An Overview of the Popular SocialFi Track Ecosystem and Trends in 2022

Author: Blockchain Research Society

SocialFi combines social tokens with DeFi, providing new ways for social capital to be monetized and becoming one of the important interfaces of Web 3.0. What ecosystems are included in this track? What are the development trends?

I. The Combination of Social Tokens and DeFi

1. The Rise of the SocialFi Track

A surge of SocialFi projects

In the second half of 2021, social tokens such as Whale, Chiliz, and Rally saw significant price increases, with projects like BBS network, Showme, and Mirror.xyz gaining immense popularity. By the end of November 2021, the SocialFi platform Monaco Planet launched with great success, leading to a situation where invitation codes were hard to come by, attracting a lot of attention to SocialFi projects.

Investor Favor

Since the second half of 2021, numerous SocialFi projects such as BitClout, Friends with Benefits, DeSo, Torum, Monaco Planet, BBS network, and Mirror.xyz have received substantial investments from well-known institutions like a16z, Binance, Sequoia Capital, and Three Arrows Capital.

Industry Alliances Formed

In August 2021, the Social DeFi Alliance was established. The main goal of this alliance is to launch more socialized DeFi projects suitable for social network users and to promote the connection between Web 2.0 and 3.0, advancing the application of Web 3.0. Participating projects include Mask Network, Polygon, SushiSwap, QuickSwap, Gitcoin, and 15 other DApps with strong social attributes based on Mask.

2. Social Tokens

Social tokens are defined as "tokens supported by individual reputation, brand, or community."

Social projects manage communities by issuing tokens, categorizing levels based on user activity and contributions within the community, and tokenizing rights to increase earnings for creators, cultural producers, and relevant participants.

Compared to traditional social media, social tokens primarily help users solve three problems:

Data Ownership Issue: In traditional social platforms, all user social data is stored in fields on the operator's servers, with data belonging to the platform; social tokens directly address the issue of user data ownership through blockchain technology.

Profit Distribution Issue: Under the algorithmic mechanisms of traditional social platforms, the profit distribution between users and platforms in traffic monetization tends to favor the platform, making it difficult for user rights to be fully protected; social tokens allow users to earn by financializing their social influence, without third-party cuts from platforms.

Privacy and Security Issue: In traditional social media, user accounts undergo real-name verification, and real user information is stored in the operator's backend, making it prone to information leaks; social tokens, based on blockchain technology, can anonymize user identities to protect privacy.

Social media was once a hot area in the crypto world. Around 2017, a large number of blockchain + social projects emerged, with star projects like Steem, Voice, ONO, QunQun, GSC, YeeCall, NRC, SwagChain, Huoxin, and TTC Protocol. However, due to an immature market environment, limited user participation, and the limitations of ecological models, many projects have disappeared.

3. Characteristics of SocialFi and Its Four Pillars

After 2020, DeFi flourished, expanding the boundaries of decentralized finance in the crypto world and opening the door to new tracks. The combination of games and NFTs with DeFi led to the emergence of GameFi and NFTFi, further igniting the craze for NFTs and the metaverse in the crypto market.

SocialFi is a creative new way of social financialization. The combination of social networks and DeFi opens up new ways of social interaction. SocialFi has its own characteristics:

First, SocialFi combines social, web 3.0, and finance, providing rewards and benefits to users by marking social influence, allowing users to own their creative earnings on the platform, which will not be monopolized or exploited by the platform.

Second, compared to pure blockchain + social, SocialFi emphasizes the attributes of DeFi more.

SocialFi projects build decentralized financial "Legos" based on smart contracts. Multiple high-quality projects create a new generation of SocialFi platforms that integrate social, financial attributes, and digital NFT trading.

Third, SocialFi features various forms of mining, including social mining and content mining with strong social attributes, as well as liquidity mining with DeFi attributes.

Project users can engage in content mining through content creation and social mining through effective and frequent social interactions. Additionally, some SocialFi project tokens can also be used for liquidity mining.

For example, the social token Rally provides liquidity mining opportunities through Yearn vaults and decentralized trading platforms like Uniswap and Balancer.

Overall, the main four pillars that sustain the operation of SocialFi are:

Content: Content serves as the "proof of work" for participants to earn tokens or NFTs on SocialFi project platforms.

Social: Social activity is the cornerstone of the survival of SocialFi projects.

DeFi-Centric Economic System: Tokens or NFTs are forms of social capital, measuring participants' contributions and social activity, sustaining the operation of social platforms, and achieving more profits through DeFi Legos.

Decentralized Organizational Structure: Decentralized token rewards and transfers form a decentralized value circulation system, further requiring a decentralized platform governance structure.

II. SocialFi Ecosystem and Some Well-Known Projects

Currently, the SocialFi track is still in its early development stage, with many projects based on social tokens integrating DeFi content and undergoing technical upgrades to become SocialFi projects. Some projects are directly designed as SocialFi projects.

1. Main Classifications of Social Tokens

A report from the well-known research institution Messari categorizes social tokens into three types: personal tokens, community tokens, and social platform tokens. This is also the most mainstream classification of social tokens currently:

Image Source: Messari

Personal Tokens

Personal tokens are mainly issued and governed by individuals, primarily used as entry thresholds for fans to join communities and for various activities within the community, as well as for community rewards and governance.

Notable examples include:

RAC: A fan token launched by Grammy Award-winning DJ RAC (André Allen Anjos) based on Ethereum.

ROLL (Creator Token): Roll is one of the early social token issuance platforms. Under this platform's issuance model, Roll creates ERC-20 tokens on behalf of users, issuing personal social tokens for content creators.

RALLY Creator Token: Individuals can issue their own tokens on the RALLY platform. RALLY itself is a social platform token and a very typical project in SocialFi, which will be detailed later.

Additionally, there are projects like MeTokens, MintGate, ALEX, etc.

Community Tokens

Community tokens are mainly issued and controlled by groups, typically governed by decentralized autonomous organizations (DAOs).

They are primarily used to incentivize members to contribute to the community. For example, community tokens grant access to the community and provide special information. Community tokens are also used to encourage deeper participation from community members, such as allowing token holders to vote on the outcome of a community-initiated competition.

A typical case of community tokens is WHALE. WHALE Token has various NFT democratized asset ownership. Based on WHALE DAO, governance decisions around these NFTs are in the hands of token holders.

Community tokens also include well-known projects like Mirror and FWB, which are both community tokens and typical tokens in SocialFi, and will be detailed later.

Other community tokens include Cent, Yup, Matataki, SWAGG, Karma DAO, Ark, Seed Club, Forefront, Flamingo, etc.

Social Platform Tokens

Social platform tokens represent control tokens for the platform. They are primarily designed to facilitate creators in issuing and managing tokenized communities.

Typical projects include Chilliz. Chilliz is a typical social token under the "fan economy," focusing on the sports industry. RALLY and BitClout are well-known projects in the SocialFi track, which will be detailed later. Other projects include Zora, CircleUBI, Loopss, Fyooz, Bluesky, Audius, Mastodon, Nafter, Coinvise, Calaxy, Clarion, etc.

2. Basic Components and WEB3.0 Portal Tools

In addition to the three types of tokens mentioned above, social tokens often require third-party tools for token distribution during project operation, overlapping with tools used by other blockchain projects.

Typical projects include:

Mask Network: Bridging Web 2.0 and the future Web 3.0 concept in a "plug-in" manner, allowing users to seamlessly send encrypted messages, cryptocurrencies, and even DApps (DeFi, NFTs, DAOs) on existing social networks without using centralized servers.

Mask enables ordinary users to further engage with crypto assets without changing their current usage habits on mainstream social platforms. At the same time, Mask is endowed with multiple attributes such as privacy social, decentralized storage, DeFi, and DAO.

Snapshot: A voting tool based on the IPFS decentralized storage system, using "off-chain" signature technology to reduce voting costs, widely used by many crypto projects for voting within their user communities.

Other tools include Context, Collab.land, Tip.cc, Communifty, Outpost, Kickback, SourceCred, Muzenetwork, Gnosis Safe, SuperFluid, etc.

3. Some Well-Known SocialFi Projects

• Rally

An early well-known personal token issuance platform focused on reconstructing the relationship between creators and fans.

Creators can generate and issue their own personal tokens, Creator Coins, or directly mint NFTs for trading on Rally. Creator Coins serve as a credential, granting holders corresponding privileges, such as access to the creator's private Discord community or purchasing specific products.

The native governance token of the Rally platform, RLY, can be used to purchase Creator Coins and can be exchanged with any other token on Ethereum. RLY can also be used for liquidity mining on Uniswap and Balancer.

Fans can interact with creators by purchasing and holding the creator's Creator Coin with RLY, demonstrating their loyalty and bridging the gap with celebrities. When both parties are highly engaged, Rally distributes RLY as incentive rewards to creators and fans.

• Mirror.xyz

A content publishing platform focusing on articles + NFTs, founded by former a16z partner Denis Nazarov.

Mirror approaches content financialization by providing a platform where each article has "NFT + governance" attributes, allowing these contents to be invested in, traded, and governed.

Mirror offers creators six basic capability tools, including publishing articles (Entries), crowdfunding (Crowdfunds), digital collectibles (Editions), auctions (Auctions), collaborative contribution splits (Splits), and community voting (TokenRace).

Each published article can be purely textual or contain embedded images, videos, and NFTs. Published articles are permanently stored on Arweave and automatically generate NFTs for trading upon publication.

Creators meeting certain conditions can initiate crowdfunding under their articles, allowing users to participate in crowdfunding to obtain token and NFT shares.

Additionally, an invitation token "WRITE" is used to create columns, granting holders voting rights. Under certain pre-set conditions on some platforms, "WRITE" can also serve as an access credential.

• BitClout (DeSo)

In March 2021, Nader Al-Naji, founder of the stablecoin Basis, launched a new social platform, BitClout, focusing on the concept of social tokenization—where value depends on user popularity.

BitClout is benchmarked against Twitter, allowing Twitter KOLs to directly issue social tokens. As several Twitter celebrities "claimed" BitClout accounts, the platform's popularity surged.

The native token of the BitClout platform is CLOUT, allowing creators on the platform to own and trade their Creator Coins. Users can purchase creator coins using CLOUT.

In September 2021, CLOUT was renamed DeSo. However, unlike BitClout, DeSo is the underlying public chain of BitClout. On DeSo, in addition to BitClout, over 140 projects are being built. Unlike other public chains, the DeSo public chain is specifically tailored for social applications.

Anyone wishing to use the DeSo blockchain or build applications on the blockchain must hold DeSo, which can be used to create profiles, post content, purchase social tokens, buy NFTs, and send diamonds, among other things.

• Friends with Benefits

Friends with Benefits is a new type of DAO, with the native token being FWB.

Friends with Benefits is a private social platform based on a private Discord server, gathering a group of creators in the crypto field. Participants must hold a certain amount of the native token $FWB to join this social circle. $FWB has a constant supply of 1 million.

The platform has launched modules such as a token-gated events app, NFT gallery, Web3.0-based editorial venture, virtual music studio, and real-time community dashboard. The next step for the platform will focus on expanding the DAO's reach into real life, collaborating with communities in specific cities to bring real-world benefits to FWB members.

• Monaco Planet

Monaco Planet is a SocialFi project that emphasizes "ownership and governance determined by users."

In early November 2021, Monaco Planet secured $3 million in seed funding from Three Arrows Capital and others.

To enhance the immersive experience, the project likens itself to a metaverse and assigns a unique story to the metaverse, with users imagining themselves as people migrating to Monaco Planet.

The vast majority of the project's native tokens will be distributed to users generating content, adopting a "content is mining" model, and allowing users to earn native token MONA rewards through following, commenting, liking, NFT displays, and staking.

Holders of the native token can enjoy the appreciation of tokens brought about by the platform's growing economic activities.

Since the vast majority of MONA tokens will be distributed to users as rewards for content creation, the platform is managed as a decentralized autonomous organization by local token holders who can submit proposals and vote.

III. Important Trends in SocialFi

1. SocialFi Will Become One of the Important Interfaces of Web 3.0

a16z believes that Web 3.0 is the successor to the internet. Just as Web 1.0 and Web 2.0 changed the way people communicate and exchange information, Web 3.0 changes the way value is transferred around the world. What is Web 3.0? A concise definition of Web 3.0 is:

Web 1.0: read.

Web 2.0: read + write.

Web 3.0: read + write + own.

Social networks are one of the core pillars of Web 2.0. Platforms like Facebook, Twitter, WeChat, YouTube, and TikTok have amassed vast amounts of user data, growing into giant tech companies. However, users providing data find it difficult to own and use their own data. The biggest profit logic of Web 2.0 is "traffic monetization," achieving social capital monetization through product monetization, advertising monetization, and service monetization.

The "ownable" characteristic of Web 3.0 determines that the biggest difference between Web 3.0 and Web 2.0 lies in the fundamental shift in profit distribution logic and models. In other words, Web 3.0 users can own data rights and benefit from them.

Blockchain confirms user data ownership by enabling trustless, permissionless, and user-controlled environments. Blockchain technology forms the most important foundational technology module of Web 3.0.

Elon Musk also believes that under the meaning of "Web 3.0," the distributed storage, asymmetric encryption technology, and decentralization concepts represented by blockchain align closely with the concept of "Web 3.0," making it one of the most promising fields to realize the vision of "Web 3.0."

As social networks evolve from Web 2.0 to Web 3.0, social needs to integrate with blockchain, and social participants need to truly own data rights and benefit from them, leading to the emergence of SocialFi. Forbes Council member Roger Lee commented that social tokens are the true product of Web 3.0, directly connecting content creators and consumers. SocialFi becomes one of the gateways to the Web 3.0 world.

2. SocialFi Has Initially Formed a Logically Coherent Value Capture Mechanism

Social Capital refers to the connections between individuals or groups—social networks, norms of reciprocity, and the trust that arises from them, which provide resources based on people's positions in social structures.

SocialFi constructs a logically coherent value capture mechanism achieved through content distribution, allowing different participants to showcase their value from this ecosystem, monetizing social capital and gaining profits.

Content Producers: Based on content creation, they receive system token rewards and can also earn system token rewards through likes, comments, shares, and other metrics. They can also determine digital ownership of content through NFTs, completing fan crowdfunding and copyright distribution. Thus, content producers earn token rewards based on their social relationships and content creation influence. Social capital is smoothly converted into economic capital.

Audience Users: In many SocialFi projects, audience users' participation, whether through likes, comments, shares, etc., is also rewarded with tokens by the system. Users provide attention to reward others or create wealth, and the system rewards the attention provided by users. This is an innovation in the existing attention economy.

Whether content producers or audience users, as their influence on the platform expands, they can also gain profits from the appreciation of tokens. Similar to Play-to-Earn in GameFi, SocialFi can derive more gameplay. In the economic system of SocialFi, users' influence and social activity on social networks are quantified through Post-to-Earn, Share-to-Earn, Comment-to-Earn, etc.

Participants in SocialFi projects can also earn more rewards through content mining, social mining, or liquidity mining, or participate in project platform governance with tokens or NFTs.

Thus, tokens or NFTs based on content production achieve a closed-loop economic logic of production-consumption-resale-investment-mining-governance.

3. SocialFi Projects Develop in a Fusion Manner

Unlike social projects in the Web 2.0 era, future SocialFi projects will commonly integrate with NFTs, games, the metaverse, DeFi Legos, and DAOs.

First, the integration of social platforms with NFTs, games, and the metaverse.

Social creative content is NFT-ized. Content produced by creators on social platforms, such as music and videos, can be converted into NFTs, securing rights to the content and bringing more economic value and revenue to creators.

NFTs can also become governance tools for the platform or bring scenarios to the platform.

For example, in Rally, NFTs serve as vehicles for content financialization to generate revenue. In Mirror.xyz, NFTs are also part of content financialization and serve as the main vehicle for governance participation.

Many SocialFi projects gamify social scenarios or "metaverse-ify" them, providing a better experience for social interactions.

The metaverse itself inherently requires social interaction and immersive experiences, and in the future, more SocialFi projects will emerge that integrate with games or the metaverse, with NFTs being one of the essential components.

For instance, Torum is a SocialFi platform designed specifically for cryptocurrency users and projects. The platform has launched a platform for DEFI players, an NFT market for crypto artists, and Avatar NFTs for metaverse enthusiasts, building an ecosystem of social media platform + NFT + DeFi + metaverse.

The Monaco Planet project also likens itself to a metaverse, placing social scenarios within a unique story of the metaverse.

Second, the integration of social platforms with DeFi Legos.

SocialFi aims to provide users with benefits and returns through the financialization and tokenization of social influence. Industry expert Jillian Godsil believes that SocialFi is a new perspective on DeFi.

As mentioned earlier, the biggest difference between SocialFi projects and previous pure blockchain + social projects is the incorporation of DeFi factors. Social tokens or NFTs in SocialFi projects can be combined with DeFi Legos in various ways, including Lending to Earn, Staking to Earn, Farming to Earn, i.e., earning through lending, liquidity mining, and staking.

Third, the integration of social platforms with DAOs.

SocialFi projects use tokens or NFTs as incentives for social content creators, with social tokens or NFTs widely distributed among different social participants, serving as the basis for participants to govern the platform. Therefore, SocialFi projects are inherently decentralized platforms, naturally suited for DAOs to govern platform affairs.

For example, Mirror.xyz positions itself as: What is Mirror = Who's on Mirror. From this definition, Mirror is not only a decentralized content creation tool but also resembles a community collaboration platform. Mirror has built-in crowdfunding features, allowing funds to be raised for projects or ideas, enabling the quick launch of a DAO. Mirror's voting function is similar to Snapshot, providing capabilities for voting proposals, token snapshots, multi-signatures, and proxy voting.

4. Three Important Issues Facing the Development of the SocialFi Track

First, the issue of the value capture mechanism.

Currently, although the value capture mechanism of SocialFi projects has formed a closed loop, the algorithms for incentivizing participants to provide quality content and social interactions in some projects are not reasonable, leading to low quality in content and social interactions.

For example, Monaco Planet incentivizes users to write and participate in discussions through native tokens. There is no reasonable mechanism to restrict the quality of creators' content, leading to a flood of low-quality content as many users ally and follow each other to earn rewards. Crude algorithms for attention and asset net worth make the entire homepage content monotonous.

Therefore, how to incentivize quality content and effective social interactions, improve token reward algorithms, and optimize value capture models urgently needs to be addressed.

Second, the issue of influence monopoly.

SocialFi essentially highlights individual social value. For early entrants into this track or celebrities with significant influence, it may, to some extent, expand their monopoly over content creation.

This is very unfavorable for general users who enter the space later or have less influence, as the content they produce often struggles to be discovered. In other words, how to break the monopoly of those with significant social influence over ordinary content creators still needs further resolution.

Third, the issue of community conflict management.

Some analyses suggest that SocialFi communities have public spaces, where communication in public spaces either lacks popularity or leads to intense conflicts and community splits. On one hand, communities need controversial topics and conflicts to generate heat and attract users; on the other hand, excessive conflict can lead to community splits. Good rules need to be established, and DAO governance needs to be improved to maintain community heat while preventing community splits.

5. Promising Prospects, but the Timing of Explosion Remains to Be Observed

Whether in traditional internet or crypto markets, after a period of development, there is a strong pursuit of applying their "social" attributes. As the SocialFi industry is just beginning, new projects are emerging continuously, with immense development potential.

In the future, SocialFi may provide thriving opportunities for content creators in small communities.

Moreover, some social tokens will be accepted by larger communities. Currently, SocialFi has begun to play a key role in the creator ecosystem and is widely adopted among crypto artists and celebrities.

SocialFi will also redefine the relationship between traditional enterprises and their customers or fans. Enterprises can establish a decentralized ecosystem to shape new relationships with their customers or fans, achieving long-term growth in token value and enterprise value.

On the other hand, there are differing views on when SocialFi will explode on a large scale.

Currently, the scale of this track is still small. For example, in the Social Money category of the analysis website Coingecko, although not all SocialFi tokens are included, a considerable portion of social tokens is listed, totaling 31, with Rally being the largest, with a market cap of just over $500 million as of January 24, 2022.

As mentioned earlier, Binance CEO Zhao Changpeng is optimistic about the development of SocialFi and GameFi in 2022. However, Soundwise founder Natasha Che has a different viewpoint.

He believes that the emergence of social use cases requires the widespread adoption of new technologies. The explosive growth of Web 2.0 social media occurred after reaching 100 million users. Currently, Ethereum has 180 million addresses, with active users being less than 1 million, and OpenSea has fewer than 25,000 active users. The current level of adoption of crypto tokens is insufficient to support explosive growth for applications like Bitclout, nor is it enough to support thousands of individual creators issuing their mini tokens.

Therefore, Natasha Che believes that large-scale market applications will only begin to see explosive growth when the users of a certain new technology reach 1 billion.

IV. Conclusion

SocialFi operates on the pillars of content, social interaction, a DeFi-centric economic system, and a decentralized organizational structure, with a complete ecosystem gradually being built, exhibiting unique development trends.

Against the backdrop of the imminent emergence of Web 3.0, one of the most prominent pillars of the modern internet—social networks—combined with DeFi, the activity and rise of the SocialFi track are realizing the intention that "humanity will always seek the most efficient way to maximize social capital."