Throughout 2023, SocialFi has been at the forefront of web3 conversations, establishing itself as an influential narrative in the decentralized finance (DeFi) space. This article explores the most recent happenings, while focusing on what 2024 holds for the SocialFi sector. It also analyzes how decentralized social media applications are adapting in their efforts to attract and convert users from traditional web2 services.
The Current SocialFi Landscape
The recent growth in SocialFi can be attributed, in part, to the increasing involvement of major venture capital companies in this field. Leading firms like Binance Labs, Solana Ventures, Paradigm, and Coinbase Ventures are at the forefront of this movement. The growing interest of investors in SocialFi is highlighted by substantial funding for platforms such as Lens Protocol, which accumulated $15 million in its seed round in June. Following this, RepubliK and Phaver successfully raised $6 million and $7 million, respectively, in October.
The influx of investment naturally led to the rise of several decentralized social networks. Spearheading this movement was Friend.tech, which managed to gain over 100,000 users and facilitate 934,000 distinct transactions shortly after its launch. Despite the presence of many competitors during the same period, Friend.tech stood out by achieving the highest Total Value Locked (TVL), surpassing $50 million.
Source: Dune — SocialFi TVL
Despite its initial success, the excitement surrounding SocialFi declined towards the end of 2023. Although TVL has remained relatively flat, the top-performing decentralized social networks have seen significant drawdowns in fees and revenue during Q4 2023, suggesting a decrease in user activity.
Source: DeFiLlama — Friend.tech
Source: DeFiLlama — PostTechSoFi
Where Are SocialFi Applications Going Wrong?
Scalability and Security
Many SocialFi applications initially faced challenges related to scalability. For social media applications, user experience is crucial. Traditional social media platforms such as Facebook can process 4 petabytes of data each day, enabling them to handle millions of comments and posts effectively without sacrificing user experience. In contrast, several web3 alternatives, despite their progression, have found it challenging to handle the amount of data generated by increasing user interactions.
Decentralized social networks are also navigating the trade-off between scalability and security. Improving scalability can sometimes lead to compromises in security and decentralization. Several projects have experienced security breaches, which have impeded the advancement of SocialFi and further discouraged web2 users from transitioning.
Incorrect Focus
In Episode 4 of DeFi Uncovered, Derek (@0xavarek), head of ecosystem research at Mantle, suggested that SocialFi applications may need to shift their focus. He pointed out that while users often criticize web2 platforms like TikTok and Instagram for lack of ownership, privacy, and resistance to censorship, they still prefer these applications over emerging web3 social media platforms. Derek proposed that web3 social applications should integrate unique features that web2 applications can't offer. Without such distinct functionalities, he argues, there's little incentive for web2 users to switch to their web3 alternatives.
What Are the Solutions?
Seamless Onboarding Process
Something that many web3 social networks are prioritizing right now is a smoother signup process. They aim to simplify the transition from web2 to web3 social media platforms. An example of this can be seen in the recent developments at Chat3, a web3-based audio and video social network developed on Mantle Network. In Episode 2 of Ecowaves, Luna (@thousandbtc), the founder of Chat3, announced an upcoming feature, “Sign up with Instagram”. Luna emphasized the significance of this development, noting that while a large portion of the web3 community already uses X/Twitter, there's a vast potential audience on platforms like Instagram and Facebook. SocialFi platforms like Chat3 can tap into this extensive web2 user base by integrating with these networks, significantly broadening their reach.
The significance of this development lies in its potential impact on future adoption trends. When the SocialFi space experiences the same level of traction as it did when Friend.tech first emerged, web3 social networks will already have the necessary infrastructure to seamlessly onboard web2 users into the web3 space. This readiness ensures that interest generated by such hype can be efficiently and effectively converted into actual user engagement, facilitating a smoother transition for those new to the web3 space.
Providing Value to the End-User
Although creator keys have become a staple within decentralized social networks, what's interesting is how they're being used to provide value to the end user. Traditionally, key holders are granted exclusive entry to private group chats with creators. However, this feature quickly lost its appeal as the most popular users found maintaining high engagement levels within these chats challenging. Instead, platforms are taking an innovative approach by granting key holders access to unique content crafted by creators.
Chat3, for example, has introduced an approach where content creators can create token-gated conference rooms. Access to these rooms is exclusive to holders of the specific creator's key. This allows content creators to offer unique and exclusive content to their followers, which remains inaccessible to the general public. This content varies from educational material to special announcements, underscoring a significant shift in how value is delivered to users.
Source: Chat3 — Exclusive Live Event
Cultivating Unique Services Beyond Web2 Capabilities
Derek highlighted the importance of offering unique services that web2 social media platforms would struggle to incorporate as a key strategy for the success of web3 social networks. A notable trend among these platforms is the emphasis on generating substantial microtransactions through innovative offerings. As mentioned above, one such innovation is the concept of “creator keys”. These keys allow users to trade based on content creators' fluctuating demand and perceived value, potentially leading to a significant increase in platform transactions.
Additionally, many web3 social networks are integrating NFTs to distribute exclusive content. Influencers are leveraging this by tokenizing content and making it available to their followers, further boosting the volume of microtransactions on these platforms.
Handling such a high volume of microtransactions would be highly impractical and costly for traditional web2 platforms. The associated fees and potential negative impact on user experience are key reasons why these platforms avoid offering services that require extensive microtransactions.
Mantle's Role in Advancing SocialFi Application Development
Mantle’s Architecture
Building on a layer-2 (L2) solution like Mantle Network is extremely beneficial for effectively managing high microtransaction volumes. Mantle's modular architecture empowers dApps to leverage its capability to process 500 transactions per second. This improves transaction efficiency and speed, which enhances user experience, thus easing the transition for users migrating from web2 to web3 ecosystems.
Additionally, Mantle Network stands out for offering some of the most competitive gas fees in the industry. This aspect is particularly important for microtransaction management. High gas fees can deter web2 users from engaging with a platform. Therefore, Mantle Network's ability to maintain low gas fees is a significant benefit, making it an attractive option for dApps.
It's important to highlight that the strengths highlighted above are set to be further enhanced once Mantle DA migrates to EigenDA. Mantle's current data availability solution, Mantle DA, incorporates EigenDA technology. EigenLayer has outlined a roadmap to significantly increase EigenDA's throughput from 10 MBps to 1 GBps. This represents a significant improvement, meaning that dApps who decide to build on Mantle Network will benefit significantly from this upcoming migration.
Mantle Ecosystem dApps
Up to this point, the focus has predominantly been on decentralized social networks. Yet, it's important to recognize other SocialFi applications' significant role in supporting the sector's growth. Many apps have been heavily focusing on providing a platform that helps dApps successfully grow their user base through community engagement strategies. Mantle has recognized the benefits these types of applications bring to web3 platforms. As a result, Mantle has introduced SocialFi dApps such as QuestN into their ecosystem.
QuestN is a dApp within Mantle Ecosystem that aims to significantly enhance how platforms on Mantle Network engage with their user base. The questing system provided by QuestN allows dApps to engage with their community in more interactive and rewarding ways, creating a more active user base.
Mantle recently conducted a quest to boost user engagement in a recent AMA on X/Twitter. The quest instructed community members to join the AMA and listen for a secret code. Participants were then required to input this code on the QuestN platform. Successfully entering the code automatically registered them for a chance to win a 10 $MNT giveaway. This strategy demonstrates how dApps can increase user engagement. In the context of decentralized social networks like Chat3, QuestN emerges as an ideal instrument for attracting new and engaging users to their platform. If you want to participate in Mantle Network's next quest, head to QuestN and explore the latest quests.
Source: QuestN — Mantle AMA Quest
SocialFi Outlook
Although SocialFi has encountered various challenges recently, the future appears promising, especially with increasing institutional investments. For continued success, it's crucial for SocialFi platforms to address existing issues and offer unique value to users, differentiating themselves from traditional web2 social media applications.
As SocialFi platforms gain momentum, their extensive development efforts, particularly in the onboarding process, are expected to significantly impact the sector's growth. On a related note, Friend.tech has recently announced that they will launch Friend.tech v2 in spring 2024. If successful in implementing meaningful changes that help differentiate the platform, it could significantly boost the visibility and appeal of the SocialFi space.
