How is Farcaster, with its record high daily active users, reshaping SocialFi?

Author: Chen Mo cmDeFi

Core Idea: Farcaster is a decentralized social media protocol that provides an open and composable social layer for developers, creators, and ordinary users.

On the user level, it focuses on privacy protection and self-control; on the protocol level, it emphasizes open-source and permissionless access; on the product level, it advocates for "mini-program" level interactivity, allowing direct access to diverse services and applications through Frames in social media posts.

Decentralized Architecture: Operates on the blockchain without relying on central servers.

User Control: Users have complete control over their data and social graph; even if applications are restricted, users still retain their identity.

Open Source and Permissionless: Anyone can access Farcaster's API or applications to build new applications.

Composable: Provides a platform-level social layer that allows applications to be composable and supports access using a unified social identity.

Architecture: Combines on-chain and off-chain systems to improve system efficiency and response speed.

Frames Feature: Allows users to embed small applications in posts, enhancing interactivity and user experience.

Research Report

1/8 · Solution Analysis

Currently, there are two main directions for SocialFi:

Financialization - Friend tech

Primitive Layer Transformation - Farcaster

Farcaster essentially belongs to the transformation of the primitive layer, being closer to the concept of "Layer," which makes it possible to build financialized services based on "Layer" and derive more extensive application scenarios.

Farcaster achieves this through a hybrid architecture of on-chain and off-chain, where key information such as user identity and keys are processed on-chain, while content storage, verification, and dissemination are handled off-chain. For example, Alice can create a message "Hello bob" and sign it with her key. The message is stored on a server node called "Hub," with each Hub storing a copy of the entire network. These Hubs form a new social consensus layer, allowing users to publish a message to one Hub, which will propagate across the entire network within seconds.

1. On-Chain Part

The on-chain elements of Farcaster mainly include smart contracts that run on Ethereum's Layer 2 (Optimism). These contracts handle some core functions, including:
ID Registration: Generates a key pair associated with the user's Ethereum address for unique and secure identity.

Storage Registration: Manages the allocation of user data storage space and annual fee collection to ensure reliable data storage.

Key Registration: Manages users' public and private keys, allowing users to authorize and revoke control over their accounts for secure message signing and identity verification.

Regarding storage registration, it is akin to a concept of buying space to post messages; Farcaster accounts must pay rent to keep their messages on the Farcaster network. The purpose of charging rent is to prevent users from sending spam messages to the network. In other words, the threshold for using Farcaster is an annual fee of $5-7, which may not be user-friendly for ordinary users in the early stages, but it is a way to maintain efficiency and performance during a time when the network is not robust enough.

2. Off-Chain Part

The off-chain elements of Farcaster include a set of servers called Hubs, which run on traditional hardware and are responsible for processing data operations that do not require on-chain confirmation, speeding up response times and reducing transaction costs. Specific functions include:

Message Processing: Hubs are responsible for receiving, verifying, and storing Casts (user-published content) from users. They check the validity of each message's signature and whether it conforms to the identity information registered on-chain.

Data Synchronization and Dissemination: Once a message is verified, Hubs store the message locally and synchronize it with other Hubs in the network to ensure data consistency and reliability.
Performance Optimization: By processing a large amount of data interaction off-chain, Hubs can significantly reduce the demand for on-chain transactions, thereby lowering latency and costs. This is particularly important for social network platforms, as they need to handle a large volume of real-time interactions.

2/8 · Social Optimization

Users' social relationships and interactions on Farcaster have been optimized through this hybrid architecture:

Self-sovereign Identity and Key Management: On Farcaster, users create a unified identity on-chain (through ID registration contracts), which is associated with their Ethereum address and generated key pair. Through key management, users can securely manage access and authorization to their accounts without relying on any third-party services, ensuring that only the users themselves can control the use of their identity. Therefore, situations like having your username reclaimed by the platform will never happen.

On-Chain and Off-Chain Data Isolation: By processing core security functions (such as authentication and authorization) on-chain and handling non-sensitive social interaction data (such as messaging and social graph construction) off-chain, Farcaster can provide a fast application experience while maintaining user privacy.

Decentralized Storage: The way user data is stored in Farcaster is decentralized, meaning that data is not stored on a single server but is protected through a distributed network. This increases the resistance to censorship and attacks on data, while also establishing a new social consensus layer. As this consensus becomes stronger, storage will become more decentralized, providing better underlying support for Farcaster as a whole. Similar to how Chainlink establishes a distributed oracle network, as its DON nodes mature, the overall security and stability of the oracle will also be greatly enhanced.

Autonomous Control over Data Access and Sharing: Farcaster can achieve precise control over data access permissions through smart contracts. Users can set who can see their social activities and personal data, with these settings directly embedded on-chain and executed by smart contracts. This approach allows users to fully control the level of information sharing, with different applications accessing users' social graph data based on user authorization.

Cross-Application Interoperability and Composability: Since Farcaster provides APIs and developer tools, third-party developers can create applications compatible with Farcaster identities, allowing users to interact using the same identity across different social media applications. This is akin to the embedded interactivity at the level of WeChat mini-programs, equivalent to using a unified WeChat account to log into different applications, while Farcaster's permissionless access will bring a richer "mini-program" ecosystem.

Recently (May 2024), the number of daily active users on Farcaster reached a new high.

3/8 · Frames

Frames are essentially small applications embedded in Farcaster posts, making posts not just static content displays but interactive platforms. Users can directly access various functions and services within social media interactions without leaving the Farcaster platform.

For example:

NFT Interaction: Users can mint, display, or trade non-fungible tokens (NFTs) through Frames. For instance, an artist can directly showcase the NFT of their artwork in a post and provide options for purchase or bidding.

Games: Developers can embed simple games directly into posts, allowing users to play games while browsing social media.

Content Subscription: Allows users to subscribe to newsletters or other media content. Content creators can provide dedicated subscription buttons through Frames.

4/8 · Asset Issuance

From a certain perspective, a new method of asset issuance has emerged on Farcaster, breaking through the traditional concept of SocialFi. In SocialFi, "Fi" typically refers to designing economic models for social projects to incentivize the participation of creators and users. For example, Friend tech creates revenue by tokenizing both creators and content.

Farcaster's "Layer" attribute not only completes the underlying transformation of Social but also provides a new method of asset issuance, fundamentally changing the nature of "Fi" in traditional SocialFi concepts. It does not design complex financial structures for itself but offers this openness to the community and developers, becoming a launchpad for community tokens, culture, and ecosystems.

At the same time, while the user threshold of Farcaster may hinder user growth, it achieves a very high user purity, with over 90% of daily active users coming from crypto-native users.

Ultimately, Farcaster provides a good foundation for subsequent project operations, promotions, and community accumulation, starting from providing an asset issuance environment and relying on its high purity user base.

5/8 · Ecological Economy - $DEGEN Token

$DEGEN is an extremely unique token within the Farcaster ecosystem. It is not issued by the official team but is a community-driven memecoin, which has become the first token of the Farcaster community and is building surrounding applications and ecosystems around DEGEN.

Sharing and Tipping: DEGEN can be used to tip content creators within the community, promoting content sharing and community participation.

Minting NFTs: On platforms like Zora and Highlight, users can use DEGEN to mint NFTs, increasing their liquidity in the art and collectibles market.

Trading: DEGEN is used for various in-app and game transactions, such as in Drakula and Bracket game.

Community Building: DEGEN is also used to support and fund community projects, such as development and operations on Degen L3.

Drakula: An on-chain short video application similar to TikTok, where users can use DEGEN for content tipping and interaction.

Clubcast: An on-chain platform similar to Patreon, allowing content creators to provide exclusive content through token-gated channels.

ConsenSys: When ConsenSys faced warnings from the SEC, its founder Joseph Lubin solicited DEGEN on Farcaster, stating that any DEGEN tips received would be used to defend the Ethereum ecosystem, leading many members of the crypto community to participate in tipping as a show of support.

6/8 · Ecological Economy - Warps Points

In the Farcaster ecosystem, Warps Points are an important component designed to incentivize and reward users for their social interactions and participation. As an internal points system, Warps Points not only increase platform interactivity but also provide an incentive mechanism that encourages users to actively engage in community activities.

1. Ways to Earn Points

Active Participation: Users can earn Warps Points through active interactions on Farcaster, such as posting content, commenting, and sharing. This design encourages users to use the platform more frequently and share valuable content.

Completing Tasks: Farcaster may set specific social tasks or challenges, and users can earn Warps Points by completing these tasks.

Community Contribution: Users who contribute to the community, such as content creators or technical supporters, can earn Warps Points through community recognition or direct rewards.

2. Ways to Use Points

Paying Fees: Users can use Warps Points for specific activities on Farcaster, such as participating in certain social activities or purchasing social features.

Creating New Channels: Users can use points to create new social channels, which may be organized around specific themes or interests.

Gifting Points: Users can gift points to other users as a reward for their content or interactions.

3. Points Management and Issuance

The Warps Points system is centrally managed by the Farcaster team, meaning that the issuance, distribution, and rules of the points are determined and controlled by platform administrators. Therefore, Warps Points are not equivalent to tokens; they are a functional point system within the Farcaster ecosystem.

7/8 · Open and Composable

Farcaster is essentially a large ecological database that combines on-chain and off-chain data, allowing for the construction of any form of front-end based on this "data," providing users with different experiences. This has several advantages:
Decentralization, meaning that even if one front-end is restricted, it will not affect users' access to other front-ends.

Ecological Diversification: Developers can focus on developing front-ends for specific areas, such as article content platforms, live streaming platforms, social circle platforms, etc., while the composability between applications will provide limitless imagination for the ceiling of the Farcaster ecosystem.

Currently, Warpcast is the most popular and widely used front-end, offering an experience very similar to Twitter, but other front-ends are also becoming increasingly popular, such as:

Bountycaster: Acts as a work committee where users can post or complete tasks in exchange for bounties or monetary rewards.

Unlonely: Focuses on live streaming, providing users with a platform for real-time interaction and content sharing.

Kiosk: A new Farcaster client that recently received $10 million in funding from a16z and Electric.

8/8 · Advantages and Challenges

The challenge in the SocialFi space is that it often cannot answer the question of "why stay," as the experience and threshold of Social in the Web3 world inherently have disadvantages compared to platforms like Twitter and WeChat. Therefore, previous solutions have incentivized users in the name of "Fi" to attract creators to settle in, essentially tokenizing the value of creators to help them monetize, which shifts the issues of product thresholds, experience, and traffic onto the creators. Because you can make money, you need to attract your fans to interact on the platform.

Farcaster is more like a Social Layer, where there can be Fi, NFTs, music, games, and all other developable applications, with this part being completed by developers. Thus, it is an ecosystem led by developers, co-built by the community, and participated in by creators.

What are the advantages of Farcaster?

To be honest, the concept of Farcaster is not novel, but its advantage lies in having completed initial user accumulation and retaining a large number of crypto-native users who are genuinely "engaged." This month's user activity data has also reached a new high. Currently, Farcaster has not issued its own token but has effectively integrated the commonalities and attractions of creators, developers, and ordinary people, rather than relying solely on "Fi" to retain users.

What challenges does Farcaster face?

From the perspective of the Chinese community, the "entry fee" for registering storage currently requires credit card payment, which does not support crypto-native payment methods. This poses a barrier for the Chinese user group; if direct cryptocurrency payments were allowed, it would be more beneficial for user expansion. In the long term, user growth will test the carrying capacity of Hubs and the social consensus of the Hubs network. From an ecological perspective, forming a positive content cycle is crucial because the characteristics of social products typically focus on visual elements, and any content (good or spam) will be very intuitively presented to users. Therefore, the negative impact of spam information in social contexts is more severe than that of spam code in smart contract networks. For example, many Web3 social products in the past have been flooded with pornographic and scam information, gradually losing control and leading to their demise. However, the decentralized nature often means that content production is not subject to human intervention. Thus, how to balance this seemingly contradictory point and form sustainable development is also a challenge for the future. Long-term sustainable positive cycles are key to changing user habits.

How does Farcaster break out of its niche?

Regarding the issue of "breaking out," Farcaster's current task is to attract and retain Web3 users from Twitter. For creators, the autonomy of account control is becoming increasingly important, especially for those who have experienced account suspensions on Twitter, as they can more deeply understand the significance of decentralization and self-control. At this stage, Farcaster is not a product that can attract outsiders like NFT Summer; rather, its goal is to target users within the community. For users within the community, its openness, developability, and composability perfectly align with the spirit of crypto, pulling users into a Web3 Social Layer is Farcaster's way of "breaking out."