With the development of the DeFi and Web3 sectors, there is an increasing number of decentralized projects, among which directions such as GameFi and SocialFi stand out. While the former has already managed to make a name for itself among users (including through the popular game Axie Infinity), the latter is still only beginning to gain recognition. Let's take a closer look at the concept of SocialFi.
- How SocialFi Works
- Incentives for SocialFi Development
- The Token as a Key Element of the System
- The Most Famous SocialFi Platforms and Decentralized Social Networks
- Challenges in the Development of SocialFi
- The Future of the Industry's Development
How SocialFi Works
SocialFi (social finance) represents a combination of Web3 capabilities and social networks. This term implies the integration of social media elements with financial instruments related to DeFi, where decentralization is a key feature.
SocialFi platforms offer users the following possibilities:
- Freedom of expression while reducing the level of censorship.
- Increased privacy due to the lack of control by corporations, as user data is not transferred to third parties (SocialFi projects are based on DAOs).
- Full control over the distribution and monetization of one's own content, facilitated by integration with DeFi and the use of cryptocurrencies.
- Use of digital tokens as a fast, secure, and environmentally friendly method of conducting transactions.
- Protection of content ownership and its integrity through NFTs.
- Improved account protection from fraudulent activities thanks to blockchain technology.
- Scalability and performance that are unavailable in Web2.
- Confidence that accounts will not be deactivated by moderators without valid reasons.
One of the key advantages of SocialFi platforms compared to traditional social networks is the ability to receive financial rewards. Publishing and exchanging content can provide direct income to both users and content creators, encouraging the production of quality material and the pursuit of popularity.
Incentives for the Development of SocialFi
The primary incentive for the development of SocialFi lies in users' desire to benefit from the proposed concept. However, a key factor is the desire to break free from monopoly.
Social networks have generated billions of dollars in advertising revenue for their monopolists, turning users into a source of profit, "workers," rather than "owners." SocialFi aims to change this trend, allowing content creators rather than corporations to earn those billions.
A second motivator is the desire for privacy. An example is the high-profile scandal with Cambridge Analytica and Facebook, when user information became a commodity sold without their consent. Despite corporations' attempts to rectify the situation, people have become more cautious.
The third factor is the development of cryptocurrencies and the need to integrate financial technologies into social networks.
The importance of this aspect became evident when Facebook and Twitter started developing capabilities for buying and selling goods and services using tokens following the emergence of the SocialFi concept. YouTube and Reddit also looked for ways to allow users to earn from content creation using non-fungible tokens (NFTs).
The race for innovation continues, and it is not yet clear who will emerge as the winner. However, it is evident that market monopolists will not give up without a fight.
The Token as a Key Element of the System
Individual tokens issued by a personal brand-influencer are aimed at creating a more direct and close interaction between content creators and their fans. For example, Rally offers creators the opportunity to create and release their own Creator Coin tokens for subscribers, which can be used to obtain membership privileges, including access to the author's private communities or the purchase of exclusive products.
Among the projects in this area are Chilliz, Zora, Circles UBI, and Loop Finance. In these cases, communities are often managed through tokens. Users can be divided into levels with corresponding rights and opportunities, depending on their activity and contribution.
In the SocialFi community model, the focus may not be directly on content creation. Communities created using social tokens are also active in the investment sphere. They can pool funds through voting mechanisms and smart contracts to find and unlock investment opportunities.
For instance, in the case of Flamingo, community members have the right to decide in which NFT artworks they wish to invest, and they can also trade and lend out acquired NFTs or use them as collateral on other DeFi platforms.
The Most Famous SocialFi Platforms and Decentralized Social Networks
DeSo (an abbreviation for "decentralized" and "social"). This is a base-level blockchain developed from scratch to support SocialFi applications capable of serving a billion users (according to the developers). Participants in DeSo will be able to monetize their data, freely manage it, without worrying about privacy and security.
Mousai. A platform that reimagines the monetization of streaming video and audio. Users can interact with content creators, support them financially, etc. Mousai offers earning on tips, NFTs, and even creating their own coins.
Diamond. This is a relatively new player in the SocialFi sphere, representing a new version of Twitter. The platform allows users to own their content and receive rewards for any post or interaction.
Entre. Decentralized professional Web3 community, offering networking using artificial intelligence, partner matching, organizing meetings, live broadcasts, and the opportunity to receive rewards for activity and much more.
Torum (abbreviation XTM). Torum is one of the most discussed projects in the SocialFi sphere. It represents a revolutionary metaverse SocialFi ecosystem, aimed at uniting cryptocurrency users and communities on a global level.
Challenges in the Development of SocialFi
The challenges faced by the concept of SocialFi include, first and foremost, issues of scaling infrastructure. For example:
| Parameter | Value |
|---|---|
| Data generated per day | 4 petabytes |
| Comments per minute | 510,000 |
| Status updates per minute | 293,000 |
| Post likes per minute | 4,000,000 |
| Photo uploads per minute | 136,000 |
The question arises whether blockchain can handle such volumes of data.
DeSo claims it can scale better than most existing first-level blockchains due to its specialized development for the needs of SocialFi. The project uses indexing methods, block size management, warp sync, and sharding.
The DeSo team states that their network can handle 80 posts per second for a base of four million users, whereas Twitter processes 6000 posts per second for 300 million users.
The second issue concerns the stability of the economic model. Creating economically sustainable projects that can withstand stress situations and unforeseen circumstances is a challenging task for DeFi and derivative business models. Many platforms offer high incentives for participants, which, however, often turn out to be short-term ways to stimulate growth.
Most of the advantages of SocialFi are still at the stage of experimental verification on a small scale. These models need to be tested in several market cycles and critical events before they can become mainstream.
For example, by investing in a social token of an influential person to interact with his publications, there is a risk that the publication of something malicious can lead to the devaluation of the social token and a cascade of losses for system participants.
In a social network, where influencers operate within echo chambers, spiral losses of one key microeconomy can easily lead to a contagion effect throughout the system.
Future Industry Development
The future of SocialFi depends on whether traditional social networks will integrate more decentralized applications. The prospects seem promising, considering the positive response of many users to Web3 technologies.
SocialFi could strengthen social networks in the digital world, providing users with a secure way to earn, buy, and sell through NFTs. This fosters collaboration between businesses and communities, supporting mutual aid.
In the future, SocialFi is expected to grow as it attracts content creators and returns control to users who can now directly earn from their actions on social networks, such as commenting and liking, without worrying about violating their privacy or losing income.
Thus, the future of social networks will gradually change. Given the numerous advantages of SocialFi, it seems that it is here to stay and will create a better way of interaction for people around the world.
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