Summary
SocialFi combines the principles of decentralized finance (DeFi) with social media. It empowers content creators by giving them control over their data and allowing them to interact directly with their users.
Core features include tokenized social capital, blockchain-based data storage, and governance through decentralized autonomous organizations (DAOs).
In order to achieve mass adoption, SocialFi platforms must overcome two major challenges: scalability and economic sustainability.
SocialFi's global promise delivers a more transparent, equitable and user-centric digital social media landscape.
Web3 and social networks
At its core, Web3 aims to return ownership and sovereignty of data to users and remove it from the power of centralized corporations. This ideological shift has already affected sectors such as cross-border payments and finance. However, the move from Web2 to Web3 could be a game-changer in the social media space. Imagine a social media platform where users:
Have greater control over your data with a central organization acting as a mediator.
They can save commissions by not needing an intermediary to process transactions.
These ideas are the core of SocialFi: the "Web3 version" of a social networking platform.
What is SocialFi?
SocialFi is a compound word formed by the English terms "social networks" and "finance" (social media and finance). The basic principle is to allow users to interact with each other on a social media platform where the interactions are monetized. Think about the way Patreon works. As a content creator, you can restrict access to your content to paying users. SocialFi users work under the same principles, except for one important difference: content creators can interact directly with their users without going through a centralized intermediary. These are some elements that characterize a SocialFi platform:
Digital ownership of exclusive content is determined by NFTs.
Decentralized autonomous organizations (DAOs) are responsible for the governance of the protocol.
SocialFi versus DeSoc
SocialFi and decentralized social networks (DeSoc) certainly share many commonalities, but they differ on one key point. SocialFi focuses on monetizing social interactions, much like the difference between Patreon and Instagram. Although both platforms host content and engage the public, the main intention behind each is different: one prioritizes monetary transactions and the other social connections.
Why is SocialFi needed?
Social media has profoundly changed the way we communicate, share, and monetize our interactions. However, current Web2 platforms do not achieve real empowerment of individuals. They centralize control, dilute individual brand value, and raise questions about censorship, privacy, and data monetization.
SocialFi is deeply rooted in Web3's core values ââand principles. It redefines online social interactions by introducing social tokens linked to individual brand value. Users are no longer passive participants in a platform's revenue model. Instead, they can tangibly monetize their influence, shares, and content. This tokenization shifts the balance of power and places control and value in the hands of individual contributors rather than centralized entities. âSocial capitalâ is no longer an abstract metric. With social tokens, your social capital can now be calculated and you can work with it.
In a decentralized digital age, SocialFi bridges the gap between personal branding, content creation, and commerce. It promises a more equitable, transparent and socially empowering ecosystem, where individuals are recognized, rewarded and have agency in their online presence and interactions.
Beyond monetization, SocialFi addresses the current tension between freedom of expression and censorship. By promoting decentralized content curation, the moderation of this content becomes a collective responsibility that democratizes the process and reduces the potential biases of centralized systems.
Trending SocialFi projects
Let's look at some of the most popular SocialFi projects.
Friend.tech (BASE)
Friend.tech is a novel decentralized application developed at Base that allows creators to capitalize on their content through social tokens. Its unique system of "Keys", a symbolic representation of participation, offers exclusive access to private chats and other benefits unique to each creator.
As Friend.tech evolves, it promises to revolutionize interactions between the creator and their community, although due diligence is essential given its nascent stage. Based purely on the level of buzz it has generated, Friend.tech can be considered the biggest SocialFi project today.
Stars Arena (Avalanche)
Stars Arena, a Web3 platform on the Avalanche network, allows users to monetize their content by linking their X (formerly Twitter) accounts and trading through AVAX. Being a fork of Friend.tech, Stars Arena also allows influencers to monetize their fan base by offering exclusive content.
Despite its growing popularity, Stars Arena is not without its challenges. The exploit of a vulnerability earlier this week resulted in a loss of $2,000, although the issue appears to have now been resolved.
What are the benefits of SocialFi?
These are some of the advantages of SocialFi.
Decentralized storage: All SocialFi data is stored on the blockchain. This ensures that your data is not misused by a centralized entity, significantly reducing the risks associated with personal data leaks and potential misuse.
Token Rewards: Both content creators and regular users can earn token rewards for sharing and engaging content.
Tokenized attention: Users are incentivized to produce high-quality content that generates attention and interactions.
Content ownership: Users retain rights to their content, which addresses concerns about losing rights to materials uploaded to the platform.
Protection against deplatforming: Because governance is handled by a DAO, concerns about unforeseen deplatformization occurring due to the whims of a single entity are diminished.
Freedom of expression: By mitigating concerns about censorship, SocialFi platforms can become vital tools to sustain and promote freedom of expression and data protection.
What are the challenges of SocialFi?
These are some of the obstacles that could prevent mass adoption of SocialFi apps.
1. Scalability
Social media platforms, such as Facebook and X, have invested millions of dollars in servers and databases that can handle enormous amounts of data. Facebook deals with millions of comments, statuses and photo uploads, with a data load of 4 petabytes per day. So how could Web3 social media applications handle this amount of data without centralized intervention? To address this issue, developers are trying various scalability techniques such as sharding and off-chain storage.
2. Sustainability
To gain a large number of users, SocialFi platforms have offered tempting token rewards, which are unsustainable in the long term. Although the idea of ââtokenizing social capital is highly innovative, the problem is that the value of these tokens is still linked to the actions of the influencer. For example, a negative post by an influencer could crash the value of the associated tokens, potentially creating a negative feedback loop.
Conclusions
SocialFi represents a transformative change in the social media space. It unites the principles of decentralized finance (DeFi) with social networks. At its core, it seeks to empower users, give them control over their data, ensure true ownership of content, and provide avenues for direct monetization without intermediaries. Although platforms like Friend.tech and Stars Arena are pioneers of this movement, the journey presents challenges. Concerns regarding scalability in the decentralized domain and the sustainability of economic models are persistent problems. However, SocialFi's promise of a more equitable and transparent digital social space, where users can genuinely leverage their social capital, indicates an evolution in the way we perceive and participate in online social interactions.
Further reading
What is Friend.tech?
What is data tokenization and why is it important?
Web2 vs. Web3: which is better?
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