Social media networks attract more than their fair share of abuse and criticism, but for all of the hatred and scorn that’s directed their way, they sure are resilient. According to DataReportal’s latest Global Statshot Report, traditional social media platforms boast a combined 4.7 billion users globally that tune in for an average of 2.5 hours per day.
It’s for this reason that the creator economy is booming, but although the concept has certainly caught on and made some well known influencers extremely wealthy, it’s extraordinarily difficult for most creators to make the grade.
This is why the emerging SocialFi landscape in Web3 holds so much potential, with its promise of empowering creators and giving them full control of the content they create and the revenue they generate.
SocialFi has become a buzzword in recent years, with multi-million dollar investment rounds by platforms such as RepubliK and Phaver hitting the headlines recently. Much of the talk has focused on the rapid growth of Friend.tech, a new kind of SocialFi platform on the Base blockchain that emerged earlier this year, enabling social media profiles to be tokenized and traded for profit. The buzz around SocialFi is reminiscent of the early days of DeFi and Play-to-Earn games, so it’s worth taking a closer look at what this growing industry is all about.
SocialFi is shorthand for “social finance” and it combines elements of social media platforms with decentralized finance, or DeFi, to empower content creators and other influencers. At the same time, it gives social media users more control over their data and privacy and enables freedom of speech with its foundation on the censorship-resistant blockchain.
It’s a movement that has some lofty goals, but it will only work if it provides a unique way to incentivize users to dedicate their time and effort to it. This is where those digital assets come in, with cryptocurrencies acting as a vehicle that allows creators to monetize their social media content and engagement. SocialFi platforms also make use of non-fungible tokens or NFTs to enable ownership of digital assets.
There are three core principles sitting at the heart of SocialFi. The first is decentralization, which sets it apart from traditional platforms such as Facebook and X. Whereas those legacy social networks are centralized, with user data and content stored in privately owned data centers, SocialFi is hosted entirely on decentralized blockchain networks that nobody owns. As a result, users retain control over their data, while the networks are more resistant to security breaches and censorship.
The second core principle in SocialFi is tokenization, which transforms the rather vague concept of influence into a measurable asset. With SocialFi platforms, users can earn crypto for engaging with others, such as by posting content and commenting, sharing, and liking posts. These tokens serve as the platform’s native currency and can be used for micro-transactions, paying for access to content, buying merchandise, and even voting on governance proposals. Crypto is a vehicle for distributing value across a platform’s user base, rewarding everyone for participating based on the weight of their contributions.
Finally, the third main principle is governance or community decision-making. The idea is that SocialFi platforms are not controlled by a profit-making entity, but instead by their communities. So instead of a bunch of executives making all the decisions, any proposed changes are put to the platform’s users before a vote is held to decide if they should be implemented or not. It’s a democratic approach that helps to ensure SocialFi platforms are more aligned with the desires of their users.
SocialFi In Action
One of the defining characteristics of SocialFi is the ability to trade the value of social engagements and brand equity. This is enabled by the tokens that are paid to users as rewards for their interactions. The NFTs that represent profiles and content such as videos also provide tangible value to their owners. Platforms such as Friend.tech, RepubliK and Audius all offers great examples of how these dynamics work in the real world.
Friend.tech is an extremely original social media network that launched earlier this year, allowing users to buy and sell “keys”, which can be thought of as shares of profiles on Elon Musk’s X. When someone buys keys for a certain Twitter profile, they’ll be able to access exclusive content created by that user and engage with them and their community private chat groups. Users can sell the keys they own on a decentralized marketplace at any time.
The Friend.tech app is therefore really an offshoot of X. A number of well known X users have experienced success in creating and selling keys that they either launched themselves, or were paid to promote.
RepubliK has an entirely different concept, having created its very own social media platform instead of hijacking an existing one. Its goal is to supercharge the creator economy while bridging the gap between Web2 and Web3. It does this by rewarding every user who contributes to the platform while maintaining sustainable tokenomics to ensure the value it generates is not diluted.
The platform’s functionality has similarities to TikTok or Instagram, with users creating profiles and posting and sharing content they create. The most successful content creators will earn the most rewards, but even normal users who simply interact by liking, sharing, and commenting can earn incentives.
RepubliK’s economy is based on its native RPK token, which is paid to every user on a daily basis when they engage with the platform. RPK tokens can then be used to access exclusive content and chat rooms, or sold through a crypto exchange. Monetization features including tipping and gated chats, and there’s an AI-powered talent discovery tool that finds new creators based on what users like the most.
RepubliK has shown impressive growth since launching last year, and boasts more than 1.5 million users, with 280,000 logging in on a daily basis. The startup recently announced a strategic collaboration with the highly-promising TON blockchain and has also integrated with Fireblock’s wallet infrastructure to safeguard users’ funds and transactions.
Other examples of promising SocialFi apps include Audius, which is uniquely focused on supporting budding musicians. Its platform is designed to remove intermediaries so artists can distribute their songs across its network and earn a much bigger slice of the revenue their work generates. It’s an interesting approach that provides a strong challenge, both to the traditional music industry where studios grab a huge cut of the profits, and also to social media platforms.
Because Audius is built on the blockchain, it enables musicians to establish direct connections with their fans and audiences. The artists themselves retain full control of their intellectual property that’s posted on the platform. In this way, they can receive fair compensation the more popular their content becomes.
SocialFi can also be a force for education. That’s the mission of Coinvise, which is a social network that’s designed to introduce its users to the basics of DeFi and financial literacy. The platform combines aspects of traditional social media with some of the best DeFi tools, encouraging them to learn about and engage in various financial activities. With its user-friendly interface and idiot-proof resources, it’s a great choice for beginners who want to learn how to get into DeFi.
Because Coinvise integrates DeFi with social media, it enables users to learn from each other’s mistakes, share their experiences and collectively navigate the challenges and pitfalls of DeFi, By interacting with the platform on a daily basis, users will empower themselves with financial knowledge and make smarter investment decisions.
SocialFi seems to be an extremely promising paradigm for creators from all walks of life, yet the industry must overcome some distinct challenges if it’s ever going to become mainstream. Perhaps the biggest obstacle it faces is winning over more users. For SocialFi platforms to really take off and threaten the likes of Facebook, Instagram and X, they’re going to need to convince more of their users to give their platforms a chance instead. But when someone is using Facebook primarily because all of their friends and family are using that platform, it’s going to be tough to get them to go elsewhere.
A second issue SocialFi needs to overcome is scalability. The blockchains that they’re based on have long struggled to accommodate their growing user bases while maintaining high performance, fast transaction processing times and low costs. Ethereum‘s scalability challenges are legendary, and almost every other smart contract-based blockchain faces similar problems.
Finally, the lack of regulation in SocialFi is a huge cloud that looms over its future prospects. Complying with the diverse legal and ethical rules and regulations across multiple jurisdictions is a major headache for most platforms, compounded by the fact the rules in different countries are often conflicting.
So Far, So Good
The innovative way in which SocialFi combines the basics of social media with DeFi promises to be a gamechanger, helping content creators from all walks of life to reclaim ownership of their intellectual property and monetize it in a way that’s fair and transparent.
It’s for this reason that SocialFi has become one of the hottest trends in the Web3 industry, laying the foundation for diverse creator economies. However, as we’ve seen with other Web3 trends, such as DeFi itself and Play-to-Earn games, the early hype and traction is no guarantee of lasting success. SocialFi will need to show it has staying power and an ability to keep the rapid pace of innovation if it is to win over, and keep, users from more traditional networks.
So until SocialFi demonstrates it’s able to weather a few crypto market winters and maintain the value of its in-app economies, it’s hard to say if it will enjoy lasting success. That said it’s an extremely promising industry that has made big inroads thus far.