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Source: Blockchain Workshop
SocialFi combines social tokens with DeFi to provide a new way for social capital to monetize and will also become one of the important interfaces for Web 3.0. What ecology is included in this track? What are the trends?
First, the combination of social tokens and DeFi
1. The rise of the SocialFi track
A large number of SocialFi projects have sprung up and exploded
In the second half of 2021, whale, Chiliz, Rally and other social tokens once showed a large increase, BBS network, Showme, Mirror.xyz and other projects exploded. By the end of November 2021, the SocialFi platform Monaco Planet was on the line, and there was a situation where the invitation code was difficult to find, and the SocialFi project attracted a lot of attention.
Favored by investors
Since 2021, especially in the second half of 2021, Many SocialFi projects such as BitClout, Friends with Benefits, DeSo, Torum, Monaco Planet, BBS network, Mirror.xyz and many other SocialFi projects have received huge investments from well-known investment institutions such as a16z, Binance, Sequoia Capital, And Three Arrows Capital.
Industry alliances appeared
In August 2021, the Social DeFi Alliance, the Social DeFi Alliance, was formed. The main goal of the alliance is to launch more social DeFi projects suitable for social network users to participate, and to promote the connection of Web 2.0 and 3.0, promote the application of Web 3.0, etc. The participating project parties include 15 DApps with strong social attributes developed on Mask, such as Mask Network, Polygon, SushiSwap, QuickSwap, and Gitcoin.
2. Social Tokens
A social token is defined as "a token supported by an individual's reputation, brand, or community."
Social projects manage the community by issuing tokens, dividing the hierarchy according to the activity and contribution of users in the community, and tokenized rights and interests increase the income of creators, cultural producers, and related participants.
Compared to traditional social media, social tokens mainly help users solve three problems:
Data rights ownership issues: Traditional social platforms, all of the user's social data is saved in the form of fields on the operator's server, and the data belongs to the platform party; while the social token directly solves the problem of user data confirmation through blockchain technology.
Benefit distribution problem: Under the algorithm mechanism of traditional social platforms, the distribution of benefits between users and platforms in traffic realization is more inclined to the platform, and it is difficult for users to fully protect their rights and interests; social tokens are problems in which users obtain benefits by financializing their social influence, and there is no third-party drawdown problem such as the platform.
Privacy and security issues: In traditional social networking, user accounts are verified by real names, and user real information is stored in the operator's background, which is easy to cause information leakage; social tokens are based on blockchain technology, and the anonymity of the user's identity can protect the user's privacy and security.
Social was once a hot area in the crypto world. Around 2017, a large number of blockchain + social projects emerged in batches, and there have been star projects such as Steem, Voice, ONO, QunQun, GSC, YeeCall, NRC, SwagChain, Huoxin, TTC Protocol and so on. However, in the early immature market environment, limited user participation, ecological model limitations and other issues, many projects have disappeared.
3. Features and four pillars of SocialFi
After 2020, DeFi flourished, pushing the boundaries of decentralized finance in the crypto world and opening the door to new tracks. The combination of games, NFTs and DeFi appeared in GameFi, NFTFi, respectively, and further caused a boom in the crypto market NFT and metaverse tracks.
SocialFi is a creative new way of social financialization. The combination of social networking and DeFi opens up new ways to interact socially. SocialFi has its own characteristics:
First, SocialFi is a combination of social, web3.0 and finance, providing users with rewards and benefits by marking social influence, users have creative benefits on the platform, and the creation in the platform will not be exploited by the platform monopoly.
Second, compared with the simple blockchain + social, SocialFi emphasizes the properties of DeFi.
The SocialFi project builds a "Lego" of decentralized finance based on smart contracts. A number of high-quality projects have created a new generation of SocialFi platform that integrates social, financial attributes, and digital NFT trading.
Third, there are various forms of mining in SocialFi, including social mining and content mining with strong social attributes, as well as liquid mining with DeFi attributes.
Project users can conduct content mining through content creation, and effectively carry out social mining with high-frequency social interaction. In addition, some SocialFi project tokens can also carry out liquidity mining and so on.
For example, social token Rally offers liquidity mining opportunities through decentralized trading platforms such as Uniswap and Balancer through yearn vaults, among others.
Overall, there are four main pillars that keep SocialFi running:
Content: Content is a "proof of work" in which participants in the SocialFi project platform receive tokens or NFTs.
Social: Social activity is the cornerstone of the SocialFi project's survival.
DeFi as the core of the economic system: Tokens or NFTs are forms of social capital that measure participants' contributions and social activity, maintain the operation of social platforms, and achieve more benefits through DeFi LEGO.
Decentralized organizational structure: Decentralized token reward and delivery, forming a decentralized value circulation system, and further requires a decentralized platform governance architecture.
Second, socialFi ecology and some well-known projects
At present, the SocialFi track is still in the early stages of development, and many projects are based on social tokens, incorporating DeFi content, and upgrading the technology to become SocialFi projects. There are also some projects that are directly designed as SocialFi projects.
1. The main classification of social tokens
A report by the well-known research institute Messari divides social tokens into three categories: individual tokens, community tokens, and social platform tokens. This is also the most mainstream social token classification at present:
Image credit: Messari
Personal Tokens
Individual tokens are mainly issued and governed by individuals, mainly used for fans to enter the community and for the entry threshold for various activities within the community, as well as for rewards and governance within the community.
The main types of tokens are:
RAC: A fan token based on Ethereum by Grammy Award winner DJ RAC (André Allen Anjos).
ROLL (Creator Token): Roll is one of the established social token issuance platforms. Under the platform issuance model, Roll will create ERC-20 tokens on behalf of users, that is, personal social tokens for content creators.
RALLY Creator Token: Individuals can issue their own tokens on the RALLY platform. RALLY itself is a social platform token and a very typical project in SocialFi, which will be described in more detail later.
In addition, there are projects such as MeTokens, MintGate, ALEX, etc.
Community Tokens
Community tokens are primarily issued and controlled by groups, usually governed by decentralized autonomous organizations (DAOs).
It is mainly used to motivate members to contribute to the community. For example, through the community token to be allowed to enter the community, enjoy special information and so on. Community tokens are also used to encourage deep participation among community members, such as when a community initiates a contest where token holders can vote on who will win.
A typical example of a community token is WHALE. WHALE Token has various NFT democratized asset ownership. Based on the WHALE DAO, the decisions surrounding these NFT governances are in the hands of token holders.
Community tokens also include well-known projects such as Mirror and FWB, which are both a community token and a typical token in SocialFi, which will be described in more detail later.
Community tokens also include Cent, Yup, Matataki, SWAGG, Karma DAO, Ark, Seed Club, Forefront, Flamingo, and more.
Social Platform Tokens
Social platform tokens represent tokens that control the platform. Mainly to facilitate creators to distribute and manage the tokenization community.
Typical projects are Chilliz. Chilliz is a social token under the typical "fan economy", focusing on the sports industry. RALLY and BitClout are well-known projects at the SocialFi Circuit, more on that later. In addition, there are Zora, CircleUBI, Loopss, Fyooz, Bluesky, Audius, Mastodon, Nafter, Coinvise, Calaxy, Clarion, etc.
2. Basic components and WEB3.0 portal tools
In addition to the above three tokens, social tokens often require third-party tools such as token distribution in the operation of the project, which intersects with the tools used by other ecological blockchain projects.
Typical projects include:
Mask Network: Bridges Web 2.0 to future Web 3.0 concepts in a "plug-in" fashion, allowing users to seamlessly send encrypted messages, cryptocurrencies, and even DAPPs (DeFi, NFTs, DAOs) on top of existing social networks without the need for migrations, without the need for centralized servers.
Mask enables ordinary users to gain further exposure to crypto assets without changing the current habits of using mainstream social platforms. At the same time, Mask has also been given multiple attributes such as privacy social, decentralized storage, DeFi, and DAO.
Snapshot: A voting tool based on an IPFS decentralized storage system that uses "off-chain" signing technology to reduce voting costs and is used by many cryptographic projects to vote on its user base.
In addition, there are Contentxt, Collab.land, Tip.cc, Communifty, Outpost, Kickback, SourceCred, Muzenetwork, Gnosis Safe, SuperFluid, and more.
3. Some socialFi well-known projects
Rally
Early well-known individual token issuance platforms focused on reconstructing the relationship between creators and fans.
Creators can generate and issue their own personal token Creator Coin, or they can mint NFTs directly on Rally for trading. Creator Coin is a credential that can be held to enjoy the corresponding privileges, such as entering the creator's private Discoard community, purchasing specific products, etc.
Rally's native governance token, RLY, can be used to purchase Creator Coin or redeemed with any other token on Ethereum. RLY can also perform liquidity mining in Uniswap and Balancer.
Fans interact with creators through RLY to buy Creator Coin, indicating that their loyalty also brings them closer to celebrities. When the participation of both parties is relatively high, Rally will distribute RLY as an incentive to creators and fans.
Mirror.xyz
It is a content publishing platform featuring article +NFT, and the founder is Denis Nazarov, a former partner of investment institution a16z.
Mirror approaches the financialization of content, providing a platform for each article to have the attribute of "NFT+ governance" that can be invested, traded, and governed.
Mirror provides creators with 6 basic competency tools, including Entries, Crowdfunds, Editions, Auctions, Splits, and TokenRace.
Each article published can be in the form of plain text content, or embedded in pictures, videos, or NFTs. Published articles are permanently saved on Arweave and an NFT is automatically generated for trading when published.
Creators who meet the requirements can initiate crowdfunding under the article, and users can obtain tokens and NFT shares by participating in crowdfunding.
In addition, the invitation token "WRITE" is used to create a column where holders enjoy voting rights. Under certain platform preset conditions, "WRITE" can also act as an admission credential.
BitClout(DeSo)
In March 2021, Nader Al-Naji, founder of stablecoin Basis, launched a new social platform, BitClout, with the main concept of social tokenization – value depends on the popularity of users.
BitClout benchmarked with Twitter and issued social tokens directly to Twitter KOL celebrities. As several Twitter celebrities "claimed" BitClout accounts, BitClout's popularity increased dramatically.
The native token of the BitClout platform is CLOUT, and creators on the platform can own their own Creator Coin and trade it. Users can use CLOUT to purchase Creator Coins.
In September 2021, CLOUT changed its name to DeSo. But unlike BitClout, DeSo is the underlying public chain of BitClout. On DeSo, in addition to BitClout, there are more than 140 projects being built. Unlike other public chains, DeSo public chains are tailored for social applications.
Everyone who wants to use the DeSo blockchain or an application built on the blockchain must hold a DeSo that can be used to create profiles, create posts, buy social tokens, buy NFTs, give away diamonds, and more.
Friends with Benefits
Friends with Benefits is a new type of DAO with the native token FWB.
Friends with Benefits is a private social platform based on Discord's private server, bringing together a group of creators in the crypto space. Participants need to hold a certain amount of native token $FWB to join this social circle. $FWB has a constant supply of 1 million.
The platform has launched modules such as the token-gated events app, NFT gallery, Web 3.0-based editorial venture, virtual music studio, and real-time community dashboard. The next step in the platform will focus on expanding the DAO's real-life reach, working with communities in specific cities to bring real-world benefits to FWB members.
Monaco Planet
Monaco Planet is a SocialFi project with the development concept of "ownership and governance are determined by the user".
In early November 2021, Monaco Planet raised $3 million in seed rounds from Three Arrows Capital and others.
To make Monaco Planet more immersive, the project likens itself to a metaverse and gives a unique story to the metaverse, where users imagine themselves as people migrating to Monaco Planet.
The vast majority of the project's native tokens will be distributed to users who generate content, using the "content is mining" model, as well as allowing users to receive native token MONA rewards by following, commenting and liked, NFT display and pledge.
Holders of native tokens can enjoy token appreciation brought about by the platform's growing economic activity.
Since the vast majority of tokens MONA will be distributed to users as a reward for content creation, the platform acts as a decentralized autonomous organization managed by local token holders who can send proposals and votes.
Third, several important trends in SocialFi
1. SocialFi will become one of the important interfaces for Web 3.0
A16z sees Web 3.0 as a successor to the Internet. Just as Web 1.0 and Web 2.0 changed the way people communicate and exchange information, Web 3.0 changed the way value shifted around the world. What is Web 3.0, someone gave a condensed definition of Web 3.0 is:
Web 1.0: read.
Web 2.0: read+write.
Web 3.0: read+write+own.
Social networking is one of the most core pillars of Web 2.0. Platforms such as Facebook, Twitter, WeChat, YouTube, and Douyin have gathered a large amount of user data and grown into a giant technology company. It is difficult for users who provide data to have ownership and use rights to their own data. The biggest profit logic of Web 2.0 is "traffic monetization", which realizes social capital monetization through product monetization, advertising monetization and service monetization.
The "possessable" characteristics of Web3.0 determine the biggest difference between Web 3.0 and Web 2.0 - the fundamental transformation of the logic and mode of benefit distribution. That is, Web 3.0 users can take ownership of their data and benefit from it.
Blockchain confirms ownership of user data by enabling trustless, permissionless, user control. Blockchain technology forms the most important basic technology module of Web 3.0.
Elon Musk also believes that under the meaning of "Web 3.0", because the distributed storage, asymmetric encryption technology and decentralized concept represented by the blockchain are very consistent with the concept of "Web 3.0", it has become one of the most promising areas to realize the vision of "Web 3.0".
As social networks evolved from Web 2.0 to Web 3.0, social needed to be combined with blockchain, and social participants needed to truly own and benefit from data, and SocialFi came into being. Forbes Board member Roger Lee commented that Social tokens are a true product of Web 3.0, connecting content creators and consumers directly. SocialFi became one of the entrances to the web 3.0 world.
2. SocialFi has initially formed a logical and self-consistent value capture mechanism
Social Capital, the associations between individuals or groups—social networks, reciprocity norms, and the resulting trust—are the resources that people are given to them by their position in the social fabric.
SocialFi has built a logical self-consistent value capture mechanism through content distribution, from which different participants can highlight their value, monetize social capital, and obtain benefits.
Content producers: Based on content creation, get system token rewards, and can also get system token rewards through indicators such as likes, comments, and forwards. Digital ownership of content can also be determined through NFT forms, fan crowdfunding and copyright distribution can be completed. As a result, content producers benefit from tokens through social connections and content creation influence. Social capital is smoothly transformed into economic capital.
Audience users: In many SocialFi projects, the participation of audience users, whether it is likes, comments, forwards, etc., will also be rewarded by the system with tokens. Users provide attention to reward others or create wealth, and the system also rewards the attention provided by users. This is an innovation of the existing attention economy.
Both content producers and audience users can obtain the benefits brought by token appreciation while the influence of the platform expands. Similar to Play-to-Earn in GameFi, SocialFi can also derive more gameplay. In the economic system of SocialFi, it is also possible to quantify the user's influence and social activity in social networks through post-to-Earn, Share-to-Earn, Comment-to-Earn and other forms.
Participants in socialFi projects can also get more benefits through content mining, social mining, or liquidity mining, or participate in project platform governance with tokens or NFTs.
Thus, content-based tokens or NFTs achieve a closed loop of economic logic of production-consumption-transfer-investment-mining-governance.
3. The SocialFi project develops in an integrated manner
Unlike social projects in the Web 2.0 era, the future SocialFi projects will be integrated with NFTs, games and metaversities, with DeFi Lego, and with DAO will be the norm.
First, the integration of social platforms with NFTs, games, and metaversms.
NFT-based social creation content. The content, music, video, etc. produced by creators on social platforms are converted into NFTs to confirm the rights of the content, bringing more economic value and benefits to creators.
NFTs can also be the initiators of platform governance tools or platform scenarios.
In Rally, for example, NFTs are the vehicles for financializing content to reap the benefits. In the Mirror.xyz, NFTs are also content financialization and are the main carriers involved in governance.
Many SocialFi projects gamify social scenes or "metaverses" and have a better experience of social interaction.
The metaverse itself contains the requirements of social interaction and immersive experience, and there will be more SocialFi projects that integrate with games or metaverses in the future, and NFTs are also one of its constituent elements.
For example, Torum, a SocialFi platform designed for cryptocurrency users and projects. The platform also launched a platform for DEFI players, an NFT market for crypto artists, and Avatar NFT for metaverse enthusiasts on social media platforms, building an ecosystem of social media platforms + NFT + DeFi+ metaverses.
The Monaco Planet project also likens itself to a metaverse, placing the social scene in a unique story of the metaverse.
Second, the integration of social platforms and DeFi Lego.
SocialFi aims to provide benefits and rewards to users through the financialization and tokenization of social influence. Industry expert Jillian Godsil sees SocialFi as a new perspective on DeFi.
As mentioned earlier, the biggest difference between the SocialFi project and the previous pure blockchain + social project is the addition of the DeFi factor. Social tokens or NFTs in socialFi projects can be combined with DeFi LEGO in various ways, including Lending to Earn, Staking to Earn, Farming to Earn, i.e. borrowing and lending, liquidity mining, pledge benefits, etc.
Third, the integration of social platforms and DAO.
The SocialFi project uses tokens or NFTs as an incentive for social content creators, social tokens or NFTs are widely distributed among different social participants and are the basis for participants to govern the platform. Therefore, the SocialFi project is genetically a decentralized platform, which is naturally suitable for the DAO to govern the affairs of the platform.
For example, Mirror.xyz positioned itself as What is Mirror = Who's on Mirror, which defines mirror not only as a decentralized content creation tool, but more like a community collaboration platform. Mirror has a built-in crowdfunding feature that allows funding for a project or idea, enabling a quick launch of a DAO. Mirror's voting features are similar to Snapshot's, providing the ability to vote proposals, token snapshots, multi-signatures, proxy voting, and more.
4. Three important issues facing the development of the SocalFi circuit
The first is the problem of value capture mechanisms.
At present, although the value capture mechanism of SocialFi projects has formed a closed loop, the algorithm of some project tokens to incentivize participants to provide high-quality content and social networking is not reasonable, resulting in low quality of content and social networking.
Monaca Planet, for example, rewards users by incentivizing users to write and participate in discussions through native tokens. There is no reasonable mechanism to restrict the content quality of creators, and a large number of users form alliances and praise each other in order to get rewards, resulting in the proliferation of low-quality content on the platform. The crude attention algorithm and the net asset value algorithm make the entire home page interface single.
Therefore, how to incentivize high-quality content and effective social networking, improve the token reward algorithm, and optimize the value capture model needs to be solved urgently.
The second is the issue of monopoly of influence
SocialFi is essentially a manifestation of an individual's social value. For celebrities who entered the track early or had a lot of influence in themselves, it would somehow expand their monopoly on content creation.
This is very detrimental to the average user who enters the market late or has less influence, and the content they produce is often difficult to detect. That is to say, how to break the monopoly of people with huge social influence on ordinary content creators needs to be further solved.
The third is the issue of community conflict management.
Some analysts believe that the SocailFi community has a public space, and the communication of public space is either insufficiently popular, or leads to fierce conflicts and community divisions. On the one hand, the community needs topics to be controversial and conflicted in order to have heat and attract users to join; on the other hand, excessive conflict leads to the division of the community. It is also necessary to establish good rules and improve the governance of the DAO, while maintaining the heat of the community while preventing the community from dividing.
5. The outlook is promising, but the timing of the outbreak remains to be seen
Whether it is the traditional Internet or the crypto market, after a period of development, it will actively pursue the application of its "social" attributes. As the SocialFi industry is just getting started, new projects are emerging and the potential for growth is limitless.
In the future, SocialFi may provide opportunities for content creators to thrive in small communities.
Not only that, but part of the social token will be accepted by the larger community, and socialFi has now begun to play a key role in the creator ecosystem and is widely adopted among crypto artists and celebrities.
SocialFi will also redefine the relationship between traditional businesses and their customers or fans. Businesses can achieve long-term growth in token value and corporate value by building a decentralized ecosystem that shapes new relationships with their customers or fans.
On the other hand, there are different views on when SocialFi will explode on a large scale.
At present, the size of the track is still very small. For example, the Analytics website Coingecko's Social Money category does not include all SocialFi tokens, but includes a considerable number of social tokens, a total of 31, of which the largest volume is Rally, as of January 24, 2022, the market value is only more than 500 million US dollars.
As mentioned earlier, Binance CEO Changpeng Zhao is optimistic about the development of SocialFi and GameFi in 2022. Soundwise founder Natasha Che has a different view.
He believes that the emergence of social use scenarios requires the large-scale popularization of new technologies. The explosion of Web 2.0 social media came after 100 million users. Currently, Ethereum has 180 million addresses, less than 1 million active users, and less than 25,000 OpenSea active users. The current popularity of crypto tokens is not enough to support the explosive growth of apps like Bitclout, or the issuance of their own mini-tokens by tens of thousands of individual creators.
As a result, Natasha Che believes that when the number of users of a new technology reaches 1 billion, large-scale market applications will begin to explode.
IV. Conclusion
SocialFi operation is based on content, social, deFi as the core of the economic system and decentralized organizational structure as the pillars, the complete ecosystem is gradually being built, showing a unique development trend.
In the context of Web 3.0, one of the most prominent pillars of the modern Internet, social networks, combined with DeFi, the activity and rise of the SocialFi track is landing the intention of "human beings will always find the most efficient way to maximize social capital".
Disclaimer: This article is the author's independent opinion, does not represent the position of the Blockchain Research Society (official account), and does not constitute any investment opinions or suggestions.
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