SocialFI: A Comprehensive Overview of the Next-Generation Social Network

What Is SocialFi?

SocialFi represents a groundbreaking convergence of social media principles and decentralized finance (DeFi) ideologies. In essence, SocialFi platforms adopt a Web3 paradigm, embracing decentralization in the creation, administration, and ownership of social media platforms, along with the content generated by their diverse user base.

The driving force behind SocialFi lies in empowering content creators, influencers, and participants who aspire to exercise greater autonomy over their data, uphold freedom of speech, and unlock opportunities for monetizing their social media influence and engagement. The monetization aspect typically revolves around cryptocurrencies, while the realms of identity management and digital ownership are intricately woven into the framework through the utilization of non-fungible tokens (NFTs).

Operating as decentralized autonomous organizations (DAOs), SocialFi platforms offer a robust defense against centralized censorship decisions, ensuring a more democratic and inclusive environment. Leveraging the considerable strides made in blockchain technology over recent years, SocialFi infrastructure demonstrates the capability to handle the complex throughputs demanded by diverse social media interactions, marking a significant evolution in the landscape of digital social connectivity.

Difficulties Encountered in Web2 Social Media

Each day, more than half of the global population, amounting to 58.4%, dedicates an average of 2 hours and 27 minutes to social media usage. Despite this widespread engagement, the attention, interactions, and data generated are monetized by a limited number of centralized entities and their shareholders. This misalignment of incentives has given rise to the well-known adage: "If the product is free, you are the product."

Centralized decision-making is evident in instances where content creators are banned from platforms for discussing specific topics. While such measures aim to safeguard users from harmful content, a decentralized curation process, if implemented, would better align with the ethos of Web3.

The third challenge faced by Web2 applications pertains to digital ownership and the ability to track it, particularly crucial for creators and artists sharing their work online. The absence of robust digital ownership mechanisms can lead to vulnerabilities such as digital piracy.

Web2 platforms also fall short in enabling the direct monetization of brand equity. Although influencers can indirectly monetize their self-created brands, the social following and credibility established on a social media platform do not seamlessly translate into financial gains.

Can SocialFi offer a solution to these challenges? What is SocialFi, and how does it operate? Let's delve into these questions in the upcoming sections

Building blocks of SocialFi

SocialFi is poised to revolutionize the landscape of the social media industry by adhering to the principles of Web3, essentially embodying decentralized social applications. Its primary objective is to address and resolve fundamental design challenges inherent in current Web2 social media platforms.

Noteworthy projects within the realm of SocialFi include:

Let us go through some of the key aspects that SocialFi strives to get right when compared to its Web2 counterpart. That would also help understand why SocialFi is so popular.

Monetization

Ensuring fair distribution of incentives among all stakeholders has been a fundamental design principle in Web3 applications, facilitated by the DAO model. SocialFi applications take this concept further by introducing the use of social tokens or in-app utility tokens.

In realms like DeFi and GameFi, utility tokens are commonly employed to drive in-app economics. SocialFi introduces social tokens as a distinct tier in the economic structure. These tokens are not confined to the application level but can be generated at the user level, allowing creators to autonomously manage their own economies through these social tokens.

Every user with significant brand equity now has the potential to possess their unique token. For example, someone like Elon Musk could have his own token, establishing a miniature economy centered around it. The token's value would directly correlate with the user's social influence, making Elon Musk's token more valuable than that of an average user just establishing their social media presence.

Examining the factors that influence the value of a social token in this model, several fundamental design principles come into play:

• Only individuals holding a creator's social token can interact with their posts. Consequently, engaging with Elon Musk's posts, for instance, would require holding his social token in one's wallet.

• Messages from users holding the highest number of an influencer's social tokens can be prioritized at the top of responses, providing a means to capture an influencer's attention.

• Creators and influencers can establish thresholds, enabling direct messaging privileges for followers holding a certain number of their social tokens.

• Artists with substantial followings can institute a subscription model using their social token, offering premium access to creative content for subscribers.

• Engaging with someone's content, be it through a like or share, incurs a cost for the user.

Various economic models are currently under experimentation based on these key principles to monetize participant engagement in SocialFi. These models aim to reduce spamming by introducing costs, foster genuine engagement, and primarily assist creators and influencers in monetizing their brand presence.

Censorship and the Right to Free Expression

Navigating the challenge of censorship and freedom of speech is a complex and subjective issue that has posed difficulties for most Web2 social media platforms. Striking a balance between avoiding centralized censorship and preventing the uncontrolled dissemination of harmful content worldwide is a delicate task, with the optimal solution lying somewhere in between.

SocialFi platforms address this issue by implementing decentralized curation through the labeling of on-chain data. All publicly visible posts on a SocialFi platform exist on the blockchain, allowing rules engines to swiftly label posts based on their topics and the language used. The responsibility lies with the nodes on the blockchain to select the appropriate posts.

Each individual node has the autonomy to decide which labels to block and which to engage with. If a node chooses to endorse a harmful post, it becomes legally liable for prosecution. Consequently, the determination of what is permissible within the network is not dictated by a central authority or a small team within a centralized organization; instead, the control and responsibility rest with the individual nodes.

Digital ownership and identity

The rise of Picture for Proof (PFP) NFTs has introduced a unique form of digital identity, epitomized by the mantra "I am my ape, and the ape is me," within this $18 billion market. PFP NFT collections like Bored Ape Yacht Club, Moonbirds, and CryptoPunk foster emotional connections between NFT holders and their digital assets.

Proudly displayed as Twitter and NFT profile pictures, PFP NFTs have become more than just tradable assets; they are considered a form of identity by some holders. Despite the prevalence of quick-flipping among PFP NFT holders, a notable subset forms a deep emotional bond with their NFTs.

While emotional identity is a conceptual aspect, NFTs inherently serve as proof of ownership. Consequently, individuals looking to establish a SocialFi profile can utilize their NFTs as profile pictures, affirming ownership by connecting their wallet.

Beyond identity, PFP NFTs grant exclusive access to specific communities within SocialFi. These communities may offer thought leadership, unique experiences, events, or exclusive investment insights to their NFT holders. Although this is currently implemented in Discord groups, integrating it as a feature within SocialFi is a plausible development.

In the realm of SocialFi platforms, NFTs also empower creators by providing distribution capabilities for showcasing their work. For instance, artists launching NFT collections can share proceeds with holders of their social tokens, creating an incentive for followers to promote and potentially boost the sales of the NFT collection.

Furthermore, within the SocialFi landscape, a noteworthy feature is the ability to convert a message deemed a "once in a lifetime moment" into an NFT with just a click of a button. Many of these functionalities are not seamlessly achievable on Web2 platforms due to inherent limitations and misaligned incentives.

Two key challenges that SocialFi must overcome

Despite the promising features outlined earlier, there are challenges that must be addressed for SocialFi to truly become the future of social media. Implementing the design principles in SocialFi, as discussed in preceding sections, faces some obstacles. Web3 encounters a couple of challenges that need to be overcome:

Scalable infrastructure

Facebook generates a substantial 4 Petabytes of data daily, with a minute-by-minute breakdown indicating 510,000 comments, 293,000 status updates, 4 million likes, and 136,000 photo uploads. The question arises: Can blockchains effectively handle such massive data volumes?

DeSo, the blockchain layer designed for SocialFi apps, asserts its capability to scale better than most existing layer-1 chains, specifically tailored for SocialFi use cases. Employing techniques like indexing, block size management, warp sync, and sharding, DeSo addresses the scalability challenge.

For example, DeSo claims to process 80 posts per second for a user base of four million, outperforming Twitter's 6000 posts per second for 300 million users. This enhanced performance is achieved primarily through increased block size, with additional techniques like warp sync and sharding further boosting throughput.

Warp sync enables transaction validation without requiring all nodes to validate the entire transaction history. Sharding introduces parallel processing, significantly amplifying throughput. Leveraging these techniques, DeSo aims to scale the platform to accommodate one billion users.

Sustainable economic model

One of the most challenging aspects of evolving DeFi and its derivative business models is the development of economic models that remain viable under stress and outlier scenarios. Whether in the realm of GameFi or SocialFi, numerous platforms promise significant incentives for participants, but these incentives have often demonstrated themselves as short-term strategies for rapid growth.

All the incentive aspects outlined in SocialFi are currently in experimental phases on a smaller scale. These models require rigorous stress testing across multiple market cycles and unexpected events before they can be widely adopted.

Consider, for example, investing in an influencer's social token for the purpose of engaging with their posts. This exposes participants to the risk that the influencer may post something harmful. A single detrimental post has the potential to rapidly devalue the social token, triggering a chain reaction of losses for system participants.

In a social media platform where influencers operate within echo chambers, significant losses in one key microeconomy can easily lead to a contagion effect across the entire system.

Despite facing challenges in infrastructure and economic models, SocialFi platforms hold significant promise. The global trajectory is swiftly moving towards creator economy models, and SocialFi represents a significant stride in that direction.

For future social networks that incorporate DeFi principles to truly establish their robustness, they must withstand and navigate through various downturns. This principle applies equally to SocialFi. If favorable market conditions continue to drive progress and investment prospects for SocialFi projects remain strong, the potential for growth is virtually limitless.