user numbers show a positive trend
Farcaster's loyal user base ultimately faced a shortage of content. While daily user numbers have remained relatively stable, user engagement has dropped 60% from its peak. The main reason is the lack of engaging content. As a social platform, Farcaster should strive to provide content that is compelling enough to maintain users' long-term interest.
The development of Farcaster also reveals a fact about blockchain-based platforms: content and service quality are far more important than decentralized functionality. A prerequisite for any successful social application is continuous content production and user interaction. Blockchain-based social networks must invest heavily in content creation and incentivize meaningful user contributions. In terms of business insights, they should prioritize creating a diverse and engaging ecosystem so that users have the urge to log in every day, rather than relying on airdrop speculation.
Transformation: New Business Models (Cyber)
Faced with declining user engagement and weakening connections, some SocialFi platforms are trying to pivot to new business models in hopes of regaining momentum. One notable example is CyberConnect. It recently changed its name to Cyber and shifted its focus to L2 solutions.
Source: Defillama
While the shift seemed strategic, it didn't reignite user interest as Cyber had hoped. The platform’s TVL has dropped significantly to just $35,000, well below its previous high. Despite attempts to shift focus and rebrand, Cyber's challenges demonstrate that simply adapting to new technology or trends is not enough to reignite long-term user engagement.
This reflects another important lesson for SocialFi businesses: moving to a new model or technology must be accompanied by an innovative, engaging user experience. Even a strategic shift like the Cyber rebrand will struggle to succeed without continued innovation.
What’s left for SocialFi’s future?
The rise and fall of platforms like Friend.tech exposed significant flaws in the SocialFi industry. While initial interest and market FOMO can drive early adoption, long-term success requires more than just speculative hype. Meaningful and engaging experiences are critical to maintaining user interest. Unfortunately, many projects fail to deliver on their promises, leading to disillusionment and a sharp decline in user engagement.
The SocialFi project faces several core challenges that hinder its growth. These challenges include a lack of ongoing user engagement, over-reliance on decentralization, and gaps in content and innovation. In addition, other problems in product services have further exacerbated these challenges:
Wallets are inconvenient to use: Wallet usage introduces too many extra steps, adds complexity to the service, and is often accompanied by unkind terminology. This makes the user experience less seamless and creates friction for new users unfamiliar with decentralized systems.
Lack of differentiated competition: Many decentralized social media platforms are very similar to their Web2 counterparts, with little differentiation. Without compelling advantages, they are often viewed as mere "inconvenient substitutes," limiting their ability to attract active users. Similar to how TikTok revolutionized social media through short-form content and virality, decentralized platforms must find a strong competitive advantage to stand out.
Lack of native KOLs: Much of the success of platforms like TikTok and Instagram can be attributed to the rise of native influencers. Influencers like the D'Amelio sisters have built their own followings on TikTok, attracting new users and increasing engagement. The emergence of such KOLs is crucial to driving the growth of new platforms. However, decentralized social media platforms have yet to cultivate native KOLs, hampering their potential for organic growth.
One key takeaway from SocialFi’s woes: replicating the Web2 model on blockchain technology isn’t enough. To succeed in this industry, you need to provide users with truly novel experiences and tangible value. Only innovative and adaptable platforms will thrive in the long term.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reproduced with permission from: (Shenchao TechFlow)
Original author: Golem, Odaily Planet Daily
