The Era of Web3 Social Has Begun

The market is currently in a prolonged bear phase, with a decline in the popularity of areas such as blockchain games and NFTs. The Ponzi economic models of past projects have rapidly collapsed in the absence of sustained growth, which has imposed certain limitations on the growth of Web3 users.

On one hand, the development of Web3 requires continuous exploration of new application scenarios and innovative methods to attract new users. On the other hand, the social sector has already proven its immense potential in the traditional internet space. From social platforms like Facebook, Instagram, and TikTok to the maturity of WEB3 social DAPPs like Cyber Connect, Debank, and Lens Protocol, the entire social ecosystem is becoming increasingly robust. Most of the Web3 social projects we see today are merely replicas of existing successful social network products, with added crypto functionalities. This trend indicates that the social sector has enormous development potential in Web3, and as the ecosystem continues to grow and innovate, social interactions are expected to become the next area to ignite user growth in Web3.

Friend.tech officially launched on August 10, 2023, and after a week of low-key development, it began to experience a surge in user growth on August 18.

Introduction to Friend.tech

Friend.tech is a SocialFi application built on the Layer 2 network Base chain. Its core concept is to transform users' influence on Twitter into tradable tokens, allowing users to earn income through social influence. ETH is the primary currency for transactions within the app, used to purchase other users' KEYS, and users need to pre-deposit 0.01 ETH before using the app. The function of KEYS is similar to paid subscriptions in traditional internet products; the benefit of purchasing them is to gain access to the buyer's friends list, allowing users to access the creator's content and interact directly.

Upon entering the app, users can see the currently most popular users on the homepage, and they can also search for users they follow using the explore button to purchase their KEYS. The initial price of each user's KEY is set based on Twitter data, and there is no upper limit on KEY supply. This links the price of users' KEYS to market supply and demand, meaning that the more popular a user is, the higher their KEY price, thus creating a dynamic market ecosystem.

Product Features of Friend.tech

The core function of Friend.tech is that once users purchase a KOL's KEY, they can converse with them and gain the rights granted by the KOL. Currently, its features are relatively simple, allowing only for adding friends and joining group chats, with no ability to send images, videos, etc. Users can see the currently most popular users on the homepage, or manually search for users they want to follow to purchase their KEYS. Holding someone else's KEY allows access to that user's chat room, and if the KEY is sold, the holder will be automatically removed.

Pricing Curve of Friend.tech

In addition to interacting with KOLs by holding KEYS, Friend.tech allows users to trade KEYS. Since each KOL's KEY does not have an automated market maker, there is no upper limit on its supply. Therefore, the pricing of KEYS is calculated using the following bonding curve formula:

y = x^2 / 16000

Where: - y represents the price in ETH.

• x represents the total KEY supply at the current moment.

The curve of price changes with KEYS is as follows:

Source: https://onedrive.live.com/view.aspx?resid=C078415A103A3F40!1094&ithint=file%2cxlsx&authkey=!ANE0-sqb5hAftiI

All transactions on Friend.tech incur a 10% fee, with 5% going to the purchased KOL and 5% going to the platform as revenue.

Combining the pricing curve and the fee mechanism, we can draw the following conclusions:

1. Friend.tech employs a parabolic pricing curve, which means that initially, the price of KEYS is relatively low, but as more users purchase KEYS, the price rises rapidly. This strong price volatility can trigger FOMO (fear of missing out), attracting more users to participate.

2. The price of Friend.tech is highly sensitive and fluctuates dramatically with buying and selling activities. This attracts speculators looking to profit from price fluctuations. Similarly, because of the same pricing mechanism, selling can also lead to rapid price declines, resulting in losses.

3. KOLs earn revenue on the Friend.tech platform in alignment with the platform's interests. Therefore, KOLs may be more concerned about the trading volume on the platform rather than the empowerment of their EKY.

4. The fee mechanism of Friend.tech impacts users' speculative behavior. Even if users engage in short-term trading, they must pay a 10% transaction fee, which affects their speculative strategies.

Why Did Friend.tech Become Popular?

1. Airdrop Expectations

In traditional token economic designs, the trading motivation for fan tokens primarily stems from users' affection for creators, and the fluctuations in token prices are not the main attraction. However, Friend.tech introduces a completely new user invitation mechanism and fan token economics, which is fundamentally different from existing token economic models. Friend.tech has announced that it will distribute 100 million points within six months, which is widely believed to be related to a token airdrop. This mechanism, combined with the user invitation mechanism, enhances users' motivation to actively invite new users to join the platform. At the same time, it encourages users to purchase KEYS from different KOLs to generate transaction fees and data. This strategy is similar to the airdrop strategies of projects like Blur, attracting users to use the product through long-term point incentives and anticipated token airdrops.

2. Early Benefits of BASE Chain Launch

Friend.tech is built on the Base chain, which currently has the greatest potential for new user inflow among L2s, and the trading experience on Base is very comfortable, backed by the publicly traded exchange Coinbase. Friend.tech cleverly capitalized on market trends and timing by launching on Base.

3. Endorsement from Top VC Paradigm

For the Friend.tech project, gaining favor from the top investment fund Paradigm in the crypto space is undoubtedly a significant advantage. Even when the project was not fully developed and lacked a detailed white paper, the market remained confident in the project. This trust and investment are largely attributed to Paradigm's support and endorsement.

Additionally, the point mechanism of the Friend.tech project shows that it adopts an incentive design similar to that of the Blur project, which may have been influenced by Paradigm. This design aims to encourage users to actively participate in the platform and provides a long-term incentive, aligning with Paradigm's overall strategic direction for the project.

4. User Base

Friend.tech fundamentally eliminates low-quality user accounts through its cleverly designed incentive rules. Its initial users and current promoters are opinion leaders in specific fields, with large and highly engaged fan bases. In the social product space, projects like Deso and Lens, which are highly anticipated in the market, often face the issue of individual users owning multiple accounts, which inevitably accelerates the product's bubble process.

Data Performance of Friend.tech

Since its launch on August 10, Friend.tech has sparked widespread discussion and interest in the Chinese community. Firstly, it employs an invitation mechanism as its marketing strategy, allowing users to experience the Alpha version of Friend.tech before others through the invitation rules. Additionally, early participants in the project benefit from price advantages, as KEY prices are typically lower in the initial stages. Friend.tech generated extensive discussion among Twitter's KOL community upon its initial launch, and its hunger marketing tactics further fueled this trend. When everyone is talking about Friend.tech's invitation codes, it becomes the best form of advertising.

1. User Data

According to the Dune data dashboard, Friend.tech currently has accumulated approximately 10.284 million transactions, with about 347,000 buyers and about 185,000 sellers.

Source: https://dune.com/cryptokoryo/friendtech

Source: https://dune.com/cryptokoryo/friendtech

Source: https://dune.com/cryptokoryo/friendtech

From the transaction numbers, it is evident that on-chain transactions became more active after August 18.

Source: https://dune.com/cryptokoryo/friendtech

2. Transaction Volume

The following chart shows the buyer/seller transaction data: the buyer transaction volume reached 136,186.5 ETH, valued at approximately $223 million, while the seller transaction volume was 108,706 ETH, valued at approximately $178 million.

Source: https://dune.com/cryptokoryo/friendtech

Source: https://dune.com/cryptokoryo/friendtech

From the trading data of the subjects, there are currently about 343,000 trading subjects.

Source: https://dune.com/cryptokoryo/friendtech

What Are the Potential Risks of Participating in Friend.tech?

1. High Fees, Recent + Future Trading Fees of 20%

The more KEYS a holder has, the higher the price the next buyer has to pay for KEYS, but the number of holders also increases or decreases with buying or selling. This means that in the case of insufficient subsequent buying, from the moment of purchasing KEYS, not considering selling taxes, there is already a loss of 10%.

2. Bot Arbitrage, Low Price Ranges Occupied by Bots

There is a problem within the Friend.tech community where members generally expect KEYS from KOLs with more traffic and influence to have higher value. This expectation has created opportunities for some bots, which analyze data to purchase KEY tokens in advance and then sell them once a certain level of profit is reached. Even if some users take measures, such as enabling Twitter's privacy mode to prevent bots from analyzing their data, there are still some bots that conduct MEV (maximum extractable value) attacks through on-chain secondary trading situations.

This situation has, to some extent, raised the entry barrier for normal users to the Friend.tech platform, as they must compete with bots for trades.

3. Pricing Model Exhibits Exponential Growth

The price of Friend.tech's user KEYS follows a specific curve: Price (in ETH) = (KEY token quantity^2) / 16,000. This curve design allows early buyers to incur almost no cost, but as the number of purchased KEYS exceeds 20, the price differences among users expand dramatically.

The impact of this pricing curve is that when multiple KEYS are purchased, the price may increase exponentially in a short period. Additionally, the high price multiples attract more users to participate, but once the growth of new users peaks and early users start selling for profit, the price will plummet, triggering panic selling and ultimately leading the market into a death spiral. Later buyers not only have to bear a 20% friction cost but also face declining KEY token prices, which will inevitably lead to losses.

This series of impacts brings about severe liquidity issues. Once prices drop, market liquidity sharply decreases, and according to typical behavior of crypto users, social interactions will also diminish, potentially causing the originally vibrant community to stagnate or regress to its previous inactive state. This issue is gradually becoming apparent.

~Conclusion~

Friend.tech is a social trading protocol that is both highly popular and controversial. Its token pricing model exhibits a FOMO-driven design. Based on good airdrop expectations and occasional windfall effects, the project is likely to show impressive user data in the short term. Currently, the popularity of Friend.tech continues to rise, with the number of active addresses growing rapidly and the value of assets locked on-chain also increasing rapidly.

Returning to the product itself, can the value provided by KOLs maintain a certain retention rate among users? Will users who come for profit significantly drop off when prices fall? If it fails to genuinely connect fans with KOLs, the future of Friend.tech may become difficult to predict.

Overall, Friend.tech is relatively conservative in its product mechanism but exhibits bold innovations in token economic design, user acquisition strategies, and marketing. In the short term, Friend.tech may replicate the user growth path of the Blur project, but considering the characteristics of social products, achieving long-term social attributes will require observation and time to validate the effectiveness of its innovative strategies.

Author: Snow

Translator: Sonia

Article Review: Edward, Wayne Zhang, Elisa, Ashley He, Joyce

Copyright belongs to Gate.io.