SocialFi "narrative failure," does crypto social still have a future?

Author: Wenser, Odaily Planet Daily

On October 5, market news reported that the Web2 social media platform X has paid the fine imposed by the Brazilian Supreme Court and will subsequently apply to restore its services in the country, marking a relatively satisfactory conclusion to the previous conflicts between traditional social media and national regulatory forces.

On the other hand, as a synonym for Web3 social media, the SocialFi sector is once again facing a heart-wrenching "industry test." The unicorn in the sector, Farcaster, has shown weak growth, with only about 30,000 new users since mid-August, and protocol revenue has gradually slowed since July, currently totaling around $2.33 million. The once "hotshot" friend.tech, after a strong harvest of $81.953 million in protocol revenue (of which the team received about $45 million in fees), has chosen to almost "soft rug" by relinquishing control of its smart contracts.

Despite star investors like a16z and Paradigm continuing to heavily bet on the SocialFi sector, the current state of the industry is still frustrating: Is crypto social still a promising sector? What does the future hold for SocialFi? Has the SocialFi narrative already failed? What problems exist in social projects within the cryptocurrency industry, and are they even a false proposition?

Odaily will explore these issues in a phased manner in this series of articles, with this article focusing primarily on the existing problems in the SocialFi sector.

SocialFi Issue 1: "Short-range combat" with traditional social giants

The Metcalfe's Law states that the utility of a network is proportional to the square of the number of users.

Traditional internet social media platforms, including Facebook, Instagram, Snapchat, WeChat, and TikTok, have become the "traffic origin," "attention gateway," and "social network carriers" of the entire internet ecosystem based on their accumulated user numbers. The vast array of traditional social products represents the "road of bones" that many social applications in the cryptocurrency field, namely SocialFi products, choose to "attack the strengths of others with their own weaknesses."

Historically, even kings competing for supremacy understood the principle of "building high walls, accumulating grain, and delaying the claim to kingship." Today's commercial products, upon encountering towering "south walls," do not choose to go around but instead crash into them—creating products that are indistinguishable from traditional social media platforms, often operating under the following banners:

• "All demographics are our target users";
• "Our goal is to disrupt the X (Twitter) platform";
• "We want to change the status quo of social media and truly return social data and power to the users."

It must be said that the "arrogance" of entrepreneurs in the cryptocurrency industry is evident here—they do not consider the real needs of users, do not care about the cost of users migrating platforms, do not concern themselves with whether users care about so-called "decentralized power," and do not think about users' social network maps and where they come from and go; instead, they fall unilaterally into the traps of "self-movement" and "self-illusion."

Know yourself and know your enemy, and you will never be defeated; if you do not know your enemy nor yourself, you will be defeated in every battle.

Farcaster daily active user data

SocialFi Issue 2: No alternative value, has not found its "Trojan Horse"

In the 12th century BC, the city-states of ancient Greece waged a protracted war against Troy. Ultimately, the allied forces used a wooden horse concealing many soldiers to infiltrate Troy, which mistakenly believed the enemy had retreated, leading to their victory. The "Trojan Horse" has since become a symbol of subterfuge and deceit.

The competitors facing SocialFi products are akin to the hard-to-conquer city of Troy; on one hand, they need to find their value that can replace or surpass traditional social media platforms; on the other hand, they need to discover the secret to "infiltrating the enemy camp" and "breaking through their fortress from within."

Some people pin their hopes on the Fi attribute in SocialFi, where using certain crypto social products can yield economic rewards, such as token airdrops; others see it as part of traditional social media platforms (like paid stickers or Sofamon in the Base ecosystem).

Currently, the former path will likely lead to a gradual narrowing in the wake of token airdrops or spiraling token prices, amounting to "chronic suicide after a data bubble"; the latter remains in a niche demand sector, unable to attract broader attention and liquidity, requiring more time for validation.

At present, a true "Trojan Horse" needs an application at the level of "AI personalized companion" to "initiate the next offensive."

SocialFi Issue 3: Fi for the sake of Fi, making Social a joke

Murphy's Law states that if something bad can happen, it will happen; similarly, the more people desire something, the less likely they are to obtain it.

For many SocialFi products and users, when Social is pursued merely for the sake of Fi, it becomes a joke.

From a psychological perspective, the essence of socializing is to seek like-minded individuals, not merely for monetary or material incentives. If a person is willing to engage in social behavior solely to obtain Fi incentives, their "social purpose" becomes impure and difficult to sustain in the long run, making it hard to engage in more activities with others genuinely for "socializing."

When the motivation to meet others and explore better interactions is distorted into "for monetary returns," SocialFi becomes a different kind of "funding scheme," and the term Social naturally becomes a joke.

If it cannot provide users with a strong "social driving force," SocialFi products are destined to be mere financial games cloaked in a "social shell."

SocialFi Issue 4: Unable to establish a value closed loop, becoming a "capital toy"

All value systems originate from a logically coherent and tightly-knit value closed loop, which is precisely what current SocialFi products lack or even miss.

Currently, the value of SocialFi product applications often comes from venture capital investments, failing to establish a relatively clear value closed loop system. More directly, current SocialFi products resemble "ranking apps," where all funds, liquidity, and attention flow in to gain more economic returns, without creating deeper links and connections with others' ideas, resources, funds, capital, and attention, thus failing to stimulate more value exchange.

As a result, social value becomes a one-way consumable, with no new generation, and users of SocialFi products are not joining an "infinite game" that is "boundary-less and constantly expanding," but rather a "zero-sum game" where newcomers pay for the benefits of pioneers.

Naturally, SocialFi products become toys for capital to collect high management fees and seek investment returns—essentially not much different from a PPT filled with various false information and empty promises.

Since there is no real data or actual value output, it would be more straightforward to operate a 24/7 casino or "data scheme."

SocialFi Issue 5: An impure and wavering "business model"

Most SocialFi products on the market still rely on one of the most stable paths in the cryptocurrency industry—charging transaction fees.

However, the steps and processes for charging fees in SocialFi products differ significantly from the "trading processes" in GameFi, NFT, and other sectors driven purely by speculative motives, as well as from the "staking for yield" in DeFi and Restaking aimed at reducing token supply and increasing prices. Instead, they need to leverage "social content," "social relationships," and "social influence" as intermediary carriers to facilitate the establishment of a broader social network.

In the current environment of tightening industry liquidity and decreasing active participants, this has undoubtedly become a significant hurdle for many SocialFi projects.

They must either be niche enough to "self-generate" and adopt a "rural encircling the city" approach to accumulate small gains; or be broad enough to attract more people with "what you see is what you get," serving some real needs through a "stranger vs. dating" dichotomy.

Otherwise, SocialFi products are likely to remain stagnant, unable to advance to the next wave of cryptocurrency surges.

Conclusion: Is socializing or commission-sharing the issue?

Many SocialFi products today crudely abstract "social graphs" and "social products" into "products that share commissions through social recommendations," which is a stark reflection of the industry's current "dataism."

However, this is clearly not a normal "social phenomenon." Just like the phenomenon-level e-commerce platform Pinduoduo, which has rapidly grown its e-commerce user network through social relationships, it primarily serves as a bilateral trading platform for buyers and sellers, which is its fundamental base.

A true social platform should facilitate people in establishing social relationships more quickly, better, more directly, and more harmoniously with others, rather than viewing people as "data mines," discarding them after extracting their economic value, and no longer caring about them.