Original title: Now Back to Reality: SocialFi's Turbulent Journey
Original source: Tiger Research Reports
Original translation: Golem, Odaily Planet Daily
Key points summary:
· SocialFi initially 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 such as Friend.tech highlight the plight of SocialFi, which relies heavily on initial FOMO. Due to its failure to provide continuous updates, fresh content or a unique user experience, its users quickly declined, resulting in a sharp drop in daily active users and connections with users.
· For SocialFi to recover and thrive, the business must go beyond replicating the model of traditional social media on the blockchain. Achieving sustainable success requires integrating innovative user experiences, driving real user engagement and delivering real value beyond speculative investments, and partnerships that bridge Web2 and Web3 platforms.
From Hype to Reality
For a while, SocialFi was hailed as the next “big thing” in blockchain, fusing decentralized finance and social media to create a platform where users can monetize content, control their own data, and actively participate in governance.
The concept, combining blockchain with social experiences, promises to deliver a paradigm shift, much like that brought about by groundbreaking platforms like WeChat and TikTok. Just as platforms like ZEPETO and Roblox have captivated younger generations with immersive digital world experiences, SocialFi aims to revolutionize the way people interact, transact, and create value online.
Despite SocialFi's huge potential, the initial excitement about it has faded due to declining user engagement, fading interest, and an unsustainable project model. As a result, user activity and engagement for once-mega projects that promised to revolutionize social interaction have also fallen sharply.
It’s important to understand why this decline occurred — not to find fault, but to summarize and identify opportunities for SocialFi’s recovery. This report delves into the rise and fall of major SocialFi platforms and their business lifecycles, analyzing the trends and challenges companies must consider as they move forward.
Lessons Learned from Cutting-Edge SocialFi Projects
Source: Tiger Research
Dissolution: Relinquishing Control (Friend.tech)
Friend.tech Experiences Complete Decline | Source: @cryptokoryo Dune Dashboard
Friend.tech launched with great fanfare, quickly gaining users via an airdrop and version update (V2). Users were excited about the platform’s unique model, which tokenized interactions on social media. This created an instant market for users to trade social influence and engagement. Early adopters flocked to the platform, generating a large amount of user activity and token speculation.
Friend.tech’s official announcement on Twitter | Source: @friendtech Twitter
However, after initial success, things suddenly changed for the Friend.tech team. After the release of V2, the team gave up control of the smart contract on September 8 and transferred control to an empty Ethereum address. This decision prevented any future updates or implementation of new features.
While the platform is still running, the lack of new feature updates caused the platform to lose its novelty and user engagement to decline rapidly. This product stagnation directly affected user loyalty, as the lack of continuous updates caused many early users to abandon the platform.
Friend.tech’s fees have dropped significantly | Source: Deflama
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 revenues had dropped significantly, from over $2 million in fees generated on September 14, 2023, to $71 a year later. With no real use case, the value of the FRIEND token plummeted. This marked the de facto end of Friend.tech’s influence in the market.
Friend.tech’s decline shows the risks of premature decentralization when platform sustainability is not yet guaranteed. This is particularly dangerous in emerging markets like SocialFi, where user interest can fade quickly. Companies should balance decentralization and central control to avoid project stagnation. User retention requires constant innovation and updates to keep them interested in a product, even if it has moved away from a decentralized mechanism.
Stagnation: The Decline of the SocialFi Platform (Lens Protocol)
Despite initial promise, SocialFi faces significant challenges in maintaining long-term growth. Like other short-lived booms in the blockchain space, many SocialFi platforms have struggled once the early hype has faded. Lens Protocol, which made waves during the 2024 boom, is a prime example.
Similar pattern to Farcaster | Source: @filarm Dune Dashboard
Lens Protocol experienced a massive surge in sign-ups, fueled by market FOMO and early excitement about the decentralized social capabilities it described. Initially the platform’s growth seemed promising, with thousands of new users flocking to create accounts. However, once the novelty wore off, growth dropped dramatically. In recent months, new registrations have plummeted to just 142, in stark contrast to the early activity.
Lens Profile prices are also falling Source | NFT Price Floor
Another clear indicator of Lens Protocol's decline is the sharp drop in Lens Profile prices. In the boom years, a Lens Profile could cost more than $200, reflecting high demand and 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 drop in asset value shows that SocialFi platforms can quickly lose relevance to users if they fail to provide them with ongoing value. For SocialFi businesses to thrive, they must continue to attract users through meaningful content, community interaction, and real-world applications.
While the early performance of Lens Protocol excited the market, its sharp decline is a wake-up call for businesses in the space. Without a clear long-term growth strategy, even the most promising platforms will fail.
Maturity: But Growth Too Fast for Content (Farcaster)
Farcaster and its app Warpcast attracted a lot of attention in the early days, with the project raising over $150 million in funding in May 2024. Additionally, the initial FOMO led to a surge in daily active users, and the platform seemed poised for success.
From a daily peak of over 15,000 in early February to less than 500 new users currently | Source: @filarm Dune Dashboard
The platform’s inability to grow its user base despite infrastructure updates and the potential for decentralization points to a wider problem for SocialFi — sustaining user interest after the initial hype. Farcaster new user signups plummeted, from over 15,000 signups in February to just 545 in September.
However, Farcaster daily user numbers show a positive trend | Source: The Block
Farcaster’s loyal user base is finally running out of content. Although the number of daily users remained relatively stable, user engagement fell 60% from its peak. The main reason is the lack of engaging content. As a social platform, Farcaster should strive to provide enough compelling content 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 functions. 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 that gives users the urge to log in every day, rather than relying on airdrop speculation.
Transformation: New Business Model (Cyber)
Faced with declining user engagement and weakening connections, some SocialFi platforms have attempted 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: Deflama
While the shift seemed strategic, it did not rekindle user interest as Cyber had hoped. The platform’s TVL dropped significantly to just $35,000, well below its previous highs. (Note from Odaily Planet Daily: According to the latest data from L2 Beat, Cyber’s TVL is $23.27 million.) Despite attempts to shift focus and rebrand, the challenges faced by Cyber show that simply adapting to new technologies or trends is not enough to reignite long-term user engagement.
This reflects another important lesson for the SocialFi enterprise: pivoting to a new model or technology must be accompanied by an innovative, engaging user experience. Without sustained innovation, even a strategic shift like the Cyber rebrand will struggle to succeed.
What’s left for the future of SocialFi?
The rise and fall of platforms like Friend.tech exposed significant flaws in the SocialFi space. While initial interest and market FOMO can drive early adoption, long-term success requires more than speculative hype. Meaningful, engaging experiences are critical to sustaining user interest. Unfortunately, many projects have failed to deliver on their promises, leading to disillusionment and a sharp drop in user engagement.
The SocialFi project faces several core challenges that are holding it back. These challenges include a lack of sustained user engagement, an over-reliance on decentralization, and gaps in content and innovation. In addition, other problems in product services further exacerbate these challenges:
· Inconvenient wallet use: Wallet use introduces too many extra steps, increases service complexity, and is often accompanied by unfriendly terminology. This makes the user experience less seamless and creates friction for new users who are 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 seen as merely "inconvenient alternatives," limiting their ability to attract active users. Similar to how TikTok revolutionized social media through short content and virality, decentralized platforms must find strong competitive advantages to stand out.
· Lack of native KOLs: The success of platforms like TikTok and Instagram can be largely attributed to the rise of native influencers. Influencers like the D'Amelio sisters have built their own fan bases on TikTok, attracting new users and increasing engagement. The emergence of such KOLs is critical to driving the growth of new platforms. However, decentralized social media platforms have yet to cultivate native KOLs, which hinders their potential for organic growth.
A key conclusion can be drawn from SocialFi's predicament: replicating the Web2 model on blockchain technology is not enough. To succeed in this space, users need to be provided with truly novel experiences and tangible value. Only innovative and adaptable platforms will thrive in the long term.
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