SocialFi 2.0: Turning Mistakes into Success, Attention is a New Financial Asset
If people don't like your content, it means the content itself is not engaging enough.Author: Simon & Gregor
Compiled by: Deep Tide TechFlow
Clubhouse, we all remember its golden age. In January 2021, during the pandemic, the Clubhouse app was almost on everyone's lips. It quickly rose to the top of the app charts with its audio chat rooms. Initially open only to iPhone users and requiring an invitation to join, it sparked heated discussions, with invitations even being raffled and sold. But just as quickly as Clubhouse rose, it also faded.
Fast forward to 2024, and the SocialFi space seems to experience a new Clubhouse moment every week. New and exciting SocialFi applications are constantly emerging. The two most prominent recently are Friendtech and FantasyTop. While some people are still using these apps, they face challenges in sustainability. Why?
As Eugene Wei wrote in “Status as a Service”, a successful social network relies on three core pillars:
The potential to accumulate social capital, that is, identity
The metrics by which people measure their entertainment on the platform
Utility, which we describe as the general practical value that people can extract
Initially, identity on social platforms was primarily obtained through "proof of work," where those who added value became the elites of the network. However, SocialFi platforms like Friendtech replaced actual value with financial incentives, leading to a problematic dynamic.
As of October 2023, Friendtech had over 70,000 daily active users, but that number has plummeted to just around 400 today. Let's revisit these three pillars to see what went wrong with Friendtech. Initially, users gained identity by holding keys and joining unique but expensive groups. When people saw their investments double overnight, they indeed felt the dopamine rush. However, the third pillar—actual value—was missing. The primary use case was speculation, with users hoping to increase their portfolio value and receive airdrops. Interacting with favored creators was just an afterthought for most.
When key prices fell, the dopamine disappeared, and the actual value was insufficient to sustain user engagement. Successful creators found managing another account cumbersome, and as fees decreased, their engagement dropped, leading to the platform's decline.
FantasyTop followed a similar path. It had a strong start in April 2024 with five-digit daily active users but now hovers between 2,000 and 3,000 daily active users.
Unlike Friendtech, FantasyTop is more like a game with social features, similar to fantasy sports like fantasy football. Speculation drove initial interest, card prices rose, and creators focused on achieving good results. However, as prices fell and fees disappeared, interest waned. Currently, FantasyTop is transforming into a fantasy sports app with DraftKings characteristics, hoping to regain users. Most users are still lingering on potential airdrops.
The core issue with these applications and SocialFi is their heavy reliance on financial incentives. As these incentives diminish, user engagement declines, creating a vicious cycle. We have seen this pattern in many well-known examples, such as Axie Infinity and Stepn. People tend to stick with established platforms because financial incentives should be a feature, not the main driver, while utility should serve as the primary pillar.
On the other hand, Orb and Warpcast are decentralized applications (dapps) aimed at the ideals of ownership and decentralization in web3. Unlike mainstream social media giants, these platforms prioritize giving users control over their content. At first glance, they seem to be the future of social networks. But upon closer inspection, they face a significant challenge: a lack of actual utility. While theoretically, they could match Instagram and Twitter in entertainment value through appropriate network effects, the value they provide is minimal.
Consider a typical scenario of a 15-year-old girl using social media. She doesn't think about whether she truly owns her photos or text. Instead, she cares about attention, likes, interactions, and following her idols. Ownership and decentralization feel distant to her.
As Peter Thiel said, from the perspective of social experience, the current form of ownership and decentralization has not transformed the user experience from 0 to 1, nor made it ten times better. Instead, these ideals only offer marginal improvements. While they may attract tech enthusiasts, they lack the revolutionary appeal to persuade ordinary users to leave familiar platforms.
Currently, the state of SocialFi applications is challenging. They initially relied on speculation to drive capital and user inflow, which remains an inevitable factor for growth but is temporary. While decentralization is important, users prioritize the value offered by the product. For long-term sustainability, these networks need to develop sufficient value to keep users engaged beyond the initial monetary games.
To attract a broad user base, crypto must shift from purely financialized products to those that can capture the attention economy. If we treat speculation as an interesting supplement rather than a necessity, while stepping out of the Web3 bubble to gain broader attention, SocialFi could become one of the largest verticals. You might ask, how can this be achieved?
Think Outside the Crypto Bubble While Integrating Web3
To understand the impact of SocialFi, we first need to examine the dynamics of Web2:
Traditional social media is undoubtedly one of the most used parts of the internet, achieving success through a clear flywheel effect. Social innovations—new use cases that provide actual value—often go viral quickly, leading to the emergence of new KOLs. This viral opportunity attracts a large influx of users driven by the hope of fame and attention.
Dopamine hits from interactions, likes, and exposure—perhaps the most consumed "drug" of the 21st century.
This influx of users attracts existing KOLs who want to reach new audiences while fearing becoming irrelevant. This, in turn, enhances the platform's credibility and accelerates user onboarding. As this positive feedback loop continues, network effects strengthen, creating a moat and increasing user stickiness.
However, as user attention spans shorten and patience wanes, platform operators face immense pressure to evolve, ideally leading to further social innovation and restarting the cycle. We all remember the early days of Instagram. It started as a simple tool for capturing, editing, and sharing photos with followers. Soon, it became a must-have app on everyone's phone. But like any successful platform, Instagram had to evolve to remain relevant.
In 2016, driven by the surge in popularity of Snapchat Stories, Instagram faced immense pressure to adapt. To counter this competitive threat, Instagram launched its own version, not only mimicking the feature but even adopting the same name. This strategic move aimed to retain user engagement directly and maintain relevance in a dynamic social media environment.
And that was just the beginning. They quickly integrated algorithmic pushes to help users discover content more easily and capture their attention more efficiently. Soon after, Reels emerged as a direct response to TikTok's explosive popularity.
The message of Instagram's evolution is clear: copy and integrate others' innovations rather than be left behind.
So, what does this mean for SocialFi?
Speculation and financialization are undoubtedly interesting features of SocialFi, but they should not be the main unique selling proposition (USP). Instead, the value proposition should focus on social innovation and new use cases to kickstart the flywheel.
The key question is: How can we leverage Web3 elements to create new, exciting social experiences that challenge Meta, TikTok, and X?
Clearly, we don't have a definitive answer. If we did, we wouldn't be sitting here telling you this; we would be fully engaged in building and competing with Zuck and Elon.
While we don't have all the answers, we have some ideas that could inspire developers to create novel social use cases.
Attention as a New Financial Asset
In the Web3 era, we excel at creating new financial assets. Currently, social media is the battleground for attention. Content is growing exponentially, while attention spans are shrinking, making attention a scarce asset. Attention is manifested through tools like likes, comments, follows, exposure, and time spent on the platform. However, these tools are highly inflationary and currently available in unlimited supply.
Thus, while attention is scarce, it becomes increasingly diluted due to the infinite abundance of attention tools. As the attention garnered by each tool decreases, its quality also diminishes.
Imagine if Web3 made the tokenization of these tools possible, making them scarce or at least anti-inflationary assets, with decentralized social platforms serving as their marketplace. Likes, comments, and follows could become some form of attention tokens, carefully allocated to users and ultimately redistributed to the creators they love. This would not only encourage users to manage their feeds more selectively but also incentivize creators to produce high-quality content.
According to the three key pillars proposed by Eugene Wei, this would shift entertainment towards greater practicality. The overall proportion of attention for each piece of content would increase, potentially attracting large advertisers seeking high-quality engagement.
Or imagine that followers themselves could serve as financial assets, with their value varying based on their social graph. If you manage a high-profile user, like Vitalik or Ansem, who follows you, you could sell this rare follow "credential" to someone willing to pay for his attention.
While these ideas are clearly abstract and need further refinement, they showcase potential directions.
More practical use cases might involve tokenizing intellectual property (IP) of content. Coinbase recently highlighted this in their new "Mister Miggles" campaign, which addresses current issues in the creator economy and calls for everyone to not only create but also consume on-chain.
Story Network is further developing this idea. They are building a new Layer 1 blockchain that enforces programmable intellectual property and licensing at the protocol level, allowing people to legally register their IP globally as new financial assets.
Imagine applying this to decentralized social.
Take the example of the "Financial Girl", who has gone viral worldwide. Imagine if this video were posted on a platform running Web3 technology in the backend, directly tokenizing its intellectual property and distributing part of the revenue to those who helped it go viral initially, like their early followers.
Through such mechanisms, you could view social creators as akin to NFT collectibles or brands, with their early followers acting as their NFT community. This way, each creator would have a loyal, incentivized super-following that helps spread their content online, accelerating their success while directly participating in it. We're not just talking about economic gains but also the non-monetary value derived from the social capital of your favorite creators—like getting backstage passes when the "Financial Girl" performs with David Guetta.
However we look at it, we always return to an inevitable feature:
Making Community Great Again
Users need to be prioritized again. This has always been a core feature of Web3, and if applied to social platforms, it could become the most powerful feature, as network effects are crucial here.
Here is the current value distribution, which is irrelevant whether we are discussing Web2 or Web3 social platforms:
As Chris Dixon mentioned in his recent book, Reading, Writing, Owning, the top 1% of social networks (like Meta and TikTok) control 95% of social network traffic and 86% of social mobile traffic. The value created by advertisers is largely monopolized by these platforms, with minimal returns for creators, and users receive no returns despite creating the essential network effects they need. We hope to significantly improve value flow by introducing decentralized social platforms, allowing creators and users to participate more directly in the value they create.
By breaking the monopoly of platform operators as intermediaries between attention suppliers (consumers and creators) and attention seekers (advertisers), we envision a future of fairer value distribution. Revenue should be proportionally allocated to those who earn it or distributed to the communities of targeted creators.
Thus, simply building a moat through controlling network effects will become more challenging. We believe we will see a significant deconstruction, where various vertically integrated niche social platforms will attempt to accumulate multiple revenue streams rather than a single platform controlling value flow horizontally.
As long as operators create sufficient value for suppliers and seekers, their social platforms will thrive. In this scenario, they will act as a marketplace between these parties, sharing the value they facilitate fairly.
Think of future social platforms as the OpenSeas of attention.
In contrast, we go further and suggest that creators should redistribute all platform revenue to their most active audiences in exchange for social capital.
Status as a New Ponzi Scheme
Today, we live in a world where the value of social capital even surpasses that of monetary capital. If done right, status can generate money, even substantial and sustainable money. Conversely, money rarely buys recognition and fame.
Status can open doors that money alone cannot. Imagine securing exclusive VIP seats for the Super Bowl or getting a last-minute reservation at the trendiest restaurant in town for your anniversary, or even attracting the attention of powerful and influential figures like celebrities or politicians.
These connections and opportunities, if leveraged correctly, can have profound impacts. For KOLs and creators, nothing is more valuable than their reputation. We believe that building new social platforms that enable them to directly give back value to their communities will create a flywheel effect of social capital growth, with acceleration and leverage similar to what we typically see in Ponzi schemes.
Take Pudgy Penguins as a perfect example. They have become one of the most popular brands and are now even expanding into the non-Web3 world for a simple reason: they are committed to giving back value to their NFT holders, thus forming a powerful distribution network. Another example is Mr. Beast, the largest YouTuber of all time. While his content is indeed entertaining, his secret to success has always been giving back most of his revenue to the community, either by reinvesting in the entertainment value of the content or through giveaways.
This could be the most powerful market entry and growth strategy for those looking to increase social capital from scratch. It significantly enhances the relationship between creators and consumers and could lead to greater engagement and support. Thus, the social capital and status of these creators will continue to grow, enriching their most loyal communities.
Encoding such mechanisms at the protocol layer could even serve as a launchpad for creating and owning new influencers.
Before we conclude, we want to propose another idea destined to be combined with blockchain.
How to Become Famous with a Killer App
Even if this desire manifests more or less in certain individuals, everyone has thought about what it would be like to be a celebrity or have all the attention around them.
Social media provides you with a platform to realize this dream, which is precisely what everyone posting, tweeting, and sharing on TikTok hopes for every day: a tiny chance of going viral to gain all the attention and become famous.
However, competing for attention and the favor of algorithms is not only fiercely competitive but also opaque, extremely complex, and often frustrating.
Blockchain is particularly well-suited for this point due to its open-source nature.
Imagine a social media platform where the rules of algorithmic favoritism are immutably coded in the backend, while being transparently and fairly accessible to every user and creator. You could even expand on this by including analyses and metrics about current trends, most popular content, and more.
Now combine this relatively complex data with gamification mechanisms, and voila, you have built an open and fair framework that helps users easily achieve viral growth.
No more excuses, if people don’t like your content, it’s simply not engaging enough.
Thus, we hope to slowly but surely wrap up this topic.
While we are somewhat critical of the current SocialFi market, we have many exciting ideas for new use cases.
The fundamental flywheel of social growth remains unchanged, but Web3 elements can accelerate these processes and enhance user retention. While we encourage founders to avoid focusing solely on monetary incentives, tokenization and financialization mechanisms can undoubtedly play a role in driving social innovation.
In our view, the potential for significantly new experiences is precisely what distinguishes decentralized social from other crypto domains. Web3 elements seem capable of achieving significant new experiences on an entirely new scale, which should also attract the interest of those outside our fallen bubble.
We also strongly support starting as a simple tool built on existing social networks (like X or Instagram). This strategy can effectively kickstart growth and ensure a smooth user experience while focusing on delivering a strong value proposition. Fantasy Top is a typical example of this approach. It not only brought explosive growth in their initial phase, but if they can further expand their user base and enhance engagement, they still have the potential to develop their network.
Who knows, if we do it right, we might even leverage these same experiences to ultimately impose the true added value of ownership, decentralization, and new monetary flows as a secret Trojan horse to the masses.
