Friend.Tech Deep Report: Outbreak History, Airdrop Expectations, Death Spiral and Top Ten Risks

Written by: Jason Kam, Folius Ventures

Compiled by: Wu Says Blockchain

This article does not represent the views of Wu Says. Readers are advised to strictly adhere to the laws and regulations of their location and refrain from participating in illegal financial activities.

Folius Ventures has released an analysis report on Friend Tech, indicating that it currently refuses to engage with all VCs except Paradigm. Mining is the only way to gain exposure to the company, and the final FDV is expected to be around $1.5 billion. A continuous payment mechanism must be introduced, or a death spiral may occur. It is anticipated that, given sufficient execution capability, there will be at least two more peaks in DAU, and strong airdrop expectations will maintain interest until January-February 2024. There is a significant risk that KEY could be defined as a security, and it is also possible that tokens may not be issued at all. Below is the edited content from Wu Says, with slight reductions.

Review of Friend.Tech's Development Journey

In just one month, standing on the shoulders of predecessors, it addresses industry sharing pain points while leveraging speculative effects for a cold start, and relies on rapid iteration and bundling with Paradigm to solidify development expectations.

● Perfect product fit: The choice of PWA aligns with lightweight social products, giving old technology a new scenario, which is crucial to bypass the unfriendly App Store for Web3. Additionally, the integration of Web2-like login methods lowers the barrier to entry, binding Twitter accounts to gain initial traffic, and the joint curve design facilitates easy liquidity in and out. The Base/OP Stack strikes a good balance between minimum security for social/small amounts and ultra-low costs, along with the maturity of USDC as an offshore dollar, allowing Friend.Tech to be smoothly promoted and converted under the current limited Web3 infrastructure, successfully achieving the business model of "CT traffic generation, FT monetization."

● Addressing pain points to some extent: In the Web3 circles, whether it's X, Discord, WeChat, or TG, there is no good platform similar to Knowledge Planet / Dedao / expert consulting networks that allows for cognitive payment, enabling high-value individuals to monetize their attention and knowledge in a low-noise, comfortable manner. Friend.Tech somewhat fills this market gap, making it possible for payments to reach the most knowledgeable and profitable individuals in the industry.

● Speculative effects and early KOL strategy overcome cold start: During a narrative vacuum in the industry, Friend.Tech initially gained a large amount of traffic by directly providing cash to Twitter KOLs + offering users a 5% profit share for purchasing Keys. Users' expectations of KOL appreciation and the wealth effect after price increases realized the project's first wave of cold start. The project's airdrop expectations and potential to break out of its niche also attracted a group of loyal users who continuously created content, maintaining the project's DAU activity.

● Paradigm's core secondary rocket empowerment: After the first wave of bonuses declined, the news that Paradigm, as the top institution in the industry, led the investment laid a strong foundation for the project's development. Future token airdrop expectations are solidified, and valuation expectations are significantly raised, indicating that users' willingness to deposit and the amount will also increase significantly. The strong background of the investment company means that many small product issues and legal problems are likely to be resolved, significantly reducing the risk of running away and greatly boosting users' willingness to use and deposit.

● Rapid iteration on the right path: As a product, Friend.Tech is not up to par when horizontally compared within the Web2 circles in China/APAC. Fortunately, it continues to iterate correctly on the core aspects of strong monetization for homeowners and users making money while enjoying a smooth experience, and is very pragmatic in its implementation. From refresh speed, reply functions, cross-chain + deposit functions, global comparison/ranking interfaces, image functions, etc., the team's 996 capabilities are expected to continuously safeguard the product's improvement, ultimately reaching a passing level for Web2.

Friend.Tech's Points System and Airdrop Expectations

Holding Keys and speaking has become a form of Pool2 mining, and it is currently the only way to gain exposure, with potential returns being high.

The current popularity of Friend.Tech largely stems from its token issuance expectations— for heavy participants, the cognitive framework is that each 1 point could convert to a token airdrop worth $1-5, or a mining APR of 200-500% or even more based on participation amounts:

● Friend.Tech will distribute 100 million points over 25 weeks. The general consensus is that points represent token airdrops and are strongly correlated with the total amount invested in Keys, holding duration, and in-app activity (clicks, duration, speaking, etc.).

● As shown in the table below, if the final FDV of Friend.Tech is $1.5 billion, with 10% as an airdrop, and the average TVL over 25 weeks is $80 million, then if the airdrop ratio for participants is proportional to their participation in TVL, the annualized airdrop yield would be approximately ~360%.

● Purchasing KEYS, maintaining activity, and product friction barriers have hindered large capital entry. However, we believe that with improved industry awareness, product iteration, enhanced financial facilities, and the entry of Silicon Valley + APAC + traffic-oriented individuals, both TVL and KEY prices could rise significantly.

● It is worth mentioning that Friend.Tech currently refuses to engage with all VCs except Paradigm. Therefore, we believe this presents an opportunity for retail investors and secondary funds, and mining may be the only way to gain exposure to the company.

About PMF (Product-Market Fit)

For general professionals, rapid reputation monetization represents earnings of $1,000 to $10,000 in the short term. Insights in private chats are currently abundant.

● Subscription price = selling price * 0.9 - buying price * 1.1. In other words, when the price rises by 22%, the user effectively subscribes for free. According to the conversion formula, if the number of Keys held increases by 10% after repurchase, this user can "get it for free."

● The final pricing should fall around the cost of multiple consultations for a single user ≈ 20% of the price (one in, one out). Based on the current Ethereum price and the typical pricing for one hour of industry consulting at hedge funds ($500-1000), the number of Keys for top paid consultants should be around 150-215, or a single Key price of about 1.4-3.0 Ethereum. Interestingly, this number of Keys, under the premise that a single user can hold multiple KEYS, is approximately equal to Dunbar's number of 150, which is the number of people a single person can easily maintain in a small circle. Therefore, we believe the design of this (S^2 / 16000 * 1) equation is intentional, and the single-person price of 1.5-3.0 Ethereum is considered the normal price for industry experts after the tide recedes.

● The public's perception of reputation + professionalism will quickly push prices to a reasonable range. The thrill of early discovery and profit keeps people engaged. High commission rates allow influencers to quickly feel the joy of income, further helping to promote the platform and accelerate network effects. An influencer at 50/100/150 Keys can earn at least $200 / $1700 / $5600 purely through royalties. If they can hold 3 KEYS at a low price early on, selling at the 50/100/150 KEY nodes could yield an additional $750 / $3000 / $6750. For most professionals, the temptation to quickly earn $1,000-$10,000 is enough to encourage daily participation and promotion.

● Users may tend to hold Keys due to the desire to get something for free and maintain a status symbol. Additionally, we believe that opportunities to gain the attention of top industry figures are extremely rare, and the cost of reaching the attention of those at the top of power and recognition is currently very low. For those in need, the price they are willing to pay for attention and feedback could be limitless, opening up the ceiling for Keys. However, sustaining cash flow for influencers in the long term may pose a challenge that needs to be addressed.

Initial Revenue Explosion and Subsequent Income Issues

Friend.Tech must introduce a continuous payment mechanism; in subsequent cycles, a decline in KEY + token prices <-> user abandonment may trigger a death spiral.

As mentioned on the previous page, we believe Friend.Tech will inevitably face issues of inflated pricing by homeowners, saturation of Key holdings leading to reluctance to sell, and potential users lacking the funds to purchase, resulting in a continuous cash flow shortage. After homeowners initially monetize through royalties and selling Keys, they will inevitably face the core issue of insufficient follow-up momentum. We believe that for core Web2 traffic and mid-to-high-end professionals, Friend.Tech must open a continuous pay-per-use model for external and internal groups:

● We believe its design needs to incorporate differentiated pricing for those with Keys vs. those without, a referral link/profit-sharing mechanism for Key holders, and appropriate free disclosures based on unlocking time or other methods to achieve effective continuous monetization for homeowners.

● Without successfully achieving this, we believe that in a downward cycle after user saturation, the user churn rate will rise significantly as KEYS and tokens are sold off, further impacting KEY and token prices, creating a dual death spiral.

DAU Peaks

We anticipate that, given sufficient execution capability, Friend.Tech may still experience at least two more DAU peak impacts. After this, the product must create sufficient network effects and quality.

Potential future participants:

● Silicon Valley VCs + Silicon Valley entrepreneurs: through Paradigm and the current Web3 community.

● Numerous VCs, founders, opinion leaders, and crypto traders in the APAC region: through the wealth effect radiating from west to east.

● Non-Web3 individuals from various industries, especially high-net-worth niches: through the company's continuous business expansion and payment of GTM costs. Attracting opinion leaders with cash and tokens is crucial.

● Web3 native liquidity funds directly allocating to gain airdrop opportunities: we believe that when general liquidity funds can purchase KEYS like an ETF with one click and directly enjoy potential airdrops, significant capital will flow in.

● The wealth effect that continuously accompanies newcomers + TVL will increase token valuations while attracting more existing users' funds. We believe strong airdrop expectations will keep the product's popularity alive until January-February 2024.

Necessary feature additions:

● Free previews: increase potential users' willingness to purchase + improve discovery opportunities.

● Richer multimedia experiences: especially video and live streaming.

● Global page: local discovery of excellent content and helping influencers drive traffic; advertising opportunities can be considered but are not essential.

● Referral rewards: combined with profit-sharing can help influencers monetize faster and better.

● Additional encrypted or paid content in groups: helping influencers sustain monetization.

● Product details—can borrow from WeChat + Telegram, such as voting, reactions to posts, pinning content, etc.

● Stronger transaction scenarios, such as sending KEYS, directly guiding white lists or token/NFT purchases, etc.

● Greatly reduce barriers for users to join and deposit/withdraw.

● Significantly enhance product smoothness.

● Deeply consider joint curves and introduce multiple curves, while also thinking about continuous incentives for active + holding users post-token issuance.

● Consider designs similar to LP Pools to lower the threshold for users to buy Keys.

Joint Curves Still Have Room for Improvement

The team has made good trade-offs in simplicity, and we look forward to Paradigm making deeper modifications.

Currently, the product form of Friend.Tech is pure and singular: the simple joint curve is easy to understand and suitable for high-value KOLs that bring real revenue; however, it also has its limitations—when the user profile expands, not every user fits this type, and even KOLs need to stratify their own users. We believe that giving users the right to choose from several options (such as 3-4 types of curve forms) and achieving this in a simple way will greatly expand the TAM that Friend.Tech can reach:

● Monetization-style, constant price KEYS: constant price rather than x^2, with most (e.g., 90%) rather than 5% of revenue going to homeowners. This way, key holders can expand to thousands of people, similar to OnlyFans, adjusting through the utility of keys, allowing for faster generalization.

● Strong knowledge payment form, S-curve pricing KEYS: prices converge after marginal users (similar to S-curve) rather than x^2, which can stabilize the acquisition cost for most users in the later stages while accommodating early speculative users, making it more suitable for expert talents.

● Event-driven, multi S-curve pricing KEYS: similar to the above, but with room for price increases after users break through different bottlenecks, suitable for celebrity homeowners, which can drive users to promote voluntarily through referral links, thus breaking through the platform phase.

Fortunately, Paradigm's expertise in mechanism design and mathematics can greatly assist the Friend.Tech team.

Maximizing Points

If maximizing Points is the logic for configuring KEYS, then long-term holders of high traffic, high stickiness, high net worth, and those who are committed to deeply developing the product may be the most suitable.

The airdrop expectations give KEYS value beyond knowledge consulting and identity recognition. If we assume that the final token airdrop results are strongly correlated with Points, the goal of configuration should be to maximize weekly Points acquisition. Although the team can fine-tune the equation weekly, we dare to predict that its conversion method is likely as follows:

In-app activity (own + others) * KEY comprehensive asset price (own + others) * KEY holding duration

In light of this, before this formula is adjusted, the general guidelines for maximizing weekly points may be as follows:

● The product should be frequently opened and allow both self and others to voice opinions. At the same time, the KEYS held should be from active users.

● Priority should be given to homeowners with ample bullets, as the ETH in their hands is likely to be converted into KEYS, thus increasing weight; users with high overall asset prices should also be prioritized.

● It is worth noting that purchasing high-activity KOLs at low prices initially is not easy; therefore, for users with ample bullets and inherent traffic, making large purchases of their own KEYS early on may be one of the best ways to boost parameters.

● Given that holding duration should be one of the weights, plus an entry and exit cost of about 20%, the best strategy may be to buy early and hold long-term for users most willing to deeply develop the product, rather than frequently buying and selling; therefore, carefully selecting homeowners who are clearly unable to be segmented or are deeply involved, rather than purely following trends, may be a better strategy.

● Thus, from a configuration perspective, a homeowner who is high in traffic, high in stickiness, high in net worth, and has the reason and willingness to develop their brand within the product long-term should be the best choice for maximizing Points through long-term holding. Interestingly, such users should have also gained quite a few Points over the past four weeks, which may also serve as a screening criterion.

Risks

As a social vertical product with strong financial attributes, Friend.Tech's development path is fraught with risks:

● The project may ultimately not issue tokens, or the airdrop may be unprecedentedly small: thus, for participants, it is crucial to join early and strictly control losses across several cycles in ETH terms.

● Unable to break out and collapse prematurely: the current product has a high coverage of Web3; if it cannot break out, all assets face the risk of depreciation.

● Excessively high commission rates: a 10% buy and sell commission is very high, which may lead to strong dissatisfaction as product development slows and the base increases.

● Significant risk of KEY being defined as a security in terms of regulation: this risk cannot be eliminated and must rely on Paradigm's legal team and the company's clever design.

● Huge product execution risk: during the company's growth, due to its strong financial attributes, every functional update and continuous rapid iteration/problem-solving comes with significant collapse risks. The team needs to handle everything very robustly. Additionally, the product itself is still below the Web2 baseline, with poor user experience. If improvements cannot be made, there will be issues with retention after subsequent expectations dissipate.

● Inevitable financial cycles brought about by DAU fluctuations and price volatility: KEYS themselves will exhibit strong volatility and cyclicality with changes in airdrop expectations, user entry speeds, and price changes. This comes with a significant risk of permanent loss, and the team must manage expectations and iterate robustly during these cycles.

● Long-term retention risks: Friend.Tech may become a niche product after the tide recedes due to the high price of KEYS for the general public, failing to support an expected high FDV. The failures of Clubhouse and many niche social products serve as cautionary tales.

● Private key and Web3 asset security risks: wallets based on custodial mechanisms and smart contracts inherently carry hacking risks that must be considered.

● Team anonymity risks: the team has no actual responsibility to users. Of course, this has been somewhat mitigated by Paradigm's involvement, but the reputational risks associated with a semi-anonymous founding team still exist.

● Content risks: it is evident that such content platforms carry a high risk of violating the laws of any country. As the platform grows, it will inevitably face many challenges in review and regulation. The team needs to have great patience and preparation to meet all of this.