SocialFi is web3’s answer to social media — combining networking and finance to create decentralized social applications. It is one of this year’s fastest-growing blockchain segments even in the face of a severe bear market.
This merging of decentralized finance and social media promises better data control, freedom of speech and the ability for users to monetize their online following. Fulfilling these ambitions is far from certain, and it remains to be seen whether SocialFi is just another fad or the next big thing.
Whether the segment booms or bombs depends on three key areas: the user, the metaverse, and the experience. Let’s explore…
The Most Important Part of Any Social Network: The User
What’s a social network without users? SocialFi must attract crypto and non-crypto users to give life to the online platforms. Currently, the segment counts many platforms similar to web2 giants such as Facebook and Twitter.
Yet they feature the benefits of web3 — token incentivization and data rights.
For example, Cent mints Tweets and Instagram posts as NFTs. Meanwhile, Ownership Labs is building web3’s Pinterest, Dataverse. This is a good start, helping users socialize in a familiar format while actually owning the data they produce.
There’s a stark difference between today’s and tomorrow’s social media platforms. In web2, you’re the product and the platform is the seller. Further, the platform is centralized and often publicly traded on the stock market, meaning it’s obligated to investors.
In the very words of staffers, Facebook faces “conflicts of interest between what [is] good for the public and what [is] good for Facebook.” In web3, you’re the owner and the platform is the facilitator. You own your data and can do with it as you please.
For example, you can choose to monetize your data, an enticing prospect for influencers and content creators. Social tokens allow users with meaningful brand equity to begin charging for their creative output. Artists with a following can create a subscription model in their social token for premium access. Or, when users want to engage with an influencer’s latest video, they can charge tokens.
Done right, this system could bring more exclusive and shareable content to web3. This will be vital to longevity since more content equals more eyeballs.
The (Other) Next Big Thing: The Metaverse
The metaverse will be your digital life. At least, that’s the idea. This immersive integration of augmented reality and virtual reality doesn’t consist of a single project or blockchain technology but several. You’ll play games, make purchases and be social, powered by blockchain gaming, cryptocurrencies, SocialFi, and much more.
In the metaverse, users can live and work in a shared virtual space. Where people congregate, people socialize — carving out a unique opportunity for SocialFi. To grasp this, the metaverse must be an open and composable experience for decentralized application (dApp) builders. Each module must connect to the next and work together, thereby providing a holistic user experience.
For now, the metaverse faces infrastructural limitations. This is true on two fronts. First, there’s not yet enough hardware in consumer hands with Meta’s Oculus selling less than 10 million units last year. Second, networking is similarly immature and unable to support potentially unlimited users in real-time, high definition.
However, insiders are adamant that the right technology is only a few years away. In June, I was invited to a private event at NFT.NYC. Top metaverse thought-leaders discussed the future of collaboration and interoperability in a closed-door meeting. These disparate players uniting to consider how everyone can work together is a big step in the right direction.
Remember, the metaverse is far beyond the scope of one company or organization. The faster this space can agree and work in unison, the faster that people can enter the metaverse and lead their digital lives.
The Tool to Enable Mass Adoption: The Experience
Repeat use is the backbone of habit. If something’s easy and convenient, it’s far more likely to attract repeat, loyal users. However, easy and convenient aren’t two words that currently define SocialFi. Most applications assume an understanding of crypto wallets or blockchain addresses and operate accordingly. To go mainstream, the user experience must accommodate the masses.
The good news is that some projects are looking to bridge this gap. UniPass enables users to authenticate multi-chain addresses and social accounts cryptographically to enrich their identity in the metaverse.
Better yet, those without blockchain addresses can simply register with an email. Another good example is Nametag. Describing itself as the “username of the future”, Nametag wants to be your universal login name across web3.
The key to these projects is simplicity for all users. Making life easier for those late to the world of blockchain is an important way to ensure they aren’t also left out of web3.
The Need for Decentralized Social Experiences: SocialFi
SocialFi is often considered the missing piece of the web3 puzzle. Why? Because the powerful, next-generation internet enables everything from versatile gaming to smart contracts. But it still doesn’t have a native decentralized social media platform.
There is plenty of work to do when it comes to the user, and the future is bright for the metaverse and the SocialFi experience. Younger users are turning away from legacy social media and, in turn, legacy social media is playing catch up.
It’s telling, for example, Meta’s Instagram now allows select users to connect their digital wallets and share collectables. Moreover, reports reveal the parent company is also working on plans to allow users to create and sell NFTs. However, even with web3 upgrades to web2 platforms, younger audiences increasingly believe that data ownership is a right.
These digitally literate users will spur innovation and champion adoption over the coming years in SocialFi.
At the same time, web2’s creative and technological talent is migrating in this direction. The space is now seeing founders who previously built platforms with 100M+ users. These entrepreneurs will change the quality of code, the working attitude and the capability to find market fit.
They, too, will be instrumental in shaping the next generation of social platforms.
Li Gong is a partner at Youbi Capital