Detailed Analysis of the SocialFi Track Landscape and Development Logic

Author: Zixi Jun, 0xRank

Binance CEO Zhao Changpeng (CZ) recently published an article on the Indian edition of Fortune, where he believes that more traditional financial institutions will invest in the crypto space in 2022. In addition, SocialFi and GameFi are likely to become key factors in promoting the growth of crypto penetration in 2022. Since 2021, the market's attention to SocialFi has gradually increased.

According to Footprint Analytics data, as of January 2022, the financing amount for SocialFi in the market reached $392 million. In September 2021, the financing for the SocialFi sector reached $220 million, after which the financing enthusiasm for SocialFi gradually declined.

SocialFi Market Financing Situation

SocialFi Google Search Index

Source: Footprint Analytics, Google Index

Classification of SocialFi Project Types

Currently, SocialFi project types can be roughly divided into the following categories: infrastructure/tools, social platforms, personal token issuance platforms (social token aggregators), and personal tokens.

Infrastructure/tools like Mask Network and Deso are developing rapidly and have great potential;

Social platforms include representatives like BBS, Monaco Yacht, and Secondlive;

Among personal token issuance platforms, Mirror and Rally have significant influence;

Among personal tokens, only RAC is developing relatively quickly, with overall influence being relatively small;

SocialFi Project Types

Distribution of SocialFi Value Chain

SocialFi Project Value Chain

SocialFi aims to address the pain points of Web 2.0 social media, but the urgency of solving these pain points is not high.
The emergence of SocialFi mainly addresses the following issues in traditional Web 2 social media:

1. Data ownership issue: In Web 2 platforms, users' social data is stored on the operators' servers, and the data belongs to the platform; whereas in SocialFi, users' social data is stored on-chain, and the data ownership belongs to the users. Leveraging the characteristics of blockchain, user data cannot be tampered with by project parties, and recovery is relatively easy;

2. Profit distribution issue: Under the algorithms of traditional social platforms, there is an imbalance in the profit distribution between users and the platform in terms of traffic monetization, with the platform taking a large cut; whereas in the decentralized social context of SocialFi, there will be no third-party cut;

3. Privacy issue: All accounts in traditional social media require real identity information for KYC, and backend stored information is easily leaked and sold to specific institutions; whereas based on Web 3, SocialFi uses wallet logins, and its anonymous nature can protect user privacy.

However, it is worth noting that while the above issues do exist in the traditional social field, is the necessity and urgency of solving these problems really high? We believe not. Currently, Web 2 users still account for the vast majority, while Web 3 users are already few, and among them, those using Web 3 for communication are even fewer. Social media emphasizes network effects, and under the current circumstances of a small target user base, the development of SocialFi applications will not be smooth (but it cannot be denied that SocialFi has long-term benefits). In the early stages of the industry, focusing on the mid-to-upstream sectors is a wise choice.

Simple Comparison of SocialFi Projects

Mask Network: A Tool Connecting Web 2 and Web 3

Mask Network is a tool created by a Chinese team that connects Web 2 and Web 3. The vision of Mask Network is to become a portal that helps users seamlessly transition from Web 2 to Web 3. Currently, its main business is to use cryptographic methods to build Web 3 plugins on Web 2.

The main products of Mask Network are Maskbook and TesserPG. Maskbook exists mainly as a plugin for Twitter/Facebook and has implemented Web 3 functionalities in current mainstream social software.

For example:

Encrypted communication: When user A, who has installed the product, engages in encrypted communication, only other users who have also installed the product can see the content of the articles sent by A;

Payments/red envelopes: A cryptocurrency version of WeChat red envelopes (V God once sent ETH red envelopes during the 2020 New Year);

Decentralized file storage and sharing; image steganography; NFT avatars; fiat currency transactions, etc.;

TesserPG is a cryptographic identity management system that can encrypt chat information by using an instant encryption mobile input method, essentially a mobile version of PGP. Currently, the development of this product has slowed down.

Maskbook: V God using Mask Network to send red envelopes

TesserPG Diagram

Mask Network: Weak Token Value Capture

The token of Mask Network is Mask. A total of 100 million tokens were created at issuance, of which 39.55% were allocated to foundation reserves, 14.25% to early investors (with a 6-month cliff and a linear release over 12-18 months), 14.20% allocated in the Token Round, 1% for airdrops, 1% added to liquidity pools, 7% for ICO, and 23% reserved for the team (with a 36-month linear release and a 6-month cliff).

Below is the 3-year supply chart for Mask.

Mask's value capture is weak, serving only for staking, mining, and governance within the DAO. The weak value capture combined with the release growth has led to Mask's price remaining low for a long time. However, it cannot be denied that the products represented by Maskbook are becoming a bridge for communication between Web 2 and Web 3, thus attracting the favor of capital from Binance and IOSG.

Mask token continues to decline

Mask Release Chart

Monaco Yacht: A Star Project of SocialFi at the End of 2021

Monaco Yacht, backed by Three Arrows Capital, is one of the rising stars of decentralized social media in 2021. Monaco Yacht can be understood as the Twitter of the Web 3 space, where users can send videos, images, and text for social interaction, supporting likes, comments, retweets, and sharing. One of the reasons for Monaco's initial explosive popularity was the issuance of Yacht NFTs. Only users who purchased Yacht NFTs could obtain early access codes and share codes for Monaco. At its peak in November, the price of Yacht reached nearly 0.5 ETH, and there was a phenomenon where Monaco invitation codes were hard to come by.

Monaco distributes tokens called Mona to users through social mining. The number of Mona tokens distributed depends on whether users have Yacht NFTs and the volume of social interactions such as likes, follows, and comments during a token distribution cycle. Players with NFTs can receive full tokens based on their social interaction volume, while those without NFTs can only receive a portion of the tokens based on their social interaction volume.

Monaco Interface: Twitter in Web 3

Monaco Yacht: A Brief Fame, A Short-lived Success

Monaco's current failure is evident. Although Monaco was once very popular, it was merely a flash in the pan. The factors contributing to its failure can be summarized as follows:

1. The algorithm for obtaining tokens is too simplistic and crude. The algorithm for Mona tokens is highly correlated with the current number of fans, followers, and the likes, comments, and retweets of posted images and videos. This led to a large number of users in the community engaging in mutual liking and following, flooding the SocialFi platform with low-quality self-promotion content, completely lacking any social functionality, and with very low community cohesion;

2. The social content is monotonous. Due to the above factors, Monaco still has a lot of garbage content, and users only use Monaco for mining. Only a very small number of users share interesting topics, and even fewer respond to such content;

3. Weak token value capture. The token serves only for staking and governance within the DAO, and the vast majority of users will simply sell their tokens after mining, leading to very weak value circulation within the project. Monaco is similar to poorly designed projects in GameFi, falling into a death spiral after mining and selling. Therefore, how to give SocialFi tokens value is an essential element that future SocialFi projects must improve.

Mono token value continues to decline

Yacht NFT price has nearly reached zero

BBS Network: Reddit/Tieba of Web 3

The overall social structure of BBS Network is similar to Reddit/Tieba. Unlike Monaco, where users lack common topics in social interactions, BBS has clear groupings, so users joining the same group actually share common topics, thus avoiding the low-quality content mining scenario that Monaco faces.

BBS's economic system is more vibrant. BBS introduces an advertising system that can continuously inject capital into the ecosystem. Since every post on BBS is an NFT, it can attract advertisers. Traditional advertisers in Web 2 calculate costs based on user clicks/votes/likes, which are easily manipulated. The introduction of the NFT mechanism in BBS effectively solves this problem. BBS posts adopt an NFT bidding model, where anyone can purchase any post on the network for $0.3 (or 30% higher than the last price).

Thus, every post (and its related advertising space) on the BBS network will be continuously sold at transparent and predictable prices. After a transaction is completed, 30% of the price difference during the period will be distributed as follows: the previous post's owner receives the original price + 10% of the price difference, the original poster receives 10% of the price difference, and the MOD receives 10% of the price difference. Advertisers can rely on the reposting of posts to obtain real and fair end-user browsing information, thus avoiding fraudulent behavior. Advertising revenue will also be distributed among the original post's publisher and subsequent post holders.

BBS Forum is similar to Tieba/Reddit

BBS has made innovations in revenue sharing compared to Web 2

BBS Network: BBS empowers well, solving the issue of Mona's poor empowerment

BBS's model is social + token acquisition handled off-chain, while token transactions are handled on-chain. BBS's tokens mainly consist of two stablecoins, CT and the token BBS. Users can earn free CT tokens through actions like registration, and only CT can be used to purchase NFT posts. After obtaining CT, users may need to exchange CT for USDT (with a 30% tax). Therefore, the official route is: convert CT into BBS worth 70%, and then swap BBS on-chain for USDT.

The BBS token has the following functions:

1. Advertisers need BBS tokens to buy ads;

2. Royalties are distributed to BBS developers, operators, and BBS token holders in the form of BBS tokens;

3. Voting in the DAO;

4. Staking;

The BBS token is about to launch. Of this, 50% will be distributed through social mining, 13% through liquidity mining staking, 17% to investors, 10% for long-term development budget, and 10% for the founding team.

BBS Forum is similar to Tieba/Reddit

Secondlive: Weak Token Empowerment, Product Still in Early Stages, Needs Observation

Secondlive is a metaverse SocialFi product funded by Binance Labs. Unlike current text chat SocialFi platforms like BBS and Monaco, Secondlive adopts a more immersive metaverse communication method. Users can design their own characters, visit different virtual spaces, own their metaverse real estate/assets, and directly generate content based on module interactions, providing a good experience. Current use cases include AMAs, parties, games, exhibitions, live broadcasts, etc., similar to Decentraland and Sandbox on BSC.

Secondlive operates on a dual-token mechanism. SLT is the community governance token, with total supply and distribution as shown. Sponsors and advisors will unlock a portion of their tokens quarterly after a two-year lock-up, while the publicly sold portion is unlocked immediately. The ecological construction portion is locked for three years and released quarterly, the team portion is locked for three years and released semi-annually, and the community incentive portion will be gradually released over ten years. The sub-token Bean has unlimited supply, and its output comes from the Space (in-game real estate) purchased by users, released based on current active user conditions. Additionally, completing tasks and chatting will also yield rewards. Beans can be staked to obtain SLT, after which Beans will be burned.

Currently, the Secondlive product is still in its infancy, SLT empowerment is weak, and Bean prices continue to decline. How to improve empowerment is an urgent issue for Secondlive to address.

Sylo: Node Supplier and Decentralized Social Platform for SocialFi
Sylo is a node supplier for SocialFi. Sylo provides an incentivized node network, allowing any wallet address to communicate with any other wallet address, NFT owners, or smart contract participants without relying on centralized parties. The Sylo Network brings privacy and decentralized communication to mobile devices by running Sylo Node software on users' computers or phones.

Users become Sylo nodes by staking Sylo tokens. Sylo nodes are applications that anyone can run on their devices. Node operators provide relay services through Sylo nodes. Once a node is established, operators can collect relay fees paid by users in Sylo. The cost of a single relay on-chain is low, but since each message requires a relay fee, the total cost can be quite high. Therefore, Sylo has introduced the Sylo tickets feature.

This means that each payment is made using Sylo tickets (instead of tokens), a probabilistic payment ticket. This indicates that not every ticket can be exchanged for tokens. The probability of tickets being redeemable for tokens is low, and neither the sender nor the receiver of each ticket knows whether it can be exchanged for tokens until the relay process is completed. This ensures that nodes will provide services.

The product is currently in its early stages, and the node staking service has not yet been launched. It is recommended to continue monitoring Sylo's progress.

Sylo Concept Diagram

Node staking has not yet been launched

Mirror: A Publishing Platform for Web 3 Authors

Mirror provides a publishing platform for Web 3 authors. Authors can publish works on Mirror, which can be research reports, novels, diaries, etc. Authors can then mint their works as NFTs on-chain for sale. Currently, many quality reports in the cryptocurrency circle are published on Mirror, such as Messari's annual report on the outlook for 2022. In addition, Mirror also offers crowdfunding, minting ERC20 tokens, auctions, and other features.

Mirror has also launched the $WRITE RACE competition, which is a contest among those who join the Mirror DAO. The Mirror DAO will provide a topic, and the public will vote on the essays completed by each user on the topic. The top ten ranked users will receive WRITE tokens, which can be exchanged for MIRROR membership and DAO benefits. The WRITE RACE has garnered significant interest, with nearly 9,700 users participating in the ongoing 39th round of the competition and 33,000 users voting.

Currently, the WRITE token has functions limited to voting and use within the DAO, with details unknown. However, Mirror's popularity has been very high in the past six months, so it is recommended to pay attention to Mirror's subsequent empowerment of WRITE.

Overview of Mirror's Functions

WRITE RACE competition has high popularity

Roll: A Fan Token Issuance Platform for SocialFi, with a Relatively Thin Ecosystem
Roll is a specialized fan token issuance platform. Users can issue their own fan tokens through Roll, with a fixed upper limit of 10 million tokens per fan token. Roll holds a fixed 1% share of each fan token issued. After issuing their own fan tokens, users will receive 2 million tokens at once, and the remaining tokens will be released linearly over three years until the 10 million limit is reached.

Users can plan activities to distribute tokens to their fans. For example, after user A creates the what token and receives 2 million what tokens, A can distribute 1,000 what tokens to each of their subscribers and 2,000 what tokens to each user who retweets their posts. If A is a musician, they can also issue a musicfi product, charging each user 10,000 what tokens to mint a Music NFT.

Through these operations, tokens can circulate within the community. If A wants to trade what for ETH, USDT, etc., they will also need to add liquidity on Uniswap to meet trading demands. The Roll platform only supports the transfer of fan tokens between different users and does not support the exchange of fan tokens for other fan tokens, cryptocurrencies, or fiat currencies. Currently, details about Roll's tokens are unknown.

Roll Interface

Rally: A Fan Token Issuance Platform for SocialFi, but with a More Complete Ecosystem

Rally, like Roll, provides a platform for creators to issue fan tokens. Its development logic is also similar, encouraging influencers to issue their fan tokens on Roll. When fans purchase a certain amount of tokens, they can unlock benefits from the influencer. The value of fan benefits tokens comes from the influencer's influence, meaning that as fans purchase tokens early on, the increasing influence of the influencer will attract more fans to buy tokens, driving up the token price.

However, unlike Roll, Rally has a more complete ecosystem, but there are still issues with value capture. Rally operates on an Ethereum sidechain, with many fan tokens built on Rally, and Rally serves as the governance token for the sidechain. The empowerment of Rally is currently average, serving only for DAO governance, staking, liquidity mining, and some platform functions, and trading on the Rally platform does not require consuming Rally tokens.

In addition, when influencers issue tokens, Rally does not reserve a portion of fan tokens, unlike Roll. Rally also periodically distributes Rally tokens to the influencer's community based on the community's popularity and activities, and supports swaps between fan tokens or with ETH, USDT, etc. Overall, Rally's development logic is similar to Roll, but its business logic is clearer than Roll.

Rally Interface

Conclusion: SocialFi is Still in Its Early Stages and Has Problems to Solve

The overall logical closed loop of SocialFi based on Web 3 has been established (the biggest difference from Web 2 is the change in profit distribution logic and model), which emphasizes that SocialFi's value capture focuses on social capital. Social capital is a form of trust generated based on social networking and reciprocity between individuals or groups, and it is a resource derived from one's position within a social/organizational structure.

The acquisition of social capital is very similar to POW proof, requiring long-term time costs or other costs to generate a proof of work. This is reflected in people's lives; why can Musk or other influencers command a large following? Their powerful social capital comes from the long-term hard work and increased exposure they have gained.

If we capitalize or monetize the above scenarios, the logic simplifies to - influencers want to monetize their social capital (obtain tokens), so they need to spend time and money to prove the value of their social capital (POW work). Isn't this very similar to BTC/ETH? This also indicates that Web 3, based on blockchain and cryptocurrencies, is very suitable for the development of SocialFi. In essence, SocialFi can be understood as influencers (or individuals) leveraging their influence under the technology of blockchain and cryptocurrencies to build their social capital (i.e., personal brand and reputation) on one hand, while also providing benefits for their fans on the other.

However, it is precisely because of the above logic that SocialFi currently faces significant issues:

1. Aiming for decentralized social media, but essentially unable to achieve decentralization. As in the POW example above, players who joined SocialFi earlier or have already gained significant social capital in the Web 2 space find it easier to gain more social capital in the SocialFi space, while those who join later find it increasingly difficult to acquire social capital. Earlier users' content is more likely to be exposed, while later users' content is harder to expose. Early users can create a strong social monopoly.

2. For social platforms, defining content mining is very challenging. Once a platform decides to enable content mining, the influence of groups engaging in mutual likes and follows will lead to the platform's content becoming garbage. Referencing platforms like Zhihu, Tieba, Hupu, and Xiaohongshu, the consequences of garbage content for social platforms are disastrous, but it is difficult to initiate a cold start without enabling content mining. Therefore, a suitable incentive mechanism for content mining is essential for innovation.

3. For social platforms and token issuance platforms, the empowerment of platform tokens is crucial. The empowerment of social platform tokens is challenging; the failure of Monaco Yacht illustrates that low empowerment of platform tokens leads to a death spiral. The upcoming BBS has made innovations in platform token empowerment, which requires a period of observation. For token issuance platforms, if their tokens are linked to fan tokens, this also relies on the platform's mechanism. Currently, Rally's token mechanism is better than Roll's, but both have low empowerment.

4. There are few users. Currently, Ethereum has about 500,000 daily active addresses, and BSC has about 1 million daily active addresses. To build an active social network, the current user base is still relatively small.

SocialFi still has a long way to go for development; its market scale is small, and its mechanisms are relatively primitive, with Web 3 natives still being few. However, in line with the trends of the times, with Web 3 on the horizon, the combination of social + DeFi will likely lead to the rise of the SocialFi sector.