The Future of Web3 Social: Solving Income Issues with Tokens and Incentives to Create New Social Experiences

Original Title: 《Future of Social Networks (3 of 3)》

Written by: PAUL VERADITTAKIT

Compiled by: Deep Tide TechFlow

This article is the third in a series on decentralized social networks written by Pantera partner PAUL.

The series explores how today's technologies and trends address a range of issues related to decentralized social networks, providing specific explanations and explorations for each issue.

Previous article one: The Future of Web3 Social (Part 1): Building Social Graphs to Solve Customer Acquisition Problems - Deep Tide TechFlow

Previous article two: The Future of Web3 Social (Part 2): Solving Identity Issues with Biometrics and Social Guarantees - Deep Tide TechFlow

In 2017, a group of researchers from the MIT Media Lab claimed in Wired magazine that decentralized social networks "will never succeed." In their article, they listed three impossible challenges:

(1) The problem of attracting (and retaining) users from scratch

(2) The problem of handling users' personal information

(3) The problem of user-facing advertising

They argued that in all three cases, existing tech giants like Facebook, Twitter, and Google left no room for significant competition due to their extensive economies of scale.

Fast forward to now, what was once deemed "impossible" seems less out of reach, and we appear to be on the brink of a transformation in the concept of social media networks. In this three-part series (this being the third part), we will explore how new ideas in decentralized social (DeSo) address these "old" problems, specifically including:

(1) Solving the cold start problem using open social layers

(2) Addressing user identity issues through personal verification and cryptographic techniques

(3) Solving revenue issues through token economic models and incentive mechanisms

In this article, the author primarily discusses the third point, namely the ways and examples of using token economic models and incentive mechanisms to solve revenue issues.

Creating "Killer Apps"

The ultimate question of whether Web3 social can succeed as a vertical domain hinges on whether it can produce a new "killer app," akin to TikTok or Instagram, that offers a truly novel social experience to attract users at scale. Without this "killer app," the development of all underlying infrastructure (such as decentralized social graphs and human identity verification protocols) will lose much of its intended purpose.

However, the problem with these "new social experiences" is that they are almost unpredictable. Despite the repeated mantra of "building killer apps," no one knows exactly what form this app will take—after all, you are essentially trying to predict the trajectory of human behavior. In this article, I will not attempt the impossible task of specifically predicting what the next "killer app" in the social domain will look like; instead, I will explore two high-level strategies—enhancing existing social experiences by adding Web3 features and creating a Web3-first social community—and describe some projects that are following these potential innovative paths.

Enhancing Existing Social Experiences Through Tokenization

In building a Web3 "killer app," the simplest approach is to add some new features to existing mainstream social platforms. The most common way is to add "extra Web3 features" in the form of tokenization, such as X-to-Earn projects.

One of the most interesting projects on this path is Reddit's Moons program, launched in May 2020, which rewards users for posting and curating content on the r/CryptoCurrency subreddit. Reddit Moons is an ERC-20 token issued on Arbitrum Nova, with its supply based on the "reputation" users earn on Reddit, calculated from the upvotes and downvotes they receive. Moons allows users to vote on the future distribution and overall direction of Moons in community polls.

The overall token economic strategy of Reddit Moons has also been praised by the community, with a monthly issuance decrease of 2.5%, bringing the annual inflation rate of the token close to 1%. Thus, over time, the "reputation to Moons ratio," or the number of Moons users earn through "reputation," is expected to steadily decline, making Moons scarcer in the long run and potentially increasing its value.

Reddit is a particularly interesting case, as it integrates Web3 features (in this case, Moons tokenization) into an already existing "killer app." Among all mainstream social media platforms, Reddit can be considered the most decentralized and community-driven, thanks to its unique "subreddit" structure, which allows these platforms to have a significant degree of autonomy and self-management rather than enforcing a traditional top-down content management approach. These design decisions arguably make Reddit one of the most suitable platforms to experiment with Web3 mechanisms. In fact, Moons is just one example of Reddit's innovative community points program, which allows subreddits to launch their own ERC-20 tokens and provides a wallet called Reddit Vault based on Ethereum to store these tokens. Besides Moons, the Brick token from r/FortniteBR is another notable example of this program.

As of August 2023, Reddit Moons gained some attention after being listed on several major centralized exchanges, including Kraken. However, while the "surge" of these tokens brought immediate joy, it remains unclear whether this simple "post to earn" mechanism can succeed in the long term. Based on the data above and price data from August 12, the Moons income for Reddit "Maxers" is approximately $4,200, while the median income is only about $0.9.

This is a sobering statistic, revealing a fundamental issue with the X-to-Earn model: you don't earn much, or at least far less than what such projects sometimes advertise as "life-changing money." Additionally, income tends to skew towards a small number of users, meaning that average users may not enjoy much of the "earning" portion, even if they participate in the "X" activity. Ultimately, users may feel disillusioned by these meager earnings, leading projects like StepN down a path of collapse.

Therefore, for a simple "social earning" project, overemphasizing "earning" may be unsustainable in the long run. Instead, a novel social experience must be created for the end user, one that users are willing to pay for, rather than being rewarded through payment. The recent buzz around the friend.tech project on the Base network highlights this point. Friends.tech is essentially a "stock market for X (formerly Twitter) profiles," where users can buy and sell "stocks" of individual X (formerly Twitter) influencers. By owning an influencer's "stock," users commit to gaining increased access (such as through private chats and other exclusive benefits), and users can freely trade these stocks.

This novel social experience and the ability to monetize individual X engagement generated over 6,000 Ether in trading volume (equivalent to about $11 million) and more than 230,000 transactions within just a few days of its invite-only beta release. However, there are concerns about whether friends.tech can maintain this early momentum and truly pave the way for the tokenization of influencer profiles, or whether it will evolve into another "RUG" project. Coindesk specifically pointed out the project's lack of effective documentation on privacy policies and data collection practices, as well as the absence of a roadmap or white paper. Furthermore, it remains unclear how the platform and its influencers will fulfill their commitments to "shareholders" regarding "access," thereby truly creating a new form of social experience. Nevertheless, friends.tech remains an impressive experiment in transforming tokenization itself into a new form of social experience.

Building the First Web3 Social Community

Rather than attempting to add Web3 features like tokenization to existing Web2 social platforms with entirely different revenue models, another approach to creating a "killer social app" in Web3 is to build from scratch, launching from a unique crypto-native community and culture.

Phaver is a typical example of a "first Web3" social community. Phaver is built on the social graph of Lens (recently integrated with Cyberconnect's social graph) and attracts the attention of Web3 native communities through integration with other Web3 social identity technologies, such as NFT communities and soulbound tokens. It is a platform with a unique dual-token model, using a novel scoring system composed of "reputation" and "points," allowing users to earn rewards and privileges on the platform through upgrades.

"Cred" essentially represents a user's credibility on the platform. Users can increase their credibility by linking soulbound tokens or NFTs to their accounts, as well as through daily interactions on the platform. Users are rewarded with "points" based on the quality and level of interaction of their own posts, which can ultimately be redeemed for Phaver tokens. Importantly, the higher a user's "credibility," the more points they can earn from a post.

Since users must link soulbound tokens and specific NFT collections (such as Cryptopunks and Bored Apes) to gain "credibility," this provides a useful way to distinguish users from bots on the platform. In fact, it almost acts as a "proof of social identity." Thus, Phaver suggests that projects can use its "credibility system" to prevent airdrop bots and ensure that users are human, rather than bots—without needing to scan any retinas.

As seen above, Phaver has created a novel token economic system to establish a Web3-first social community. However, for Phaver, like many Web3-first social applications, the main challenge is to expand beyond the native Web3 audience to those users who have no Web3 experience and do not know what a Bored Ape or soulbound token is, while giving these users a clear reason to use the platform. Although Phaver claims to follow a "web2.5" model that allows users to register without a Lens profile, Phaver's "unique experience" largely relies on Web3, which brings an educational cost that may become a significant barrier to widespread adoption.

Another notable project inspired by the Web3 community subculture is POAP, which stems from the unique "conference culture" of the crypto space and a series of annual global events, such as ETHGlobal. Essentially, POAP is an NFT, or ERC-721 token, minted through the POAP smart contract, digitally representing a user's attendance at events or conferences, and stored immutably on-chain. Since 2021, POAP has issued over 6 million such NFTs, collaborating with internationally recognized brands like Adidas, Vogue, Github, and the US Open. However, the most interesting aspect of POAP may be how it serves as a social primitive, a way to kickstart social networks and find others with similar interests and networks.

Moreover, events, conferences, and conventions are things that do not require specific Web3 knowledge to understand—it's easy to imagine anime conventions, world expos, and national art galleries implementing similar POAP mechanisms for various communities and subcultures. However, the core issue lies in how to maintain the utility of these POAPs, whether through loyalty programs that reward participants, trading opportunities, or exclusive events, ultimately launching a new type of social community and creating a new form of digital social experience.

Conclusion

So, how should we create that "killer app"?

Ultimately, the long-term success of Web3 social must lie in creating a new form of social experience, rather than merely replicating certain Web2 mechanisms and claiming it is special just because it is "on-chain" and "tokenized." Instead, there needs to be a qualitatively new experience, particularly one inspired by and rooted in Web3 culture—whether it be NFT communities, asset tokenization, or crypto conference culture.

More importantly, while tokenization and other Web3 mechanisms offer possibilities for many new application designs, for a "killer app" to scale beyond crypto-native users, there must be an easy-to-understand use case (such as event attendance) rather than being filled with Web3 jargon and concepts. Essentially, Web3 social must leverage the distribution and abstraction techniques of traditional social media (like TikTok or Instagram) to "go viral."

Since social media ultimately serves as a way for users to express their personalities and preferences, any successful Web3 social media must have an open design space that allows users enough "blank canvas" to create their own use cases. Often, the reason a social app "goes viral" is entirely different from its initially set goals. For example, as a company, TikTok could not have predicted all the different trends and challenges that emerged on the platform. The strength of such a platform lies in its ability to unleash a platform of open creativity for such applications. Only when Web3 adopts this design decision, rather than focusing on financialization and on-chain imitation, can we truly begin to build a brand new "killer app" that expands Web3 social into becoming the only "social."