SocialFi is an emerging trend that combines social relationships and financial tokenization. It has evolved two unique models at the intersection of social networks and financial technology: social financialization and financial socialization. Social financialization focuses on finance and wraps social networks in financial concepts and tokenization. It relies on the Ponzi model to tokenize creators’ content and directly convert it into economic benefits. An example of this is friend tech. Friend tech emerged in the second half of last year and led a wave of social trends, with various friend tech applications popping up. However, after the initial hype, friend tech entered a period of decline, with most imitations disappearing. Recently, it has regained attention with the release of v2 and the launch of the FRIEND token.
Financial socialization, on the other hand, focuses on social platforms and builds communities and social relationships through content production. Tokenization is embedded into daily social activities through airdrops, rewards, and payments, creating potential economic value for every post, like, or comment on the platform. An example of this is Farcaster. Farcaster is a social protocol layer, and Wrapcast is a social frontend similar to Twitter built by the Farcaster team.
Farcaster and friend tech both belong to the social track but fall into two different categories within that track. Farcaster or Wrapcast is a public domain social platform similar to Twitter, while friend tech is a private domain social platform similar to WeChat. The different use cases have led to the fundamental development of two different models: financial socialization and social financialization. Public domain social platforms emphasize openness and visibility, with users engaging in interactions such as content sharing, commenting, liking, and reposting. They facilitate content discovery through trending topics and recommendation algorithms. Private domain social platforms prioritize privacy and control, with interactions occurring between known friends or members of private groups. This deeper level of interaction helps maintain and strengthen existing social connections.
Due to the different characteristics and user behaviors, implementing tokenization incentives on public domain and private domain social platforms requires different strategies. On public domain social platforms, common incentives include rewarding users for creating and sharing popular content, as well as for participating in activities such as liking, commenting, and reposting. The distribution of tokens is based on users’ activities and influence on the platform. Farcaster or Wrapcast, unlike some other public domain social platforms, does not provide potential token airdrops as incentives. Instead, incentives are generated spontaneously by the community and third-party applications. For example, active accounts in the Degen channel and accounts meeting specific criteria, such as a certain number of followers, can receive Meme coins as rewards from the Degen community and other channel communities. Spectral airdrops Farcaster active accounts (defined as having more than 10 likes, 10 followers, 10 posts, and 10 to 200 contract interactions on Base). Users simply need to participate in interesting discussions and active atmospheres in the channels, and airdrops or incentives naturally occur rather than being driven by platform-specific goals during a specific period.
It is worth mentioning that although Farcaster is a decentralized protocol, the Wrapcast frontend has a moderation mechanism in place, effectively filtering out explicit or vulgar content and providing users with a clean public environment.
In private domain social platforms, the common incentive mechanism is “chat-to-earn,” which has resulted in various low-quality content creation. Friend tech, on the other hand, places the so-called “earn” function in the act of chatting itself, and the core of friend tech lies in the organic process of entering and exiting conversations. In friend tech, anyone can be a potential chat object for others, and when other users want to chat with someone, they need to purchase that person’s key. The value of the key is controlled by a bonding curve, meaning that the more buyers and the fewer sellers, the higher the value of the key. Half of the transaction tax generated flows into the protocol, while the other half is distributed to key holders. The newly launched v2 club operates similarly, with basic functions similar to WeChat group chats, and the core lies in joining and leaving clubs.
It is not widely known that Farcaster’s FID is essentially an NFT that can be resold. FarMarket provides support for the resale of FID, and resold FIDs retain all the data associated with the account, including historical posts and followers. The highest recorded transaction price for an FID is 3.69 ETH, exceeding $10,000. Some high-value Farcaster accounts have even been listed for over 300 ETH.
It is evident that Farcaster’s protocol or the Wrapcast frontend application itself does not provide direct incentives. Users’ incentives are not dependent on the platform but rather arise spontaneously from the community and third-party applications. This is considered a light incentive model. On the other hand, friend tech has strong built-in incentives at the application’s core. The higher the base price of the key and the more transactions, the higher the incentives for creators and the higher the platform’s revenue.
In terms of entry barriers, friend tech gained popularity in CT through an invitation code model, making it difficult to enter the platform in the early stages. The invitation code admission model is an effective strategy, especially in the early stages of a new social network or service, to expand the user base through seed users and KOLs. In the early stages, a certain number of invitation codes are released to seed users and KOLs, who then generate invitation codes to invite their friends, family, or fans. This creates a chain reaction that gradually expands the user base. Each new user usually receives a limited number of invitation codes to further promote network expansion. Although invitation codes are free, they can create hype and discussions through the use of scarcity marketing and users’ fear of missing out (FOMO) within existing social platforms and communities. However, as the user base grows, the congestion of the platform eases.
Farcaster, on the other hand, uses a login payment system, where registering an FID requires a basic fee of $5 per year (or $3 through an invitation link), which is relatively uncommon for a social platform. This has become a barrier for users to enter the platform after the initial enthusiasm fades. This is why, despite Farcaster’s launch last year, it remained relatively low-key until this year, mainly attracting tech enthusiasts in niche circles. Strictly speaking, the $5 fee is not for accessing the social network but for renting the data storage space of the social network, which is the core source of revenue for Farcaster. If the storage fee is not paid after the expiration, the user’s social data will be reset.
Overall, the invitation code mechanism can attract users in the early stages of a social platform, creating FOMO and generating discussions within existing social platforms and communities. In contrast, a login payment mechanism can become a barrier for users to enter the platform without prior knowledge, requiring additional efforts to educate and overcome the opportunity cost. However, appropriate entry barriers can exclude certain studios and spam users.
The main source of revenue for Farcaster comes from new user registrations, renewals from existing users, and payments for additional storage space. Therefore, the growth of new users is directly linked to Farcaster’s revenue. Currently, Farcaster has accumulated revenue of over $1.3 million, with daily fluctuations around $10,000. It has approximately 362,000 users.
Friend tech’s main source of revenue comes from user key fees (10% transaction fee per transaction), and v2 has added revenue streams from clubs, built-in swaps, and FRIEND LP fees. Therefore, its revenue is primarily tied to TVL (total value locked) and the trading activity.
Friend tech has approximately 915,000 cumulative users, three times more than Farcaster, but capturing transaction fees has proven to be more explosive than registration fees. Friend tech has captured over $100 million in cumulative fees, with half flowing into protocol revenue. This means that the development team has generated over $50 million in revenue from the protocol. On September 14th last year, friend tech captured $2 million in fees in a single day, surpassing Farcaster’s cumulative revenue. The high fee revenue allowed friend tech to capture tens of millions of dollars within a month, leading to the team’s sudden wealth. However, development and maintenance subsequently stagnated for a long period. It was not until the release of v2 and the launch of FRIEND that some attention started to return, but overall, friend tech is still far from its peak and new user growth remains stagnant.
The essence of friend tech lies in bonding curves rather than social interaction itself, and its development is constrained by the Ponzi model’s Ponzi effect. Farcaster, on the other hand, relies more on VC capital infusion.
In terms of asset issuance and application development, friend tech has approximately 915,000 users, each of whom possesses a key asset called FT. Since the launch of v2 on May 3rd, over 200,000 clubs have been created (a user can create multiple clubs), corresponding to over 200,000 club key assets. In friend tech, all user profiles and group chat clubs are considered assets, and user keys are primarily traded using ETH, while club keys are primarily traded using FRIEND. The overall market value of the 915,000 user keys is approximately $150,000 to $200,000. The overall market value of the 200,000 club keys is approximately $10.1 million to $11 million, with two clubs valued at over $1 million. The native token FRIEND went live with full circulation and has a market capitalization of approximately $210 million.
Farcaster’s asset issuance methods are more diverse. First, the FID obtained through user registration is essentially an NFT that contains the user’s social data and can be traded on secondary markets like FarMarket. Second, social relationships generate social assets, mainly through channels. Meme coins are a product of financial socialization issued by channel communities. According to Farcaster Index data, there are 28 recorded Farcaster community meme assets, covering the Base and Zora chains, with a market value of approximately $880 million. Among them, DEGEN has a market value of $703 million. Third, assets or applications are issued or developed by Frame. Frame is an embedded application that allows users to interact with third-party applications directly within Wrapcast, eliminating the need to navigate to external web pages or sign transactions, reducing user operational risks. Project parties can build directly on Frame, allowing users to mint NFTs, play games, complete interactive tasks, and receive Meme coins directly using Frame. After Frame went live at the end of January and beginning of February, Farcaster’s daily active users (DAU) and new user growth increased by over tenfold. Additionally, Farcaster has features such as Wraps for tipping and payments (5u = 500 Wraps), although it does not support bidirectional conversion. Syndicate, which received investment from a16z, built L3 Degen Chain using Arbitrum Orbit, with DEGEN as the native gas token.
Farcaster is essentially a social layer, with FID serving as a universal identity. Any developer can use the Farcaster protocol to build a frontend similar to Twitter or Reddit. Additionally, social aggregator Firefly, owned by Mask, has already integrated Farcaster and Lens for post publishing. Currently, dozens of applications are building social ecosystems around Farcaster. Launcher and Neynar are building components for the Farcaster ecosystem and have been selected for the a16z 2024 accelerator program.
Social financialization and financial socialization each have their advantages and disadvantages. Social financialization applications represented by friend tech can attract a large number of participants through a Ponzi model-like mechanism because they offer the potential for rapid income growth. However, excessive financial activities can lead to investment bubbles and the unsustainability of user growth after it slows down, limited by the Ponzi model itself. Financial socialization, represented by Farcaster, aims to make social interactions more interesting. Information flows with value, and meme community networks are built. Frame also creates a new seamless interactive experience. However, the entry barrier of requiring payment poses challenges in terms of user education and acceptance.
Tags:
Farcaster
MEME
NFT
SocialFi
