Farcon Conference Reflections: Why is a16z Willing to Bet Big on the Next Generation Social Network Farcaster?

Author: IOSG Ventures

TL; DR

Farcaster is a decentralized social platform that combines on-chain identity creation, storage leasing, and key management, along with off-chain data storage maintained by a decentralized network of nodes. This structure allows users to own their data and identity, forming a decentralized social graph.

• Channels and Frames are key to user engagement. Channels facilitate centralized community discussions through embedded URLs, while Frames turn broadcasts into interactive applications, supporting activities such as NFT minting, voting, and secure transactions. These features promote diverse and personalized content supply, enhancing user experience.
• Farcaster's open social graph and content algorithms provide unique opportunities for developing diverse clients. Potential clients include applications focused on AI, video, and audio. This openness mitigates platform risk, allows for innovation, and is expected to create "magic moments" for successful social applications.
• Farcaster's ID registry can serve as a foundational identity layer in Web3, addressing authentication and accountability issues. It provides secure, verifiable identities linked to various Web3 services, enhancing trust and transparency while managing ownership and accountability in a decentralized environment.
• Major challenges include potential issues with importing 1:1 social graphs from existing platforms, resilience during bear markets, managing bots and automated accounts, and achieving mainstream adoption beyond the crypto community. Addressing these challenges is crucial for Farcaster's long-term success.
• Farcaster's decentralized and open infrastructure paves the way for innovative applications and user-controlled social media landscapes. By focusing on strategic planning, community engagement, and user-centered features, Farcaster can overcome its challenges and lead the next wave of social media, offering a safer, dynamic, and user-driven platform.

1. What is Farcaster?

Web3 has seen a wave of new social applications, such as Friend.tech, Fantasy top, and Farcaster. While most are consumer-facing applications, Farcaster has established a robust infrastructure layer that paves the way for decentralized social graphs, tracking users and their overall social data.

At a high level, Farcaster executes high-priority operations on-chain, such as ID creation, storage leasing, and key management for different applications. However, the storage itself is maintained by an off-chain solution through a decentralized network of nodes known as the "Farcaster Hub."

Source: https://docs.farcaster.xyz/learn/architecture/overview

This infrastructure design aids Farcaster's decentralized social graph, connecting users and their social activities. This could mark the beginning of an identity layer that allows for reliable authentication operations and transactions, reducing fraud risk and ensuring accountability, which is a significant barrier to broader adoption of blockchain technology. Users can link their Farcaster identities to various Web3 services, enhancing trust and transparency across the decentralized network. Additionally, by enabling recovery mechanisms and secure identity transfers, Farcaster provides a practical solution to one of the most persistent issues in blockchain technology: managing and proving ownership and accountability in a decentralized environment. Key features like Channels and Frames enhance user engagement, while a robust ecosystem supports scalability and adoption.

Channel

Channels are public spaces for community discussion topics, prototyped in Warpcast. They are similar to hashtags in Twitter but provide a more personalized and independent space for communities, appearing in the form of embedded URLs.

Channels follow the theory of "Cozy Corner" in Farcaster, allowing small communities to emerge within a larger social graph. This is an important differentiating factor, as Farcaster's founders recognized that this vision could make the product stand out in building a stronger social graph. Although this concept is a feature of Warpcast, it is planned to be fully decentralized, as Dan Romero acknowledges its unique value proposition. By fostering these small, focused communities, Channels can enhance user engagement and create a more intimate social experience.

In Farcaster, Casts (similar to tweets) can link to any URL, not just other broadcast casts. This allows for the creation of new dynamics based on the same URL. For example, all broadcast casts in the Degen channel link to the URL corresponding to the Degen token contract.

Leveraging this feature, Farcaster can develop diverse content dynamics. The ability to embed URLs in Casts allows for the creation of dynamics that include various content types. This drives Farcaster's vision of users owning their data, while traditional social media platforms use user data to personalize user dynamics and content through algorithms.

Frame

Source: https://docs.farcaster.xyz/learn/what-is-farcaster/frames

Frames turn any broadcast into an interactive application, creating interactive and authenticated experiences on Farcaster by setting standards. Essentially, it is a broadcast with images and buttons that allows interaction with different servers, making it an application within an application. Use cases include claiming or minting NFTs, conducting votes, and facilitating token airdrops. Within a week of its introduction, over 400 applications released nearly 1,000 Frames, directly promoting Farcaster's growth and providing incentives like airdrops for active users.

The theory behind Frames is that most social applications are 80-85% similar, but the remaining 15-20% of unique value allows different applications to dominate different markets. The Frame system allows Farcaster to integrate with more on-chain activities, further forming a positive feedback loop that could increase Farcaster's user base. At the same time, it positions Farcaster as a more intuitive product, expanding the functionality of social media and providing a richer consumer experience (such as a more integrated Facebook Marketplace or TikTok Shop).

The most powerful feature of Frames is the seamless integration of Farcaster's authentication data with Frame servers. When users interact with a Frame, the client transmits authentication data from Farcaster to the Frame server. This process provides the server with proof of user interaction with the Frame and confirms that the user owns the wallet associated with their Farcaster account.

Since both Farcaster and wallet data are public and transparent, Frame servers can leverage this information to create rich, verified, and customized interactions. This opens up many possibilities, such as personalized content delivery, secure transactions, and customized user experiences. For example, servers can authenticate user participation in voting, ensure the legitimacy of NFT claims, or facilitate secure token airdrops. This integration of authentication and wallet verification significantly enhances the user experience by enabling trusted and interactive applications within the Farcaster ecosystem.

Clients

In the early days of Web2, platforms like Twitter saw various third-party clients emerge, offering diverse user experiences. However, as these platforms grew, they often restricted API access to protect their own clients and prepare for IPOs. Building alternative clients for large Web2 platforms became unpopular due to the high platform risks involved.

For Farcaster, this presents a unique and underexplored opportunity in the form of clients that essentially display social graphs in a more digestible and interactive manner, hosted on the infrastructure. In the Web3 paradigm, the most valuable assets of social platforms—its social graphs and content algorithms—are open to everyone. This openness significantly reduces platform risk and could mark a paradigm shift.

Currently, the most used Farcaster client is Warpcast, developed by the Farcaster team. However, this is just the beginning. The platform has yet to experience the "magic moments" seen by many successful social applications. Magic moments are unique combinations of user experience and behavior that make an application stand out. For example, seeing what friends are doing for the first time on Facebook, finding matches on Tinder, watching TikTok videos, or one-click purchasing products on Amazon.

Potential for Diverse Farcaster Clients

• AI-focused client: An AI-driven Farcaster client could summarize social media activity, similar to ChatGPT, rather than having users scroll through lengthy dynamics. High-quality Farcaster channels could provide valuable data sources for AI training. Channel owners should be compensated when their data is used for model training.
• Video-focused client: Given the success of video-centric applications in Web2, a video-focused Farcaster client is a promising idea. This client could leverage Farcaster's decentralized nature to provide unique video content and interaction.
• Audio-focused client: Although major social audio applications have yet to emerge, an audio-focused Farcaster client has potential. This could explore new social interaction methods through audio content, building on the success of applications like Clubhouse.

By exploring these diverse client possibilities, Farcaster can create a vibrant ecosystem where different applications cater to various user needs and preferences. This not only drives user growth and engagement but also fosters innovation within the Farcaster community.

2. Current State of Farcaster

As a basic overview of Farcaster's current ecosystem, we can focus on the ecological dynamics in the following areas.

Source: https://dune.com/pixelhack/farcaster

Notably, Warpcast currently accounts for 90% of network activity, but there could be other clients offering various unique propositions on this infrastructure. Additionally, most people use it as a purely Web2 social media platform, as users have not yet been trained to utilize everything it offers. An important growth signal would be individuals using Farcaster's native solutions, making their user experience most aligned with the expected features (decentralized social graphs, Frames, etc.), which may take time as the graph itself is not yet mature or robust in its early stages.

Data Performance:

Source: https://farcaster.network (For comparison, Twitter: 245M DAU, 500M Tweets daily)

According to Dan Romero, there is still work to be done on scalability; Farcaster's current architecture can scale to 10 million active users. However, from a technical perspective, the infrastructure is flexible enough, and the team is confident about further scaling if necessary.

We see basic adoption increasing, as evidenced by the $DEGEN token guiding the network through incentive rewards and community participation. This can be viewed as a vertical domain, with Farcaster playing a secondary role in that domain. As consumer-focused platforms like Base see more participation with seamless user experiences, the adoption of protocols like Farcaster may see a corresponding increase.

Within the scope of Farcaster and social applications, this is a very interesting data point. About half of users use it once a month, but the other half, a very active user community (the second highest is 250+ casts), shows high retention rates, indicating that it excels at providing high-value additions for niche communities.

A higher DAU/MAU ratio also indicates that Farcaster's retention rate is increasing, with daily users approaching monthly user numbers. This significantly and almost directly contributes to revenue growth for the Farcaster team.

In a matter of months, a significant number of people have paid for services such as storage leasing. This is partly due to an increasing number of users building applications on Farcaster. Since maintaining a Farcaster account costs $3 per year, which serves as a deterrent against spam and bots, it will be interesting to see how many people will retain the product in the coming year and deem its quality high enough to pay for it, rather than using free platforms like Twitter or Instagram.

3. Three Waves Application Theory

As we navigate the evolving landscape of social media, now is a good time to break down the monolithic stacks of established platforms like Meta, X (formerly Twitter), WeChat, and Weibo. Farcaster offers a unique opportunity to rebuild these layers on a decentralized open network. Entrepreneurs and startups can leverage this opportunity to own and co-own every layer of this emerging ecosystem, innovating and creating on Farcaster's open canvas.

First Wave: Building Infrastructure

The first wave focuses on building robust infrastructure. This foundational stage is crucial for enabling developers to build applications on Farcaster quickly and efficiently.

• Tools: Development tools are needed to streamline the application building process. Who will create Farcaster's "Heroku," providing developers with resources and support to seamlessly launch applications?
• API: The effectiveness of Farcaster's official API is another key component. Is it user-friendly and powerful enough to support diverse applications? If not, who will develop Farcaster's "Twilio," simplifying API integration and expanding functionality?
• Data: Just as Etherscan has become an essential tool for navigating Ethereum, Farcaster will need robust data tools as it develops. These tools will reorganize and make Farcaster data more accessible, supporting various use cases as the ecosystem matures.

Second Wave: Driving Network Growth Through Applications

At the same time, the second wave involves driving network growth through innovative applications. This growth can be divided into user growth and revenue growth, both of which are crucial for Farcaster's expansion.

• User Growth: Viral applications or compelling Farcaster client applications can significantly increase user numbers. By creating engaging user experiences, these applications will attract more people to join the Farcaster network, fostering vibrant communities.
• Revenue Growth: Applications that leverage Web3's financialization and assetization can enhance revenue streams. These applications will enable Farcaster users to generate income, providing monetary incentives for interacting with the platform. Increased revenue from the Farcaster protocol can fund more paid user acquisition, creating a positive feedback loop of growth and investment.

Third Wave: Engaging the Network -- Cautious Growth Guidance

While infrastructure and growth-oriented applications are crucial, caution should be exercised at this stage regarding applications aimed solely at driving engagement. These applications often rely heavily on existing user bases and may struggle to grow independently. Investing too early in engagement-driven applications may lead to stagnation if they cannot sustain growth through user acquisition.

4. Second Theory: Learning from the Past

A valuable approach to harnessing Farcaster's potential is to study the challenges faced by Web2 social applications due to constraints or pressures from major platforms. Many of these applications were banned, acquired, or forced to pivot, despite their innovative features and user engagement strategies posing significant threats to large platforms. In a more open Web3 environment, these ideas have the potential to thrive without the constraints of centralized control.

Examples from the Twitter ecosystem:

• Meerkat: An initially successful live-streaming application until Twitter restricted its access to the social graph, hindering its growth.
• Klout: An application known for measuring social media influence, faced limitations due to changes in API access and ultimately shut down.
• Favstar: Provided a popular service for tracking liked tweets and retweets until changes in Twitter's API rendered its functionality useless.

Examples from the Facebook/Meta ecosystem:

• tbh: A teen-focused anonymous social media application that was shut down after being acquired by Facebook.
• Poke: Facebook's own application, similar to Snapchat, that was eventually discontinued.

Opportunities in the Web3 Paradigm

In the decentralized and open environment of Web3, similar ideas and innovations can find new life. Farcaster's infrastructure allows for the creation and integration of diverse applications without the worry of restrictive API policies or centralized control. This openness can spark a renaissance of innovative social applications, fostering a rich ecosystem where:

• User-Driven Innovation: Developers can freely experiment and build on Farcaster, creating unique applications that cater to niche audiences or novel use cases.
• Decentralized Ownership: By owning their data and interactions, users can enjoy greater control and privacy, which is increasingly important in the digital age.
• Resilience Against Centralized Control: Without a central authority imposing restrictions, applications on Farcaster can evolve more naturally based on user needs and feedback.

This approach not only restores the spirit of innovation seen in past social applications but also ensures a more resilient and user-centric social ecosystem. Entrepreneurs have the opportunity to re-examine and reimagine these once-promising ideas to better allow users to regain control over customization.

5. Challenges Ahead

Despite Farcaster's bright potential, several challenges must be addressed to ensure its long-term success and adoption.

1. Reservations About Importing 1:1 Social Graphs

One challenge for Farcaster is the potential issues with importing 1:1 social graphs from existing platforms. While integrating existing social graphs can simplify the transition for new users, it may not foster the same community dynamics that are locally developed. Imported social graphs may not translate well into Farcaster's decentralized environment, potentially leading to disjointed user experiences. The community's acceptance of social applications that achieve customized application experiences and provide status games for new celebrities could also drive user adoption. A strong graph with established key opinion leaders and important figures may dilute this experience, which is something many users seek in social media. However, as products like Instagram Reels, TikTok, and YouTube Shorts have demonstrated, many influencers within the same platform can recycle their content across different platforms, potentially providing unique opportunities for these influencers to leverage Farcaster's graph.

2. Decline of Previous Social Products During Bear Markets

History shows that many Web3 social products struggle during bear markets. The downturn in the crypto market often leads to reduced user engagement and investment, severely impacting the growth and sustainability of platforms like Farcaster. To build resilience against market fluctuations, Farcaster needs to ensure its value proposition extends beyond the crypto community to attract a broader audience. Diversifying its user base and creating engaging, non-market-dependent features will be key to navigating market volatility.

3. Presence of Bots on Social Media Platforms

The presence of bots and automated accounts is a common issue on social media platforms, and Farcaster is no exception. Bots can distort user engagement metrics, spread misinformation and propaganda, and create an unfriendly environment for real users—similar to Sybil attacks. Implementing robust bot detection and prevention measures will be beneficial for maintaining the integrity of the ecosystem. By prioritizing user verification and developing algorithms/mechanisms to identify and mitigate bot activity (fortunately, many applications on Farcaster, such as Phaver or Desmos, are attempting to address this issue), Farcaster can create a safer and more authentic social space while maintaining the vision of the unique identity layer designed for Farcaster.

Future Mass Adoption

Breaking free from the crypto community's self-referentiality to achieve mass adoption is one of the biggest obstacles facing Farcaster. While the platform has gained traction among crypto enthusiasts, attracting a broader public user base will require overcoming several barriers, including education, usability, and perceived value. Simplifying the onboarding process, providing user-friendly interfaces, and emphasizing Farcaster's unique advantages over traditional social media platforms will be key strategies. Additionally, promoting Farcaster's decentralized, user-owned characteristics can attract users concerned about privacy and data ownership. All of this is closely tied to Farcaster's marketing strategy, educating a wider audience about the unique value Farcaster adds to niche communities beyond the crypto community.

6. Conclusion

Farcaster is essentially a social infrastructure layer that allows communities to audit users, and users to audit communities, through its core functionalities: authentication, graphs, dynamics, and frames. All of this benefits from the protocol's unique design and the ability for developers and entrepreneurs to leverage the platform's social graph for creative purposes. Farcaster's greatest value proposition primarily comes from the identity layer it utilizes and the ability for users to own their data, rather than large companies—this is underscored by the narrative of large social companies facing scrutiny for data misuse.

Despite challenges such as integrating social graphs, market volatility, bot management, and achieving mainstream adoption beyond the crypto space, these obstacles are not insurmountable. Through strategic planning and innovation, Farcaster can overcome these hurdles and pave the way for a new era of decentralized social networks.

A robust infrastructure, combined with the open and transparent nature of Web3, provides fertile ground for innovative applications and user experiences that are impossible in the Web2 paradigm. By leveraging the unique advantages of the Farcaster protocol, developers can create diverse and engaging applications that drive user growth and engagement, fostering a vibrant and resilient ecosystem.

Looking ahead, Farcaster is committed to decentralization, user autonomy, and innovative features, positioning itself as a potential leader in the next wave of social media platforms. This journey will require continuous improvement, community engagement, and a steadfast focus on user needs. Building a safer, user-controlled, and dynamic social media landscape is a worthy endeavor. Farcaster is not just building a platform; it is laying the groundwork for a new way of social interaction in the digital age.