In-depth exploration of Web3 SocialFi domain
Exploring Web3 SocialFi
Since the era of primates, social interaction has been an important part of human society. For humans, who are social animals, the importance of social interaction is self-evident. In the era of the Internet, social scenes have gradually moved online, breaking through geographical limitations. Social interactions that used to be based on familiarity have become interactions among strangers based on shared interests. Various platforms serve as “public squares,” allowing people who have never met to engage in entertainment, politics, economic discussions, and other topics.
However, as Web 2.0 social platforms gradually monopolize the market, the drawbacks of the Web 2.0 social model are becoming evident. From Reddit suppressing third-party app developers to Twitter breaking away from its long-standing “free” model, the deficiencies of social platforms dominated by giants have been exposed.
But at the same time, Web 3.0 social has become a hot keyword, and “decentralized social” has become one of the top ten focus areas of top institutions like LianGuairadigm. Although Web 3.0 social is not a new narrative, in the current context of frequent data breaches, privacy scandals, and algorithmic biases on Web 2.0 platforms, Web 3.0 social, with its characteristics of decentralization, resistance to censorship, user-centricity, empowering digital assets, and identity interoperability, is gradually gaining more attention.
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1. Current Status of the Social Track
1.1 High Ceiling of the Social Track
Social products have great imagination in the capital market. According to the “2022 Global Digital Overview” report, there are over 4.62 billion social media users worldwide, accounting for 58.4% of the global population. Taking the leading company in the social track, Facebook, as an example, its peak market value exceeded $1 trillion, once ranking among the top ten global listed companies.
According to Facebook’s Q4 2022 earnings report, the average daily active users (DAP) of Facebook’s product series worldwide is nearly 3 billion people, accounting for 1/3 of the global population. In addition, the valuations and market values of various social operating companies such as Twitter, Snapchat, and Weibo indicate a high ceiling for the social track. Considering the small user base of Web 3.0 social at present, the growth space of the social track is obviously enormous.
1.2 Continuous Growth of Global Social Media Users, but Growth Rate is Slowing Down
Since the global popularization of Internet infrastructure, the number of social media users has been growing rapidly, especially during the Covid-19 period, when the adoption of social media has been greatly accelerated.
According to Kepios’ data, global social media users have grown by nearly 30% in the past three years, with a net increase of over 1 billion people. However, as countries lift pandemic restrictions and relax population flow control, social interactions are returning to offline settings, and the growth rate of social media adoption has significantly slowed down. In the context of weak growth in social media, Facebook has shifted its strategic direction to the metaverse.
1.3 Problems with Current Web2 Social Platforms
Despite having clear information management regulations and laws in different countries or regions, social software companies still face problems such as censorship confusion, algorithm bias, data abuse, and leaks. From Facebook’s “election gate” incident to Reddit’s forced API fees causing backlash from developers, and Musk’s Twitter throttling “anti-addiction” causing public anger, these phenomena reflect that Web2 social software companies driven by capital cannot prioritize users. User data can be used by large companies to create profiles and make it difficult for people to abstain from addiction to social software.
2. Value of Web3 Social
2.1 Value and Power Redistribution
Since the emergence of the Internet, social products have always revolved around the interests of the three parties: users, platforms, and creators. In reality, there is an impossible triangle. In the Web2 social model, platforms are at the top of the food chain, but with the advent of Web3 social, the value/power distribution relationship between the three parties has changed.
User Sovereignty: Web3 social revolutionizes the paradigm of social ownership, helping users regain sovereignty. By bringing anti-censorship characteristics through on-chain user data and decentralized nodes, user sovereignty is protected, including ownership of data such as consumption and browsing preferences, privacy rights, digital assets, and identity sovereignty.
In addition, in some Web3 products, users can also exert their initiative, such as holding content works together on Mirror to receive royalties, or holding some tokens on Chiliz to participate in transaction decision-making in sports and entertainment clubs.
Reshaping the Creator Economy: In Web2 social products, platforms such as Weibo and Twitter will share platform revenue with creators, but there are generally high barriers, low income, and 2/8 income distribution restrictions. Taking Twitter’s recent incentives for content creators as an example, besides the harsh condition of having accumulated 5 million views on tweets over 3 months to be eligible for revenue sharing, they also need to subscribe to Twitter Blue.
However, driven by Web3 social products, content creators have become “real workers” instead of being “alienated individuals.” The Write To Earn model provided by Web3 platforms allows creators to monetize platform tokens based on quantifiable data such as clicks and shares of their works, and it also provides additional income channels for creators, just like Lens. In addition, with the traceability of Web3 records, if creators mint NFTs at the same time they publish content, copyright protection can also be guaranteed.
2.2 Decentralized Governance
Unlike traditional social media platforms that have absolute governance, a significant portion of governance rights in Web3 is decentralized to the community. By handing over content moderation and ownership to the community, it avoids the abuse of content censorship and deletion rights due to platform manipulation by capital or concentrated power. Users can allocate governance rights by holding NFTs or tokens and make decisions on suitable censorship processes or standards, making the process more democratic and transparent.
2.3 Decentralized Identity Interoperability
In traditional internet social networks, there are strong barriers to connecting identities between different products. Users seem to be stranded on data islands, and identity credentials from Tencent and Alibaba’s products cannot be interoperable. Users need to constantly register and verify their identities in different ecosystems in order to circulate on different platforms. The lack of interoperability among multiple platforms has become a pain point for Web2 digital identities.
In the Web3 social scene, only one digital identity is needed to experience a variety of social scenarios in protocols that are more composable and open. For example, users can use the same ID identity in CyberConnect and Lens Protocol to experience various social behaviors such as video viewing, image-text socializing, and instant messaging.
3. Analysis of Web3 Social Platforms
Web3 social is broadly defined and mainly refers to Web3 technologies and related social products. Due to limited space, this article will categorize Web3 social projects on the market into infrastructure and application types, and briefly analyze them.
Lens Protocol is a decentralized social graph built by the Aave team on the Polygon chain, with NFT as the core of interaction. It is one of the mainstream Web3 social protocols.
To participate in Lens, users first create a profile NFT (Profile NFT), which is the main interactive object. Users who hold Profile NFT can engage in content creation, and the created content will be recorded on the Profile NFT and stored on the blockchain.
Interactions that Lens users can perform include creating content, collecting, and sharing. Among them, content creation (Publication) is the core of Lens interaction, which can be further divided into posting, commenting, and reposting. Posting is the main function, while commenting and reposting are additional functions. Creators can monetize their published content and earn income on Lens through e-commerce, knowledge payment, and other forms.
Other users can follow the creator’s homepage to obtain Follow NFT and collect the content the creator publishes to obtain Collect NFT. Most of the users’ social interaction behaviors will be preserved and stored on the blockchain in the form of NFT, completing the data ownership.
Thanks to Lens’ modular design and open developer environment, there are already over 100 ecological products. Due to the composability of Lens Profile NFT, the greater the number of products, the more diverse the application experiences. Users can also port their own data to applications, including Lenstube, Lenster, Phaver, LensFrens, and other social applications that encompass music, video, and image-text content. Most of the Dapp’s operation logic is similar to mainstream Web2 social products, so users can easily transition to new applications.
However, Lens Protocol still has certain limitations, such as the need to consume gas fees for each operation, and the restriction to the Polygon chain. In addition, because Lens hopes to introduce high-quality users in the early stages of the project, the open quota has been limited since the end of last year. Currently, there are about 100,000 Profiles NFT in circulation, which is still a small circle game. With the upcoming release of Lens V2 registration, this situation may improve.
CyberConnect is a decentralized social graph protocol and one of the leading projects in the Web3 social field.
CyberConnect has three core components: CyberProfile (decentralized digital identity), CyberConnect Social Graph (social relationship graph), and CyberWallet (wallet).
Similar to Lens Protocol, CyberConnect also focuses on returning interactive data to users and utilizes cc Profile (a personal profile stored as an NFT) as its core. It helps users build their social graph and the cc Profile NFTs are composable and can freely flow within the ecosystem. CyberConnect has already integrated with several high-quality applications such as Link3, Phaver, and ReadON. Link3, as the official application of CyberConnect, covers various functions including social networking, content publishing, community, and task management.
When CyberConnect protocol connects with different applications, it can bring user data directly to other applications, such as friend data, identity data, and the decision to grant data permissions depends on the user. However, some community members have expressed concerns about the privacy risks of displaying the captured user data on the personal interface of CyberConnect.
Unlike Lens Protocol, which can only be used on the Polygon network, CyberConnect has better scalability. It supports aggregation on multiple chains including Ethereum, BSC, Solana, and Polygon. Furthermore, CyberConnect does not impose strict entry barriers on users. Currently, there are over 1.2 million registered users of its Profile NFT, and the monthly active addresses account for 70% of the total addresses. However, after CyberConnect announced its token issuance plan, both the activity level and user registration volume have declined.
In addition to the above two leading Web3 social infrastructure protocols, other Web3 social infrastructure projects worth paying attention to include Farcaster, Deso, and Nostr.
3.2 Social Application Layer
Mirror is an anti-censorship content creation platform launched by A16Z partner Denis Nazarov and is one of the mainstream platforms in the current Web3 content creation field. Mirror’s core principle is “users create, users own”. Each time a creator publishes an article, it will be minted as an NFT and the created NFT will be stored on the Optimism network and can be archived on Arweave for permanent preservation.
Creators can earn income on Mirror through crowdfunding, auctions, and collaborative contributions. However, Mirror also has some flaws for creators, such as a lack of content review, no guarantee of content accuracy, frequent bugs when editing articles, and insufficient measures to address plagiarism and copyright infringement.
Debox is a Web3 social platform based on DID (Decentralized Identifiers). Its application interface is similar to WeChat, and its functionalities are similar to Discord and Twitter. The main features of Debox include:
Chat: Users can chat directly in the community. It is worth mentioning that Debox provides an option for asset holders to join groups. Only users who hold the assets associated with the community can enter and rank based on their holdings, which reduces irrelevant information to some extent.
Feed: A feed similar to Twitter, which can be divided into user-followed content and recommended content. Users can post updates, comment, like, and collect posts in this section.
Community: Debox divides the community into Token community, NFT community, and Club. Users can join communities based on their preferences.
In addition, Debox has added features such as unlimited members in the group, community management tools such as voting and proposals, Token authorization detection for users, NFT transactions, etc., to improve usability.
Damus is a social application created based on the decentralized social basic protocol Nostr. Damus has features such as notes (similar to Twitter’s home square), private messages, notifications, search, etc. The user experience is similar to Twitter. When users create an account, they generate a public key and a private key for identity verification. Content creation does not require approval and has no risk of deletion, making it highly resistant to censorship and fully owned by the user.
With the celebrity effect of former Twitter CEO Jack Dorsey, Damus and Nostr received great attention within a few days of their launch. However, due to the lack of regulation and becoming a platform for the release of junk information, the application’s activity quickly decreased.
4. Dilemmas of Web3 Social
4.1 Login barriers limit new user influx
For a new Web3 user, there are two main barriers to entering Web3 social.
On the one hand, there is the wallet barrier. For new users, they need to have an understanding of private keys, public keys, mnemonic phrases, etc., and there are significant differences in the native assets used for Gas fees on different chains. However, with the popularization of MPC or AA wallets, this barrier will gradually decrease.
On the other hand, there is the cognitive barrier. Compared to mainstream Web2 social applications, Web3 social interaction requires gas fees and an understanding of a series of terms such as POAP, ENS, NFT.
4.2 Web3 Social lacks applications with breaking the circle effects
Web3 social product marketing has poor results, and their own marketing capabilities are limited. This is true even for leading Web3 social platforms like Lens Protocol and CyberConnect. Lens Protocol has a limited number of registrations and a small number of users, lacking scale effects in community promotion. CyberConnect has been criticized by the community for frequent and excessive marketing activities, such as encouraging users to participate in “picking bottle caps,” resulting in a poor reputation.
There is no established habit of paying, and most users are accustomed to freeloading on mainstream Web2 social products in the market. They do not understand the model of social interaction in Web3 social products, which requires purchasing Profile NFTs and paying for gas interactions.
Most Web3 social applications simply copy the template of Web2 social platforms without significant innovation. Without solving important pain points for users, they have limited appeal to most users or creators.
4.3 Web2 social application user stickiness remains strong
Due to the first-mover advantage of traditional social media, Web2 social applications not only have a large user base but also have long-term active users.
For non-Web3 users, these users have already established a mature relationship circle in Web2 social products. It is difficult for them to abandon their existing social capital and enter unfamiliar products. Web3 social faces difficulties in diverting these users.
For native Web 3 users, in the absence of other major needs, the actual demand can be met by using Web 2 social applications such as Twitter, Discord, and Telegram.
However, for social products, the scarcity of users and creators will ultimately lead to insufficient blood generation capacity, which is fatal.
4.4 Can a Lack of Strong Regulation Form Good Community Standards?
There are widespread concerns about whether Web3 social can form reasonable community standards while allowing freedom of speech and access to information, and striking a balance between freedom and fairness. The decentralized social media application Damus, strongly supported by former Twitter CEO Jack Dorsey, was flooded with a large amount of borderline pornography or financial fraud content shortly after its release due to the lack of review and regulation, becoming a “social garbage dump”.
Although former US President Trump was banned from major Web2 social media platforms such as Twitter and Facebook, most people still support this move because his extreme nationalism and anti-common sense remarks were not further disseminated.
In most decentralized social platforms, the dissemination of junk content becomes quite easy due to the absence of censorship, moral or legal norms. Against the backdrop of rising global populism, nationalism, and extremist religious forces, the teams or communities of Web3 social products need to take responsibility and provide methodologies to guide and correct in the post-truth era, crossing various national customs, religious beliefs, and violent content.
5. SocialFi (X To Earn) is Not the Final Answer
Web2 social products cannot achieve long-term success solely by relying on the WRITE TO EARN model to attract users. They also need the support of long-term high-quality content. Although the X TO EARN model can incentivize user activity for a certain period of time, just like most Gamefi projects, relying solely on the X TO EARN model does not have strong long-term sustainability appeal to users.
For example, the popular Socialfi project Monaco Planet at the end of 2021 gave rise to a large number of “sheep-shearing” accounts seeking token rewards for content creation. In order to publish content, a large amount of invalid and redundant information was generated on the platform. This model has strong Ponzi attributes. When the profits decrease, user activity will decrease significantly. Lack of high-quality content in the competition among social media platforms is equivalent to losing a moat, which is currently lacking in decentralized social platforms and is also the reason why most Socialfi projects have short lifecycles and ultimately go unnoticed.
In terms of product innovation, from portal websites to social media platforms, each WebX social revolution gives birth to a new form of social product. Web3 products should not be limited to adding financial attributes to the Web2 product model.
Build social products based on niche interests and focus on shared interests. Limited by login barriers, social scenes, and other factors, the opportunity for Web3 social products to become popular is far less than that of Web2 social products. However, they can try to target differentiated niche groups, such as attracting sports fans like Chiliz and gathering music-loving creators like Audius.
Attracting high-quality content creators and users, whether on Web2 or Web3, requires long-term accumulation of user and creator quantity and quality.
In addition, mobile development needs to be emphasized. There is a high demand for social mobile apps on the market, but currently, most Web3 social products are developed for web browsers, neglecting the need for vertical screens.
According to Triple-A data, there are approximately 420 million cryptocurrency users, accounting for less than 5% of the global population. This number is dwarfed by the number of Web2 social media users worldwide. Even top protocols like Cyberconnect still maintain a user base of only around 1 million, and a considerable portion of them are multiple accounts created in anticipation of airdrops. In the social media field, top protocol user numbers are only at the level of newborns, and in the “fat protocols, thin applications” Web3 environment, it becomes even more difficult for killer-level social applications to emerge. From the current situation, it is more likely for Web3 social media to occupy a corner in the social media race.