Author: ROOT, Soulink

Unlike sectors like GameFi and DeFi, which have already reaped market dividends and are gradually stabilizing, SocialFi seems to exist primarily as a concept. Over the years, many developers have attempted to launch applications in this direction, but explosive growth has been hard to achieve.

Since the launch of friend.tech, nearly 80% of discussions around Web3 applications in the past two months have focused on SocialFi, with a series of clones emerging like mushrooms after rain.

As the enthusiasm for SocialFi rises, we may now be able to think about the future of SocialFi products from a more comprehensive perspective.

What Are We Actually Discussing When We Talk About SocialFi?

If you could have lunch with Buffett for a relatively small amount of money within your means, would you be willing?

What if Buffett were replaced by your favorite KOL or an industry elite you admire?

What if having lunch were replaced by joining a discussion group with these individuals, and you could exit at any time and get your ticket back?

What if this ticket could serve as a financial product that might bring you a certain amount or even excess returns?

If you were this KOL, industry elite, or Buffett, could you also benefit from the ticket?

If your answer to all these questions is Yes, then you have already become a potential user of these SocialFi products. Almost all current SocialFi projects revolve around the above questions, continuously seeking optimal solutions through market adaptation.

Project Status

Recent comparison of data between friend.tech and its "clones"

Timeline

In mid-August, friend.tech ignited the SocialFi market. Before its launch, it did not receive a very positive market response, but the gears of fate began to turn when the well-known investment firm Paradigm joined the seed round.

Overnight, the topic of friend.tech exploded, with users scrambling for invitation codes, tutorials, and profit screenshots flooding the market, leading to a gradual FOMO effect. Its protocol's TVL peaked at $52 million on October 2, far exceeding established DeFi protocols like Curve and Compound. At that time, the total TVL of the entire Base chain was just over $300 million.

With a compelling narrative comes imitation, and soon various SocialFi products flooded the market, with KOLs promoting them wildly. It wasn't until last week when a contract vulnerability was discovered in StarArena on Avalanche, leading to the "hacker stealing" approximately $3 million worth of Avax from the contract, that the market began to cool down slightly.

What Innovations Has friend.tech Brought?

SocialFi is not a new concept; why has friend.tech been able to generate FOMO in a quiet bear market?

Setting aside the backing of Paradigm and Base, we believe that the greatest success of FT lies in its use of Bonding Curve trading to solve the liquidity issue of SocialFi. From issuance to trading to exit, we no longer need market makers or order books. Users buy and sell KOL's KEY, and the price of the KEY moves along the curve. The more people buy in, the higher the value of the KEY, and each transaction generates fee income for the platform. Users holding the KEY can access the KOL's group or private chat room, allowing direct communication with the KOL. This is a perfect combination of Social + Fi.

In contrast, previous SocialFi projects either lacked the Fi gene (focusing too much on technical underpinnings like rights confirmation and privacy) or went in the wrong direction with Fi (for example, Chat to Earn projects inevitably falling into a death spiral of mining and selling).

Additionally, friend.tech has somewhat solved KYC and login-friendly issues through its binding with Twitter and custodial wallets. However, the transparent and public nature of blockchain also makes it impossible to prevent on-chain scientists from using scripts to exploit arbitrage opportunities.

Airdrop Expectations

A good product designer must be an excellent researcher of human psychology. Most existing products have mastered the art of enticing users with airdrops, which is to keep things vague and let users endlessly speculate about future token rewards.

Currently, FT and its clones reward users with Points based on their holding of Keys and their activity within the community, which may have potential airdrop Token value later. They use point incentives to attract new users. However, the token model remains unknown to us; whether FT and its clones will integrate tokens into the project to create a virtuous cycle or simply launch tokens for users to mine and sell, leading to a spiral death, remains to be seen.

Economic Model

Almost all products adopt an S^2/N price curve for their economic model, where N is a constant, making it simple and efficient.

Originating from financial markets, the elegant Ponzi curve is the first choice for all financial derivatives. From the curve, we can see that when there are 500 holders, the price for the homeowner has already reached 15E, making it very difficult for new entrants to find a new buyer to break even. Early entrants profit more, while later entrants become the ones who take over, easily creating market FOMO and avalanche effects.

Taking friend.tech as an example:

Its economic model is: Y(price) = S^2/16000

Since the transaction wear for users is 10%, based on the price curve, each buying user needs a price increase of at least 22% to profit.

However, as @0xLoki pointed out:

1) Confusing EV and book value, creating a wealth illusion (2) Using the EV of later participants to provide profits for earlier users. Because the EV of a single KEY equals the TVL, when the number of KEYS exceeds 20, the real EV, excluding fees, is only 30% of the book value.

Y = X^2 / 16000 (X-axis is key supply, Y-axis is price)

Taking friend.tech as an example, currently, users are charged a 10% transaction fee for each buy and sell, with the homeowner and platform each taking 5%. The downside is that the wear and tear on users is too high, leading to insufficient profits for homeowners, while everyone's net recharge will continuously flow to friend.tech, and the high fees will inevitably stifle this game.

However, from the contract code of friend.tech, we can see that its FeePercent can be modified. Perhaps in the future, it may attract new users by lowering transaction fees. Similarly, all similar products on the market retain the same variable modification functions, and we believe that transaction wear will find an optimal solution as the market progresses.

Industry Analysis and Some Thoughts

Perhaps the extreme lack of market liquidity and the desire for new narratives have allowed friend.tech to quickly ascend to the iron throne of SocialFi.

When it comes to the social aspect of SocialFi, current SocialFi products seem to focus on upward socialization. Many believe these product designs are the perfect model for knowledge payment, as underlying users desire to purchase tickets to gain smaller information gaps and faster upward channels. On the surface, these product designs seem to address some pain points. However, from any angle, their social attributes are extremely inadequate, failing to even reach the entry threshold of Web2 social products. Furthermore, if friendships are bound by monetary relationships, this seems to present a paradox.

Does having lunch with Buffett and joining his group chat truly complete upward socialization?

Possible Development Directions

SocialFi is essentially a value deconstruction of centralized social platforms in Web2, a form of data rights confirmation. Currently, value deconstruction has taken initial shape, while data rights confirmation seems somewhat lacking. Perhaps it could combine with social protocols like Lens to confirm and protect user output.

The correct Web3 social product must allow value to flow fairly between content creators, community platforms, and users. The Ponzi financial attributes will inevitably lead to the spiral death of products, forming a tragic triangle. In addition to enhancing product services to align output with value, various value curves may be a good direction. For example, the same product could adopt different economic models for different services (constant model (Onlyfans), linear model (y=NX), geometric growth model y=S^N), allowing users to choose.

In addition to knowledge payment, introducing more innovative features and monetization channels, such as aggregating NFTs, music, videos, and purchasing corresponding services, could be beneficial.

The curve trading solution could be combined with existing Web2 social products to bring about mass adoption.

Returning to the fundamental question, do we really need SocialFi?