Friend.tech Research Report: Project Interpretation, Competitors, and Bullish and Bearish Factors

Author: 0xGreythorn

Introduction

According to the 2024 Global Social Media Report, the social media industry has experienced significant expansion, with its market value expected to grow from $219.06 billion in 2023 to $251.45 billion in 2024, representing a compound annual growth rate of 14.8%. Approximately 62.3% of the global population uses social media, spending an average of over two hours per day on these platforms.

Source: Smart Insights

Decentralized social media (DeSoc) offers a fresh perspective by revolutionizing how creators monetize content and manage online relationships. It promises to enhance privacy and security, and most importantly, empower creators with complete control over their data and its monetization.

Although the concept of decentralized social media is not new, it began to gain significant attention only in 2023, with the evolution of Web3 technologies. The introduction of Friend.tech, a decentralized blockchain-based social network aimed at tapping into this emerging market, distinguishes itself from other platforms by addressing common issues in centralized networks, such as corporate ownership of user data, limited privacy options, and the risks of content censorship.

In 2023, Friend.tech not only achieved significant growth but also generated revenue that rivals some top protocols, providing creators the freedom to monetize their work on their own terms.

Source: DuneAnalytics

In today's article, we will delve into the platform, examine its controversial token issuance, compare it with its competitors, and assess its potential and associated risks for 2024.

We reported on Friend.tech before 2023. You can click here to read the full article.

Project Overview

Friend.tech is a decentralized social platform built on the second-layer network "Base Chain" launched by Coinbase. It is closely integrated with X to acquire users' Web2 identities, allowing users to potentially profit based on this identity. On this platform, every user can be tokenized, with their influence priced directly by the market.

It is one of the most successful Web3 dApps in SocialFi, achieving the highest revenue-to-net deposit ratio ever, generating over $2 million in revenue within the first month and net deposits of $33 million.

At the core of the project is the concept of fan economy. To get started, users need an invitation code and to deposit 0.01 ETH, which is the primary currency for in-app purchases of shares in other users. These shares represent a portion of the user's influence. When someone buys shares, they gain the ability to start one-on-one chats with the person they invested in. This setup allows users to connect directly and personally with their favorite influencers. Moreover, these ticket chats, conducted through tokens known as "keys" or "shares," can be traded, allowing users to potentially profit from the growing popularity of content creators.

For KOLs, they earn a 5% fee each time someone buys or sells their shares (Keys), providing a financial incentive. To increase their income, KOLs need to boost their Key trading activity. An additional 5% goes to the friend.tech finance department, totaling a 10% fee on related transactions.

As we have noted, decentralized social media protocols gained significant attention last year but have recently experienced a decline.

Source: Dune Analytics

On-chain data shows that since peaking on September 13, with 539,810 transactions recorded that day, Friend.tech's daily activity has significantly declined. Since then, interest in the platform has evidently decreased.

However, despite this decline and some criticism, there is a buzz among Friend.tech users about a potential revival. This excitement is driven by anticipation of an upcoming airdrop, news that users will have complete control over their tokens, and expectations for the soon-to-be-released version 2, all of which have been positively received by the community.

Let’s take a closer look at the differences between Friend Tech V1 and its updated version V2.

Introduction to Friend Tech V1:

Friend Tech V1 is an innovative decentralized social platform that connects crypto influencers with their followers. By creating their own Keys, users can potentially profit by buying and selling KOL's "Keys," which garnered a lot of attention. This model was particularly popular during the bear market, helping the platform see a significant increase in users and activity. The platform generated approximately $13 million in fees from a high trading volume of $130 million and paid out around $6 million in revenue to its users.

However, this model has its drawbacks, primarily due to the high fees involved. With a 10% fee on both buying and selling shares, users find it difficult to profit unless they sell their shares at a price significantly higher than their purchase price. This high turnover requirement for profit led to inconsistent user experiences and ultimately became a barrier for new users joining the platform.

Introduction and Uniqueness of Friend Tech V2:

Friend Tech V2 was launched on March 3, 2024, introducing several new features and changes. Notably, users can now receive their $FRIEND tokens, marking a significant update. However, this release faced criticism for a lack of clear information and guidance, particularly regarding new elements like "Clubs."

Clubs are a major addition in V2, serving as group spaces owned and managed by Key holders. Clubs have their own governance, including voting to elect a president to manage the club and appoint moderators. All transactions within the club use $FRIEND tokens, and each transaction incurs a 1.5% fee. This opens up possibilities for introducing referral fees and more flexible trading terms among club members.

However, the implementation process and user experience have not been smooth. Users are confused about how to claim their airdrops, join clubs, or even find the clubs they have already set up, as the platform has not provided clear instructions or interface prompts.

In summary, V1 focused on rapid growth and revenue through high fees, while V2 aims to enhance user governance and interaction through clubs but faces challenges in execution and clarity, which may impact its long-term viability.

Team, Foundational Support, and Strategic Partners

Friend.tech was developed in August 2023 by two anonymous individuals with a controversial history in the crypto community, 0xRacerAlt and shrimppepe. Members on the platform X pointed out that these developers were also involved in an unsuccessful NFT project. Further scrutiny by Kalland revealed that 0xRacerAlt deleted several tweets linking to this NFT project and held an official position in the Kosetto Discord. These findings raised concerns about their reliability and the potential for similar issues related to Friend.tech.

In August 2023, Friend.tech secured seed funding from Paradigm, although the amount was not disclosed, and collaborated with the venture capital firm to create online social interaction tools.

Rumors on X indicate that Friend.tech has completed its Series A funding, with a valuation of $50 million. This round of funding included token certification, hinting at the possibility of them eventually issuing their own tokens, which indeed happened.

Controversies

Friend.tech originated from a developer named Racer, who initially practiced in TweetDAO, a decentralized social media project. This platform allowed users to tweet from a shared account by holding a native NFT called "TweetDAO Egg." Although the project initially achieved viral success, it eventually faded, leading to the closure of its main Twitter account and website.

Following TweetDAO, Racer and a co-developer named Shrimp launched Stealcam, a Web3 platform where users could mint and purchase images as NFTs, which remained hidden until purchased. However, due to difficulties in maintaining creator profit returns, the developers eventually renamed Stealcam to Friend.tech. Launched in May 2023, Friend.tech aimed to attract Web3 influencers and creators seeking more effective monetization of their content, adopting a supply-and-demand-driven economic model.

However, Friend.tech initially sparked controversy over its vague privacy and data security issues. The platform required users to download an app without an easily accessible privacy policy. This lack of transparency raised concerns among users about how their personal data was handled, although this has since been partially addressed.

Additionally, the platform's sustainability has faced serious criticism. Initially, Friend.tech grew rapidly due to its influencer-centric strategy, but as the initial excitement waned, doubts about its long-term viability deepened. Critics pointed out that the platform's heavy reliance on influencers is a critical vulnerability. Without the active participation of key figures, the platform's value may decline.

This is why the V2 update is undergoing a strategic shift from an influencer-centric model to one that emphasizes a broader community focus. Nevertheless, questions remain about the level of engagement from influential users and the actual value they bring when inactive.

But that’s not all; Friend.tech struggles to differentiate itself and retain users in competition with X, Farcaster, and other decentralized competitors like Lens.

On the positive side, Friend.tech now benefits from having its own token, which opens up opportunities for trading and speculation. The project has over 160,000 followers on its social media platform X and is actively promoted by influential figures like Hsak and Ansem, who encourage others to try the app. This promotion clearly has economic benefits for them but also indicates potential upside for the project.

As of this writing, Friend.tech has a market cap of $184 million, with a fully diluted valuation matching. Compared to some other DeFi protocols or meme coins with higher valuations, $FRIEND is viewed by many on-chain traders as an attractive risk-reward investment, given the project's profitability at a fundamental level. The involvement of well-known investors like Paradigm further enhances the project's credibility.

Competitive Analysis: Friend.tech vs Farcaster

Friend.tech initially gained strong support by charging high fees and offering special club features, achieving early success. However, its popularity has declined, raising concerns about how to maintain long-term user interest. In contrast, Farcaster does not have its own token and uses the DEGEN token, which many accept in its ecosystem. This approach has helped Farcaster build a loyal community similar to traditional internet forums, leading to steady growth in user numbers and daily activity.

In summary, while Friend.tech made a lot of money early on, its fluctuating user numbers make its future uncertain. Farcaster's focus on building a strong community with the DEGEN token seems to promise more lasting success, as it has a loyal user base and multiple use cases within its ecosystem. As both platforms continue to evolve and respond to user needs, their success in the competitive SocialFi market will depend on their adaptability.

Token Economics

The $FRIEND token is central to Friend.Tech V2, serving not only as currency but also as a key to attract community participation. Its current market cap and fully diluted valuation stand at $185.26 million. A total of 92.63 million tokens were fully allocated to the community during the token generation event.

The tokenomics are designed to promote participation; users can claim tokens by interacting with the platform—following ten people grants 10%, while the remaining 90% requires joining a club. This ensures that token distribution supports active ecosystem participation.

$FRIEND can only be traded within Friend.Tech's own system, which uses a native exchange feature with a 1.5% fee. This promotes liquidity and ensures the platform benefits from fee revenue, but also requires users to trust the platform's stability.

The Club feature on Friend.Tech resembles a micro-government, allowing users to manage and customize their clubs, from setting names to economic parameters. This structure supports decentralized governance, with club leaders and moderators elected by key holders, reflecting DAO-like transparency.

Despite maintaining a user interface similar to V1, the introduction of the $FRIEND token and clubs adds new layers of participation and monetization. Transactions within clubs incur a 1.5% fee, which is distributed between liquidity providers and the platform, helping to maintain the financial health of the ecosystem and reward active participants.

Source: Dune Analytics

Bullish Fundamentals

• According to Dune Analytics, Friend Tech has seen a surge in user adoption and activity following the recent controversial airdrop and v2 upgrade.

Source: Dune Analytics

• Despite its lower market cap, especially compared to other projects and meme coins generating less revenue, $FRIEND is attractive to on-chain traders for potential price appreciation. Although it is not currently listed on major exchanges, investors should closely monitor any potential listings on top exchanges, which would significantly enhance the token's accessibility.
• Friend.Tech is considered one of the two most popular applications on Coinbase L2, with its competitor Farcaster valued at $1 billion.
• The application generated $50 million in revenue during its V1 phase, indicating that the team has the potential to expand its addressable market with V2, not just within the crypto Twitter community. With ample funding for marketing, infrastructure improvements, and other initiatives, Friend Tech's outlook remains promising.

Bearish Fundamentals

• Even with the platform's initiatives, the crypto community remains concerned about the potential for system abuse and the risks of pump-and-dump schemes.
• When new Web3 applications like Friend.tech promise significant returns and strong community engagement, influencers often rush to participate. However, the project's vague objectives and the founders' previous failures should caution users to be wary of its long-term viability.
• It lacks a clear roadmap or whitepaper, making it difficult to outline a coherent long-term vision.

Conclusion

Friend.tech offers an intriguing concept in the SocialFi platform space, allowing users to invest in their "friends" by purchasing social tokens or keys. These keys grant access to exclusive content, private chat rooms, and clubs, primarily targeting users and the corresponding influencers they follow. The pricing mechanism for these keys is complex, with purchase prices increasing exponentially as supply and quantity grow. While Friend.tech presents better bullish fundamentals following the release of its V2 version, it also faces bearish factors, including concerns about downward liquidity and potential pyramid dynamics.

The current valuation of Friend.tech may appear attractive to many on-chain enthusiasts, potentially driving up its price. However, we remain cautious about its long-term sustainability.