Original author: Mason Nystrom
Original translation: TechFlow
As the use of crypto social platforms and financial games increases, the way they are built is also evolving. We can expect to see more projects moving towards verticalization in the future, aiming to provide users with a more seamless and comprehensive experience, thereby giving rise to new consumer behaviors and attention-based assets or social assets. While not all web3 social experiences are financial, the blockchain infrastructure that supports these crypto consumer applications can integrate new token-incentivized behaviors and digital native assets into social experiences.
The existing SocialFi stack consists of four core layers:
Discovery layer - users discover items they want to buy
Execution layer - buying and selling of assets
Liquidity Layer - Where assets are stored and pooled
Asset issuance layer - the stage of asset creation
Currently, the stack is still relatively fragmented, with user discovery and social experience being disconnected from execution (such as trading), liquidity, and asset issuance. But as the SocialFi space expands, various applications will continue to work on verticalized attention and markets to better control users' social experience and the liquidity of attention assets.
SocialFi app developers need to own multiple layers of the SocialFi stack to build defensibility into the protocol. Attention asset trading (i.e. execution) and issuance are the commoditized layers of the stack - token issuance is getting easier and execution can be added anywhere attention is owned. Owning the discovery or liquidity layers will become increasingly important as these are defensible layers with strong network effects.
In SocialFi, most apps choose between two verticalization approaches:
Transaction-first approach: First build a trading platform or marketplace where users can trade attention assets (such as memes), and then evolve into a social/discovery platform.
Social/discovery first approach: Build the social platform first, then gradually add financial elements. Make consumers/attention merchants the key stakeholders of the platform.
Transaction priority
Any social network or discovery platform faces enormous challenges in today’s competitive attention market: onboarding new social connections, inspiring new consumer behaviors, and keeping users engaged. Given these obstacles, a transaction-first approach is often easier to launch because users’ appetite for speculation helps overcome these challenges. However, this approach faces more competition because transaction platforms are easier to launch than social networks, and social networks retain many of their advantages once they reach a certain user density.
From a transaction-first approach, the deep verticalization of the SocialFi stack has proven effective as these apps have built-in attention trading capabilities. For example, Friendtech has become one of the most vertically integrated SocialFi apps, able to control the entire stack. Not only is the app a hub for user discovery and exclusive transactions, it also leverages a native financial fundamental called a “bonding curve” to issue assets with specific functionality for the Friendtech app.
Some of the newer SocialFi protocols have also achieved vertical integration of the stack. For example, meme issuance and discovery platforms like Pump and Ape Store allow users to easily deploy memes on bonding curves. This allows users to purchase tokens directly from the bonding curve without having to wait for someone to inject liquidity into a decentralized exchange or liquidity pool. While some Pump-initialized meme trading and discovery can be conducted on other platforms such as Dexscreener and Twitter, Pump still provides a unique social discovery and trading platform for its newly released tokens.
Social First
Historically, the social-first SocialFi approach has been successful through social platforms like Twitter, Farcaster, and Telegram, and market endpoints like Dexscreener and Coingecko. Many of these applications have attempted to move downstream in the stack, offering token trading capabilities, but have not yet fully focused on providing a customized, proprietary trading experience.
Telegram is an exception, having successfully integrated social and financial experiences. Still, Telegram’s user experience is limited, and while some deep crypto users have chosen it for its convenience, there is a demand in the market for a more Robinhood-like experience that offers a seamless trading interface, an easy sign-up process, and retail-friendly features like commission-free trading. Additionally, new primitives like the Farcaster frame and lens-opening actions further facilitate new types of financial transactions in these social-first networks.
Final Thoughts: Stay Assertive
Builders can create compelling social finance games and networks with a unique approach to understanding how monetization and financialization of applications affect them. A transaction-first approach is easier because it does not necessarily require creating new consumer behaviors, people already want to trade attention. However, a social-first approach has historically been used because it controls the user's attention rather than just the transaction itself. The main goal of a social-first approach is to iterate quickly, testing new consumer behaviors and social finance dynamics until users demonstrate their preferences, which have the potential to grow into large social networks. I believe that the most successful applications will be those that have a strong position and vertically integrated design that creates liquid markets for new types of assets or otherwise inspires new consumer behaviors.
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