The once-popular SocialFi platform Friend.tech has finally shut down. Is SocialFi a false proposition?

Author: Jessy, Golden Finance

Friend.Tech has shut down.

According to The Block, the developers of the Web3 social network Friend.Tech, which was established just a year ago, have relinquished control over the smart contracts, and the platform has now closed. On-chain data analysts have reported that the project made $52.4 million through this initiative.

Within just over a month of its establishment, Friend.Tech set a record for daily revenue surpassing Ethereum, enjoying a brief period of glory and spawning numerous clones. However, the lesser-known downside of the coin is that after experiencing rapid growth in its initial three months and reaching its peak, the project has been on a downward trajectory ever since. First, the number of users on the protocol has seen little significant increase, the TVL of the protocol has been continuously declining, trading volume has plummeted, and daily active users have dropped to as low as a dozen.

Looking back at the development history of Friend.Tech over the past year, we find that it has been unable to shake off the negative labels of "Ponzi," "casino," and "unsustainable business model" since its inception. Throughout the year, its updates, token issuance, and other actions have only served as temporary measures for survival.

With a star project like Friend.Tech failing, does this confirm that the SocialFi sector is merely a false proposition?

A Project Suitable for KOLs to "Open Markets"

As a decentralized social platform, Friend.Tech allows users to gain the right to directly communicate with any user on Friend.Tech through shares—Keys—of those users, which can also be resold. For buyers, purchasing a Key is a way to bet on the future potential of that user.

Moreover, users can issue their own personal tokens on Friend.Tech, and holders of these tokens can access exclusive content from the issuer.

This seems to be a platform that enables creators to monetize their content. Compared to other platforms, it helps users avoid the cumbersome processes of content operation, essentially allowing users to directly monetize their networks in a straightforward manner.

The product design is simple enough, initially featuring only friend requests and group chat functionalities. Built on the large traffic pool of X, the platform's built-in airdrop expectations are also enticing, promoting interaction and dissemination among users through invitation codes and points.

Friend.Tech also allows personal influence to be tokenized and traded by setting price curves. This mechanism draws on practices from AMM, enabling price discovery and volatility without requiring large volumes of transactions. This approach assigns a definite economic value to personal influence. Users' stock prices can be automatically discovered and adjusted based on the price curve under sufficient liquidity conditions. Even with low trading volumes, personal stock prices can still be reasonably reflected. This pricing and trading mechanism for influence is the core innovation of Friend.Tech compared to traditional social tokens.

Overall, the project seems to be designed for KOLs, and indeed, through extensive dissemination by KOLs, it achieved rapid viral growth in a short period. Similarly, its pricing method for individual "Keys" also innovated on the AMM model, allowing the project to break out quickly. Both KOLs and the project team reaped substantial profits.

On a day in September 2023, it set a record for daily revenue surpassing Ethereum. According to analysis created by Dune user @21co, its TVL reached a peak of $51.68 million in October 2023.

Using Casino Mentality for Social Networking, Doomed to Fail

The first three months were the most glorious period for Friend.Tech, but after October 2023, it began to decline.

Is the temporarily inflated price curve sustainable? In fact, many users were only active for speculation or token incentives, which led to the short-term trading activity of Friend.Tech. How can long-term user retention be maintained?

The trading volume of Friend.Tech over the year also confirms that the project itself is unsustainable and has failed to retain users genuinely.

According to the analysis created by Dune user @21co, the highest trading volume occurred in the first three months, followed by a period of silence, with a relative high point occurring again in May 2024.

At that time, Friend.Tech launched its V2 version and issued the platform token FRIEND, with points on the platform redeemable for this token. Additionally, the project team announced that beyond the initial 100 million points, they would allocate an additional 12 million FRIEND tokens as incentives to LP providers over the next 12 months.

Although the trading volume and daily active users on the Friend.Tech platform struggled to return to the initial glory, the market cap of FRIEND surpassed $200 million shortly after its launch, and FRIEND's trading volume exceeded $100 million within a week of its launch. Furthermore, Friend.Tech provided generous rewards for LPs, attracting more liquidity to lock in FRIEND tokens, with Huang Licheng being the largest LP of FRIEND tokens. (On-chain information shows that Huang Licheng currently holds 11.1 million FRIEND tokens, with at least a floating loss of $15 million.)

The V2 version of Friend.Tech introduced a paid group feature called "Club," where paid transactions only support the platform token FRIEND. The platform takes a transaction fee during these trades.

Although the launch of V2 and the token airdrop brought some users to the platform, these so-called "innovations" did not save Friend.Tech from its downward trend. Protocol fees soon stagnated; according to data from The Block, since June 2024, V2 has generated only about $60,000 in protocol fees. In July 2024, its daily active users dropped to as low as 15.

At its core, the project is unsustainable.

The essence of the project is to turn personal networks into resources, but when the networks are exhausted, how can the project continue to develop? For sustainable growth, continuous product iteration is needed to establish a business capability that can generate ongoing revenue.

The launch of V2 was an attempt at iteration by Friend.Tech, but it was unsuccessful. Friend.Tech remains a "casino" and "Ponzi" built on the consumption of personal networks. From a profitability perspective, these two characteristics are not problematic; in the early stages, the "Ponzi" model attracted people to enlarge the project and inject traffic into the casino. Initially, there was traffic, and the casino could continue operating, but the core requirement is the continuous emergence of new "markets," allowing the project team to earn transaction fees in the meantime.

Unfortunately, Friend.Tech failed to continuously attract people to open markets. The product itself is inherently flawed; it is not a pure casino but a social product. The markets are opened by KOLs, and the chips are their Keys. However, influential KOLs are limited, and only markets opened by influential KOLs can have high liquidity. Ordinary Keys are not sought after. Without new KOLs to open markets, the project becomes inactive, and the project team struggles to earn revenue.

If it were purely a casino, allowing people to issue tokens, similar to Pump.fun, it could thrive. However, mixing social elements with a casino significantly raises the threshold for issuing tokens.

When viewed as a social product, it becomes clear that most people entering this project are not doing so for socializing but to monetize their networks or to make money through buying and selling tokens.

In this light, the project is merely a casino disguised as a social product, but the casino aspect is not straightforward. Such a distorted product is destined to fail.

Is SocialFi a False Proposition?

The failure of Friend.Tech raises questions within the industry: "Is SocialFi a false proposition?"

If social interaction is solely for profit, it is bound to fail, and Friend.Tech has proven this point. A good social product must first meet people's social needs.

On this basis, Web3 social products need to compete with Web2 social products, fulfilling social needs that other platforms cannot meet, which will encourage users to migrate.

Web3 social products should prioritize creating a product that satisfies a significant portion of people's social needs, rather than focusing first on how to enable users to earn money through social interactions.

Human social needs have not changed: the most fundamental needs are sex, communication, and relationship maintenance. Beyond that, there are needs for possessing or monetizing networks and high-quality content, among other social assets.

Creating social products requires first addressing the most basic needs and then innovating on the upper layers. The advantage of blockchain is that it can secure upper-layer needs as genuine personal assets.

SocialFi itself may not be a false proposition, but the reality is that many current projects are blindly pursuing upper-layer needs without addressing the foundational requirements, leading to either unsustainable, short-sighted Ponzi schemes or projects that fail to generate significant interest, resulting in a sparse user base.

There is indeed a demand for Web3 social interactions. As the number of blockchain users increases and people place more value on personal social assets, existing Web2 social products can no longer meet all of people's social needs.

The success of Telegram in addressing some Web3 needs for blockchain users, such as on-chain interactions, blockchain asset storage, and trading, also proves that there is demand and a market for Web3 social interactions.

And SocialFi will also have its moment; everyone is waiting for a successful product.