Dialogue with Variant Fund Co-founder: How Can the Crypto World Save Traditional Social Networks?
The differences between large social networking platforms are diminishing, and new ideas and innovations are becoming increasingly scarce.Organization & Compilation: Deep Tide TechFlow
Perhaps now is the best time to build in the social space, as we have new business models—ownership, new computing platforms—cryptocurrency, and a new generation of users who feel frustrated and resentful towards existing social paradigms. They crave something new, and these factors combined make us ready for the emergence of new things.
One of the most significant invisible forces affecting our world over the past decade has been engagement algorithms. We have shifted from social networks to social information streams, all happening without our awareness. How much autonomy do we have left? Is this the promise of the internet? Can cryptocurrency solve these issues?
This episode of the Bankless podcast features Eugene Wei and Li Jin, co-founder of Variant Fund. Eugene Wei is one of the smartest product people in the Web 2 social space, and they will discuss the above issues together.
Hosts: David & Ryan, Bankless Podcast
Speakers: Li Jin, Co-founder of Variant Fund, Eugene Wei
Podcast: Bankless Podcast
Original Title: "Li Jin & Eugene Wei on How Crypto Saves The Internet"
Column: Link
Release Date: October 30
Ad-Supported Web2 Social Network Model
Eugene Wei points out that the ad-supported social network model has had a profound impact on the development of Web2 society. The main advantage of this model is that it allows social media products to remain free, attracting more users and generating more traffic and data for the platform. As Web2 has evolved, advertising has become the primary source of revenue for most social media platforms, providing users with free services while offering businesses a platform to showcase their products and services.
Although the advertising model was very successful in its early days, Eugene Wei notes that over time, this model has begun to show its limitations. Attention is a scarce resource in this economy, leading to zero-sum competition among social media platforms, with each platform trying to attract and retain users' attention.
The advertising model restricts other potential development directions for social networks. For example, because advertising revenue is the source of income, social media platforms may be less willing to experiment with new business models or innovations; to capture users' attention, content often becomes more entertaining and frivolous; to maximize advertising revenue, platforms may excessively display ads, disrupting users' browsing experiences.
Eugene Wei points out that as social media platforms grow and user numbers increase, information streams shift from certainty to probability. Due to this probabilistic information flow, people begin to see themselves as media figures. To stand out in the algorithm, users start posting higher-quality, more engaging content. Everyone wants their content to be seen by more people and pays more attention to the development of their own IP.
Eugene Wei believes that due to the strong positions of existing companies and the limitations of the advertising model, Web2 society has reached its end. Web3 and cryptocurrency may provide a way to return to different social models. By changing the business model of social media, Web3 may offer a way to return to more authentic and deeper social interactions, and its decentralized nature gives users more control over their data and content, thus providing a better user experience.
Homogenization of Web2 Social Media, Business Model Bottlenecks?
Eugene Wei mentions that people rarely adjust or reset their social networks. When people join new social networks, they may choose to follow different people or not follow all the same people. However, on Facebook, Twitter, or Instagram, you rarely see people unfollowing or defriending on a large scale, leading to a phenomenon of "graph lock-in," which limits how we interact with each other.
Advertising as the primary business model limits the number of UI variations you can build into the product. Messaging apps are another new area of social construction we see, but their profitability is low, partly because their UI is not based on information streams, making it difficult to insert ads.
Eugene Wei observes that Instagram is mimicking TikTok, Twitter is also trying to mimic TikTok, while TikTok is attempting to mimic Facebook, leading to a reduction in the differences between large social network platforms, with fewer new ideas and innovations emerging.
Li Jin mentions that the theory of network effects states that the utility of a network increases with the number of users. However, as the number of users increases, network effects can become negative, as more users may reduce the utility of the network. For example, people may post content in small social groups rather than on large social platforms.
Li Jin believes that new computing platforms may provide a new direction for social media. For instance, VR, AR, or cryptocurrency offer different user experiences and interaction methods, potentially providing new opportunities for the future of social media.
Network Effects, Crypto Social, and Ownership
Definition: The theory of network effects states that the utility of a network increases with the number of users. When more users join a platform or service, the value of that platform or service increases for each user.
Li Jin mentions that the Web2 internet can be seen as a feudal system, where a few platforms (the lords) own all the land that we, as participants, users, and peasants, cultivate, but the ownership of the land belongs to the lords. Users must share a portion of their income with the platform according to its rules. In Web2, there is no user ownership; its core may be engagement and distribution rather than ownership.
Li Jin also notes that ownership could be a new business model that transcends advertising, allowing social networks to more finely differentiate between different user groups and provide them with different values. This model could enable smaller social networks and content creators to be more successful.
Li Jin believes that Web3 or "crypto social" is a way to turn towards capitalism, achieving capitalism in the digital realm, allowing for a system of private property on the internet where anyone can own capital online. In this model, cryptocurrency enables us, as users and participants, to become owners of online capital.
Li Jin emphasizes that the definition of crypto social is that social platforms center around encrypted ownership as the core user experience. This sharply contrasts with Web2, where there is no user ownership. In a social context, ownership as the core user experience can manifest in various ways, such as simple NFT profile pictures or fully on-chain social networks.
Li Jin mentions that we are still building for people in the crypto world. People are complex actors, and their decisions are driven by emotions and psychology, not just economic or rational utility. To make people truly care about financial ownership, they first need to feel ownership.
Future Pathways for Web3 and Social Media
Li Jin mentions that as a social product, you must satisfy users' cravings for love or fame. Either as a "love" product, deepening users' relationships with known creators, existing friends, and contacts; or as a "fame" product, helping people gain more attention and recognition.
Li Jin believes that Web3 provides a new direction for social networks, no longer just about engagement and distribution, but about ownership. In Web3, users can truly own their data and content.
Eugene Wei notes that social networks and social media can be seen as two ends of a broad and deep spectrum. Social networks are more about deepening existing connections, while social media is about expanding influence and gaining fame. One challenge Web3 currently faces is that it remains at a very low level of abstraction, similar to a computer's command line interface, making Web3 less user-friendly and harder to use for most users.
Eugene Wei believes that financial capital and social capital are two different forms of capital, but in Web3, these two are combined. This combination may lead to trust issues, as financial incentives could cause people to act unethically for short-term gains.
Li Jin believes that the issue with Web3 is not user experience but product-market fit. Currently, most crypto social products only meet users' income needs and do not address other human needs, such as belonging, community, and entertainment.
Li Jin hopes to see more crypto social products that are not just about money but also meet people's other needs. She believes the future of crypto social will depend on how we innovate and provide users with truly valuable experiences.
Eugene Wei mentions that innovators in Web3 should consider whether their products truly need cryptocurrency. If removing the crypto part would not change the product experience, then crypto may not be a core part of the product.
Eugene Wei hopes that Web3 developers can provide different ways of social interaction, not just to attract users' attention. He believes we can build a higher-resolution social graph, understanding our relationships in life more intricately.
Ethereum Social Networks
Li Jin mentions that there is an opportunity in the crypto social space to create new products based on entirely new networks, which are not based on interests or real life but on on-chain economic graphs, utilizing all on-chain information such as asset ownership, product usage, etc., as the foundation for new networks.
David suggests that Ethereum could be a social network. Although it does not have the appearance or feel of a social graph like Web2 applications, it is beginning to organize humans in a social context. Li Jin agrees and adds that Ethereum, PFP communities, or FWB tokens held in wallets can all be seen as social networks.
Li Jin believes that Web3 offers the opportunity to create new social networks based on on-chain economic graphs. All on-chain information, such as asset ownership, transaction history, etc., can be utilized to build new social relationships, and this on-chain social network can reflect users' real economic activities and interactions.
Unlike traditional centralized social networks, Ethereum provides a decentralized platform that allows users to interact directly without intermediaries. This decentralized social interaction can offer higher privacy and security while reducing platform monopolies and control. In Ethereum's social network, token economics plays a key role, allowing users to participate in social interactions by holding and trading tokens, which can encourage deeper participation and contribution.
Li Jin believes that the current era provides a unique opportunity for building social products. The new generation of users is dissatisfied with existing social platforms. They are no longer content to passively consume content but wish to participate and contribute more actively. They crave a platform that can truly represent their voices and values, rather than being driven by algorithms.
Li Jin believes that the true promise of Web3 social lies in its inclusivity and diversity. In the world of Web3, different types of creators have the opportunity to succeed, no longer constrained by platform limitations and censorship. Additionally, Web3 allows for the creation of new communities and connections based on real interpersonal relationships and shared values, rather than algorithms.
Lack of Psychological Ownership in Crypto Social
Li Jin mentions her article "Psychological Ownership," in which she explores the distinction between psychological ownership and legal ownership. Psychological ownership refers to the emotional sense of belonging to something, while legal ownership refers to the legal rights over something. Li Jin believes that many crypto applications lack psychological ownership, which is one reason for their failure to succeed.
Li Jin notes that psychological ownership is about the emotional connection between users and what they own, and this connection can be strengthened by meeting users' needs and expectations. In the world of cryptocurrency, although users own tokens, they may not feel a strong affinity for the product. To enhance users' psychological ownership, developers are encouraged to have users invest time and effort, give them more control, provide in-depth product knowledge, and ensure the product aligns with users' self-image.
Li Jin lists several factors that can enhance psychological ownership:
User Participation (Ikea Effect): When users invest time, effort, and energy into creating or assembling something, they develop a stronger sense of belonging and ownership. When people personally assemble IKEA furniture, even though machines could do the same task, they form a special emotional connection to the furniture because they participated in the creation process.
Personalized Experience: When users can customize a product or service or have decision-making power, they feel a stronger sense of ownership. On certain platforms, users can customize the interface, choose specific features, or set parameters, making them feel that the platform is "theirs" and can be adjusted according to their preferences.
Education and Training: When users have a deep understanding of a product or service, especially its advanced features or hidden characteristics, they also feel a strong sense of ownership. A "power user" who frequently uses certain software may know many tips and techniques that ordinary users do not. This makes them feel more closely connected to the software.
Self-Object Consistency: When a brand, product, or service aligns with users' self-image or values, users also feel ownership. For example, someone who sees themselves as optimistic and cheerful may choose a brand that represents happiness and positivity.
Benefits of Psychological Ownership:
Increases user loyalty and satisfaction.
Enhances user engagement and activity.
Promotes word-of-mouth marketing, attracting new users.
Increases users' long-term value and lifetime value.
Price and Psychological Ownership
In many cases, there is a close relationship between price and psychological ownership. When users pay for a product or service, they may develop a stronger sense of belonging to it. This is because their monetary investment makes them value and care for the product more.
In the crypto space, users gain certain rights by purchasing and holding tokens. Although they legally own these tokens, they may not feel a strong psychological ownership unless they have a deep emotional connection to the project or community.
How to Increase Psychological Ownership Through Price:
Meaningful Pricing: When users perceive the price they pay for a product or service as fair and meaningful, they are more likely to develop psychological ownership.
Sense of Participation: Involving users in pricing decisions, such as voting on product prices, can enhance their sense of belonging.
Reward Mechanisms: Providing users with rewards, such as discounts or tokens, to encourage their participation and investment can enhance their psychological ownership.
While price can increase psychological ownership, excessively high prices may deter users from purchasing or using the product. Therefore, finding the right price point that attracts users while also increasing their psychological ownership is crucial.
