The new trend of Web3 social applications behind hundreds of millions in financing

Written by: Tangyuan, Hive Tech

Between July and August, amidst the ups and downs of the crypto market, DeFi applications fell silent, NFT project floor prices plummeted, and the public chain track was eerily quiet. In such circumstances, two rounds of financing worth tens of millions came from the decentralized social track.

On August 11, the decentralized communication protocol Satellite IM completed a $10.5 million seed round financing, led by Multicoin and Framework Ventures, with participation from Solana Ventures, Hashed, and others. On July 13, the decentralized social underlying network Farcaster completed a $30 million financing round, led by the well-known crypto venture capital firm a16z, with participation from Standard Crypto, Coinbase Ventures, and others.

Currently, neither Satellite IM nor Farcaster has launched a usable application; the protocols are still in the development stage at the time of financing. Satellite IM plans to launch a mobile native application called UpLink in the fall, while Farcaster's official Twitter has only released a few product usage screenshots, and users have yet to see the full product.

Why did these two projects receive support from top capital before their products were unveiled?

For a long time, decentralized social products have revolved around NFT assets, such as building various membership communities or clubs using NFTs. However, as the NFT market cooled, these NFT-centric social products fell silent. Meanwhile, attempts to create Web3 versions of social or communication applications like Twitter, Discord, or Telegram have always been limited by resource and underlying infrastructure constraints, making it difficult to compete with Web2 software experiences, often only telling the old story of "logging in with a wallet address."

The emergence of Satellite IM and Farcaster may break this deadlock.

Satellite IM is a communication tool that also aims to achieve on-chain user communication based on wallet addresses, while Farcaster serves as the underlying infrastructure for social applications, providing developers with tools and components, and claiming that social applications built on this platform can interact with each other.

Satellite IM and Farcaster bring a new direction to the decentralized social track.

On-chain applications need integrable communication tools

The emergence of DeFi, NFT, and GameFi has finally showcased the value of blockchain as the underlying layer of a new generation of the internet. Those programs built on-chain are called decentralized applications (DApps), and the way users interact with these applications differs from App applications in the Web2 world—DApps do not require any permission, do not need registration, and can be connected using an on-chain wallet address to access the functions they provide.

Currently, mainstream blockchain applications tend to focus on financial attributes, such as decentralized crypto asset trading platforms and lending platforms in the DeFi space. Although on-chain games have achieved a certain level of playability, the breakout on-chain games emphasize the "play-to-earn" attribute, with earning crypto assets being the primary goal for players. NFTs, while capable of carrying images and videos, are primarily purchased for their asset attributes.

Most applications and scenarios from the current Web2 era have not developed on-chain. For instance, the most frequently used social software, not to mention e-commerce, video platforms, and transportation applications that are increasingly intertwined with daily life. Compared to non-financial offline scenarios, online scenarios are more easily realized on-chain, which is likely to be the first breakthrough direction in the transition from Web2 to Web3, with social being an important breakthrough point.

In the Web2 world, social products can be broadly divided into two categories: one is communication products, which primarily facilitate information transmission between users, allowing them to send text, files, audio, and video to each other, such as QQ, WeChat, DingTalk, and email. These communication applications are also known as IM (Instant Messaging) tools; the other category is social media platforms, such as Weibo and Twitter, which are mainly used for users to showcase their life status and express opinions online, allowing for interaction.

IM is no longer limited to communication tools; it can be integrated into various apps to facilitate communication between users and platforms. Communicating with merchants on Taobao is no longer a problem. However, decentralized applications currently cannot achieve interaction with service providers.

The vast majority of DApps that log in via wallet addresses have not integrated communication tools on the blockchain. Not to mention communication between users, even communication between users and platform providers is not possible. When you encounter issues trading crypto assets on Uniswap, you either have to search for answers in the user guide, leave a message on Uniswap's official accounts on Twitter or Discord, or seek help from experienced users on Telegram.

Trading is in Web3, but communication still relies on Web2, let alone socializing.

Developers have long been exploring communication tools for on-chain applications. From last year to this year, some early forms of wallet-based communication applications have gradually emerged in the market, the most notable being BlockscanChat, developed by the Etherscan team in January this year. It is an instant messaging product based on Ethereum wallet addresses, currently in testing mode. When using it, users log in with their Ethereum wallet address, then search for the other party's Ethereum address or ENS domain name to communicate for free.

Earlier, in November 2021, the NFT trading platform Rarible announced the launch of a messaging service tool, Rarible Messenger, integrated within the trading platform, allowing platform users to communicate via wallet addresses without needing to switch to other Web2 applications like Discord or Twitter. The emergence of Rarible Messenger allows potential buyers and sellers of NFTs to connect directly, enabling not only information communication but also point-to-point transaction needs without going through the platform. Rarible stated that it would derive this feature into an independent Web3 communication tool.

In addition to Blockscan Chat and Rarible Messenger, there are other communication applications worth noting.

Cross-platform communication application SwapChat

SwapChat claims to be a decentralized communication application tool that supports users in creating chat pages across platforms to complete information exchange. This product is built on Web3MQ, a software infrastructure that supports sending and receiving messages in distributed systems.

Currently, SwapChat is available to users as a plugin. To use it, users need to add this plugin in their browser (such as Google), then connect their wallet address to use it as an instant messaging tool across different DApp applications.

SwapChat supports users in sending messages across platforms, including decentralized applications and centralized social platforms. It links users' wallet addresses with profiles on centralized social platforms, enabling the functionality of sending messages to wallet addresses across different platforms.

Currently, the plugin supports use on social platforms like Twitter and Discord. As long as users have installed the plugin in their browser, they can create a chat page on the user homepage of these platforms to communicate with others.

For example, if Xiao Ming is a well-known crypto KOL on Twitter and holds a certain BAYC NFT, Xiao Li, who wants to buy this NFT, can use SwapChat to click on Xiao Ming's personal Twitter homepage to create a chat page to inquire about the price.

For crypto asset trading applications, SwapChat can be integrated into NFT trading platforms like OpenSea and SudoSwap. After users install the plugin, they only need to create a SwapChat page to send messages to NFT holders, who must also have the plugin installed to receive messages. In other words, interaction between OpenSea users requires both parties to have SwapChat installed. Users can also click on the homepage of NFT project collections to join "NFT Rooms" to view and reply to group chat content related to a specific NFT project.

SwapChat addresses the pain point of lacking communication tools in NFT trading markets like OpenSea, potentially becoming the "Ali Wangwang" of NFT trading platforms. SwapChat does not rule out the possibility of being embedded in other DApp scenarios, directly serving as an instant messaging tool.

It is particularly important to note that when communicating on SwapChat, users should conduct address verification to prevent scams.

The reason SwapChat can achieve cross-platform communication is primarily due to the underlying support of Web3MQ. However, as seen from its integration on OpenSea, it cannot yet truly operate in full integration with the blockchain, indicating it is not completely decentralized. Thus, on-chain social applications require support from distributed on-chain communication infrastructure, and some developers are already making efforts in this area.

Decentralized communication underlying protocol Satellite IM

In 2020, developers Christopher Hogan and Thomas McArdle created Satellite IM, which is both a decentralized communication platform that enables peer-to-peer private messaging and an infrastructure that attempts to leverage decentralized and encryption technologies to provide a platform for building scalable applications. It offers developers custom modules and foundational components for building decentralized social products, allowing them to create products based on their needs.

Satellite IM has disclosed that it will launch a mobile application called UpLink in the fall.

On the Satellite IM platform, messages are encrypted, and sending messages requires the user's encrypted signature. This means that even if someone can access the sent message, it cannot be read by anyone other than the designated recipient.

The official product of Satellite IM has not yet launched; only a testing version is available. From the official product screenshots, it can be seen that the Satellite IM interface is very similar to the PC version of WeChat familiar to Chinese users, allowing users to send text, audio, video, and files, as well as create groups.

Additionally, Satellite IM claims that its underlying protocol is compatible with the Ethereum Virtual Machine (EVM), meaning developers can build social applications on the protocol that can integrate with Layer 1 networks and interact with multiple Layer 1 blockchain networks, becoming an on-chain communication tool.

Platform-based operations promote composability between social applications

Replicating Web2 application scenarios on Web3 is a direction that Web3 social applications can advance. If blockchain smart contracts can be utilized to achieve interaction between applications and break down the barriers of non-interoperability among Web2 social applications, then Web3 social applications will achieve groundbreaking innovations.

The interactivity of smart contracts has already been demonstrated in the DeFi space. For example, the liquidity reward model present in decentralized trading applications (DEX) has spawned yield farming applications, which can help users willing to provide asset liquidity find high returns across multiple DEXs. This parasitic or composable approach is referred to in the industry as "DeFi Lego," breaking down the barriers of financial asset liquidity.

If this composability is applied to online social scenarios, it will resolve the data barrier issues between different platforms. In Web2 social products, information and data cannot interoperate between different platforms. Many users have complained that Taobao links cannot be opened directly on WeChat; original videos from Kuaishou influencers cannot be re-uploaded to Douyin, limiting content creators' traffic aggregation.

In the Web2 social era, monopolies are everywhere. Centralized social platforms divide users and claim ownership of the content created by users. Some hope that Web3 can solve these problems, allowing for interaction between different products and enabling users to freely migrate their social data.

Many developers are already building decentralized social applications, and some are attempting to provide underlying infrastructure for other developers through universal social graphs or data models to construct social projects.

Among them, the most famous representative product is Lens Protocol, developed by the Aave team. It is a composable, open decentralized social media underlying protocol, serving as the infrastructure for Web3 social media applications, primarily designed to help developers build decentralized social media platforms.

Lens Protocol provides a complete set of modules such as "personal homepage NFTs, content NFTization, fan NFTs, and collectible NFTs" based on NFT assets. These components offer developers a complete business operation chain from creators to content to consumers. Developers can freely use these foundational components to build social products. Social applications developed based on Lens Protocol will share resources from the Lens ecosystem. For example, all decentralized social platforms built on Lens will support users to access with a single wallet address, enabling interaction between platforms and allowing for the interoperability of built-in NFT assets, etc.

In addition, CyberConnect and Farcaster are also worth mentioning.

Decentralized social registry Farcaster

Farcaster is a Web3 social network developed by former Coinbase employees Dan Romero and Varun Srinivasan. It is an underlying application protocol for building decentralized social networks, supporting developers in creating various applications on the protocol, and allowing users to freely migrate social resources and identities between different applications. It aims to establish direct relationships between users and fans without relying on any intermediary platform.

Farcaster is still under development, and founder Dan Romero has released some product page images. From the disclosed information, the application's functions are similar to Twitter, allowing users to post content, comment, and receive notifications.

While the product page of Farcaster resembles Twitter, we can expect its essential difference—on Farcaster, users can freely migrate their social graphs and identity information between applications, maintaining connections with their followers independent of the applications. Twitter users cannot directly migrate their followers to Facebook, but if a user has 100 followers in application A built on the Farcaster protocol, when they move to application B on the same protocol, those 100 followers and social resources will migrate with them.

Farcaster officially states that after users connect and verify their wallet addresses, they can send messages, read messages, and display NFTs in their wallet addresses, such as profile pictures. As a decentralized social network, Farcaster is concerned not only with what users express but also with what users can prove on-chain.

According to the official introduction of Farcaster, the product primarily completes user information storage and retrieval through an on-chain registry and off-chain hosts.

The on-chain registry is a smart contract database that stores user names, including usernames, wallet addresses, and social profile connections (off-chain host URLs). It serves as a tool to prove the uniqueness of usernames; off-chain hosts refer to databases that store user social profiles and other information, which can be used to retrieve users' historical social data.

Farcaster serves as an underlying structure built on a social registry, allowing any developer to utilize this registry to create social products. The core of the protocol is a name registration system established on Ethereum—users can register a unique username with a single Ethereum address and associate it with a content hosting URL. Only those with the address's private key can update the content hosting address. This is the secret behind users controlling content association rights.

Developers have already deployed some native projects on the Farcaster protocol, such as image upload and publishing tools like Instacaster and post retrieval tools like Searchcaster.

Decentralized social graph protocol CyberConnect

CyberConnect is a decentralized social graph protocol aimed at returning data ownership and utility to users while providing Web3 developers with a foundational infrastructure for building applications or integrating data. It has been integrated on Ethereum and Solana chains. In May of this year, CyberConnect completed a $15 million Series A financing round.

CyberConnect explains that the so-called "social graph" is a graph traced by "the social relationships between people." Users establish connections with others through various means, and the things they follow and track will form clues. In the online world of the internet, such clues often gather on well-known social networking platforms like Twitter and Facebook, forming an online social relationship graph.

CyberConnect's mission is to return ownership and utility of social graph data to users, democratizing social connections, and enabling social graphs to have autonomy, portability, and composability, making social graphs not only related to blockchain but also allowing users to discover more social identity meanings through associations.

CyberConnect itself is not a complete Web3 social product but a set of infrastructure services, with its core service target being developers. By analyzing users' interaction trajectories and behaviors across different applications, it standardizes user profiles, creating data standards, data storage infrastructure, and recommendation indexing systems. This data can be accessed by anyone and can provide better suggestions for content recommendations and social discovery, offering a universal social data layer for decentralized applications in the Web3 world (such as DeFi, GameFi, NFT, DAO, etc.).

Products developed based on CyberConnect allow users to own the data generated while using the product, which can migrate with their identities. Each person's social graph can become part of their Web3 identity, allowing for seamless switching between different applications.

Ordinary users can connect their wallet addresses on CyberConnect, follow other addresses, or search for the wallet addresses of people they want to follow. By clicking these addresses, they can enter others' homepages to view their NFTs, Mirror articles, and other Web3-style content.

On July 19, CyberConnect announced the launch of its native social application Link3—a Web3 social network identity aggregator.

Link3 will aggregate users' on-chain and off-chain data through personal profile pages, serving as a comprehensive identity for users in the Web3 world, forming trustworthy network connections with others and organizations. Currently, users who want to experience the product need to apply for a whitelist.