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1. The rise of the SocialFi track

A large number of SocialFi projects have emerged and exploded

In the second half of 2021, social tokens such as Whale, Chiliz, and Rally once experienced relatively large increases, and multiple projects such as BBS network, Showme, and Mirror.xyz became popular. By the end of November 2021, the SocialFi platform Monaco Planet will be popular online, and it is difficult to find an invitation code. The SocialFi project has attracted a lot of attention.

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In 2021, especially since the second half of the year, BitClout, Friends with Benefits, DeSo, Torum, Monaco Planet, BBS network, Mirror.xyz and many other SocialFi projects have won huge sums of money from well-known investment institutions such as a16z, Binance, Sequoia Capital, and Three Arrows Capital invest.

Industry Alliances Emerge

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2. Social Tokens

A social token is defined as "a token backed by an individual's reputation, brand or community".

Social projects manage the community by issuing tokens, and divide the levels according to the activity and contribution of users in the community. The tokenized rights and interests increase the income of creators, cultural producers, and related participants.

Compared with traditional social media, social tokens mainly help users solve three problems:

Attribution of data rights: In traditional social platforms, all social data of users is stored on the server of the operator in the form of fields, and the data belongs to the platform; while social tokens directly solve the problem of user data right confirmation through blockchain technology.

benefit distribution: Under the algorithmic mechanism of traditional social platforms, the distribution of benefits between users and platforms in terms of traffic realization is more inclined to the platform, and it is difficult to fully protect the rights and interests of users; social tokens are obtained by users through the financialization of their social influence Revenue, no platform and other third-party commissions.

privacy security issues: In traditional social networking, user accounts are authenticated with real names, and real user information is stored on the backend of the operator, which can easily cause information leakage; social tokens are based on blockchain technology, and anonymizing user identities can protect user privacy and security.

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3. SocialFi characteristics and four pillars

After 2020, DeFi has flourished, expanding the boundaries of decentralized finance in the encrypted world and opening the door to new tracks. The combination of games, NFT and DeFi appeared GameFi and NFTFi respectively, which further aroused the upsurge of NFT in the encryption market and the metaverse track.

SocialFi is a creative new way of social financialization. The combination of social networks and DeFi opens up a new way of social interaction. SocialFi has its own specialties:

One is that SocialFi is a combination of social, web3.0 and finance. It provides users with rewards and benefits by marking social influence. Users have the creation income on the platform, and the creation on the platform will not be monopolized and exploited by the platform.

Second, compared with pure blockchain + social networking, SocialFi puts more emphasis on the attributes of DeFi.

The SocialFi project builds the "Lego" of decentralized finance based on smart contracts. A number of high-quality projects have created a new generation of SocialFi platform integrating social, financial attributes, and digital NFT transactions.

The third is that there are various forms of mining in SocialFi, including social mining and content mining with strong social attributes, and liquidity mining with DeFi attributes.

Project users can carry out content mining through content creation, and effective and high-frequency social interaction for social mining. In addition, some socialfi project tokens can also be used for liquidity mining.

For example, the social token Rally provides liquidity mining opportunities with decentralized trading platforms such as Uniswap and Balancer through the Yearn vault.

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content：social contact

social contact：Social activity is the cornerstone of the SocialFi project's survival.

Economic system with DeFi as the core:Token or NFT is a form of social capital, which measures the contribution and social activity of participants, maintains the operation of social platforms, and realizes more benefits through DeFi Lego.

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2. SocialFi ecology and some well-known projects

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1. Main categories of social tokens

Image credit: Messari

Image credit: Messari

Personal Tokens

Personal tokens are mainly issued and governed by individuals, and are mainly used for fans to enter the community and for the entry threshold of various activities within the community, as well as for internal rewards and governance of the community.

Such tokens mainly include:

RAC：Ethereum-based fan token by Grammy award-winning DJ RAC (André Allen Anjos).

ROLL（Creator Token）：Roll is one of the established social token issuance platforms. Under the platform distribution model, Roll will create ERC-20 tokens on behalf of users, that is, issue 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 introduced in detail later.

In addition, there are projects such as MeTokens, MintGate, ALEX, etc.

Community Tokens

Community tokens are mainly issued and controlled by the group, and are usually governed by a decentralized autonomous organization (DAO).

Mainly used to motivate members to contribute to the community. For example, access to the community through community tokens, enjoy special information, etc. Community tokens are also used to encourage in-depth participation of community members. For example, the community initiates a competition, and Token holders can vote to determine who will win in the end.

A typical case of a community token is WHALE. WHALE Token has various NFT democratized asset ownership. Based on WHALE DAO, the decisions surrounding the governance of these NFTs are in the hands of token holders.

Community tokens also include well-known projects such as Mirror and FWB. These tokens are not only a kind of community tokens, but also typical tokens in SocialFi, which will be introduced in detail later.

Community tokens also include Cent, Yup, Matataki, SWAGG, Karma DAO, Ark, Seed Club, Forefront, Flamingo, etc.

Social Platform Tokens

Social platform tokens represent tokens of control over the platform. It is mainly for the convenience of creators to issue and manage Tokenized communities.

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2. Basic components and WEB3.0 portal tools

In addition to the above three types of tokens, social tokens often require third-party tools such as token distribution during project operation, which overlaps with tools used by other ecological blockchain projects.

Typical projects include:

Mask Network：Bridging Web2.0 and future Web3.0 concepts in the form of "plug-ins", allowing users to seamlessly send encrypted messages, encrypted currencies and even DAPPs (DeFi, NFTs, DAO) on the upper layer of existing social networks without migration, No need to use a centralized server.

Mask enables ordinary users to further access encrypted assets without changing the usage habits of current mainstream social platforms. At the same time, Mask is also endowed with multiple attributes such as privacy social networking, decentralized storage, DeFi, and DAO.

Snapshot：A voting tool based on the IPFS decentralized storage system, which uses "off-chain" signature technology to reduce voting fees, and is used by many encryption projects to vote for their user groups.

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3. Some well-known SocialFi projects

• Rally

An early well-known personal token issuance platform, focusing on reconstructing the relationship between creators and fans.

Creators can generate and issue their own personal token Creator Coin, or directly mint NFT on Rally for transactions. As a qualification certificate, Creator Coin can enjoy corresponding privileges, such as entering the creator's private Discoard community, purchasing specific products, etc.

The native governance token of the Rally platform, RLY, can be used to purchase Creator Coin, and can also be exchanged with any other token on Ethereum. RLY can also carry out liquidity mining on Uniswap and Balancer.

Fans interact with creators by purchasing Creator Coins held by creators through RLY, expressing their loyalty and shortening the distance with 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 articles + NFT. The founder is Denis Nazarov, a former partner of investment institution a16z.

Mirror starts from the perspective of content financialization and provides a platform for each article to have "NFT+governance" attributes, and these contents can be invested, traded and governed.

Mirror provides six basic capability tools for creators, including publishing articles (Entries), crowdfunding (Crowdfunds), digital collections (Editions), auctions (Auctions), cooperative contribution distribution (Splits), and community voting (TokenRace).

Each article published can be in the form of pure text content, or content embedded in pictures, videos, and NFT. Published articles will be permanently stored on Arweave, and NFT will be automatically generated for trading when published.

Creators who meet the requirements can initiate crowdfunding under the article, and users who participate in crowdfunding can obtain tokens and NFT shares.

In addition, the invitation token "WRITE" is used to create columns, and holders have voting rights. Under certain platform preset conditions, "WRITE" can also serve as an access credential.

• BitClout（DeSo）

In March 2021, Nader Al-Naji, the founder of the stablecoin Basis, launched a new social platform BitClout. The main concept is social tokenization-the value depends on the popularity of users.

BitClout is benchmarking against Twitter, and directly issues social tokens to Twitter KOL celebrities. BitClout's popularity has increased significantly as several Twitter celebrities "claimed" their BitClout accounts.

The native token of the BitClout platform is CLOUT, and creators on the platform can own and trade their own Creator Coin. Users can purchase creator coins with CLOUT.

In September 2021, CLOUT changed its name to DeSo. But unlike BitClout, DeSo is the underlying public chain of BitClout. On DeSo, besides BitClout, more than 140 projects are being built. Unlike other public chains, the DeSo public chain is tailor-made for social applications.

Everyone who wants to use the DeSo blockchain or applications built on the blockchain must hold DeSo, which can be used to create profiles, create posts, buy social tokens, buy NFTs, gift diamonds, and more.

• Friends with Benefits

Friends with Benefits is a new type of DAO whose native token is FWB.

Friends with Benefits is a private social platform based on the Discord private server, which gathers a group of creators in the encryption field. 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 token-gated events app, NFT gallery, editorial venture based on Web3.0, virtual music studio, real-time community dashboard and other modules. In the next step, the platform will focus on expanding the scope of DAO in real life, cooperating with communities in specific cities, and bringing real-world benefits to FWB members.

• Monaco Planet

Monaco Planet is a SocialFi project that focuses on the development concept of "ownership and governance are determined by users".

In early November 2021, Monaco Planet received a US$3 million seed round financing with participation from Three Arrows Capital and others.

In order to make Monaco Planet more immersive, the project compares itself to a metaverse and gives a unique story to the metaverse. Users of the platform imagine themselves as people who migrate to Monaco Planet.

Most of the project's native tokens will be distributed to users who generate content, adopting the "content is mining" model, and allowing users to obtain native token MONA rewards through following, commenting, and liking, NFT display and pledge.

Holders of native tokens enjoy token appreciation from the platform's growing economic activity.

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1. SocialFi will become one of the important interfaces of Web3.0

a16z believes that Web 3.0 is the successor of 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 is transferred around the world. What is Web3.0, some people give a simplified definition of Web3.0:

Web1.0: read (readable).

Web2.0: read+write (readable+writable).

Web3.0: read+write+own (readable+writable+optional).

Social networking is one of the core pillars of Web 2.0. Platforms such as Facebook, Twitter, WeChat, YouTube, and Douyin have collected a large amount of user data and grown into giant technology companies. It is difficult for users who provide data to have the ownership and use rights of their own data. The biggest profit logic of Web2.0 is "traffic monetization", which realizes social capital monetization through product monetization, advertisement monetization, and service monetization.

The "possible" feature of Web3.0 determines that the biggest difference between Web3.0 and Web2.0 lies in the fundamental change in the logic and model of benefit distribution. In other words, Web3.0 users can have data ownership and benefit accordingly.

The blockchain confirms the ownership of user data by realizing no trust, no permission, and user control. Blockchain technology forms the most important basic technology module of Web3.0.

Elon Musk also believes that: under the meaning of "Web3.0", since the distributed storage, asymmetric encryption technology and decentralization concepts represented by the blockchain are very consistent with the concept of "Web3.0", it is also It has become one of the most promising fields to realize the vision of "Web3.0".

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2. SocialFi has initially formed a logical and self-consistent value capture mechanism

Social capital is the connections between individuals or groups—social networks, norms of reciprocity, and the resulting trust—the resources people bring to them by their position in the social structure.

SocialFi has built a logical and self-consistent value capture mechanism through content distribution. Different participants can demonstrate their value from this ecology, realize social capital and obtain benefits.

Content Producer:Based on content creation, system token rewards can be obtained, and system token rewards can also be obtained through likes, comments, forwarding and other indicators. It is also possible to determine the digital ownership of the content in the form of NFT, and complete fan crowdfunding and copyright distribution. As a result, content producers can obtain token income by virtue of their social relationship and content creation influence. Social capital is successfully transformed into economic capital.

Audience users:In many socialfi projects, the participation of audience users, whether it is likes, comments, forwarding, etc., will also be rewarded with tokens by the system. Users provide attention to reward others or create wealth, and the system also rewards users for their attention. This is a revolution in the existing attention economy.

Regardless of content producers or audience users, while the influence of the platform is expanding, they can get the benefits of token appreciation. Similar to Play-to-Earn in GameFi, SocialFi can also generate more gameplay. In SocialFi's economic system, users' influence and social activity on social networks can be quantified by tokens or NFT through Post-to-Earn, Share-to-Earn, Comment-to-Earn and other forms.

Participants in the SocialFi project can also obtain more income through content mining, social mining or liquidity mining, or participate in project platform governance with tokens or NFT.

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3. The SocialFi project develops in an integrated manner

Different from social projects in the Web2.0 era, the integration of SocialFi projects with NFTs, games and metaverses, DeFi Lego, and DAOs will be the norm in the future.

First, the integration of social platforms and NFTs, games and metaverses.

NFT of social creation content. Content, music, videos, etc. produced by creators on social platforms, these contents are converted into NFT, and the rights of the content are confirmed, bringing more economic value and benefits to creators.

NFT can also become a platform governance tool or a bringer of platform scenarios.

For example, in Rally, NFT is the carrier of content financialization to obtain income. In Mirror.xyz, NFT is also the financialization of content and is the main carrier for participation in governance.

Many SocialFi projects gamify social scenes or "metaverse", and social interaction has a better experience.

The Metaverse itself contains requirements for social interaction and immersive experience. In the future, there will be more SocialFi projects integrated with games or Metaverse, and NFT is also one of its components.

For example, Torum, a SocialFi platform designed for cryptocurrency users and projects. On the social media platform, the platform also launched a platform for DEFI players, an NFT market for encrypted artists, and Avatar NFT for metaverse enthusiasts, building an ecosystem of social media platform + NFT + DeFi + metaverse .

The Monaco Planet project also likens itself to a metaverse, placing social scenes 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 believes that SocialFi is a new perspective of DeFi.

As mentioned earlier, the biggest difference between the SocialFi project and the previous pure blockchain + social project is the addition of DeFi factors. The social tokens or NFTs in the SocialFi project can be combined with DeFi Lego in various combinations, including Lending to Earn, Staking to Earn, Farming to Earn, that is, lending to earn profits, liquidity mining, pledge benefits, etc.

Third, the integration of social platforms and DAO.

The SocialFi project uses tokens or NFTs as incentives for social content creators. Social tokens or NFTs are widely distributed among different social participants and are the basis for participants to conduct platform governance. Therefore, the SocialFi project is a decentralized platform in its DNA, which is naturally suitable for DAO to manage the affairs of the platform.

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4. Three important issues facing the development of the SocalFi track

The first is the problem of value capture mechanism.

Although the current value capture mechanism of the SocialFi project has formed a closed loop, the algorithm of some project tokens to motivate participants to provide high-quality content and social networking is unreasonable, resulting in low quality content and social networking.

For example, Monaca Planet uses native tokens to motivate users to write and participate in discussions to get rewards. 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 flood of low-quality content on the platform. The rough attention algorithm and net asset value algorithm make the content of the entire homepage interface single.

Therefore, how to encourage high-quality content and effective social interaction, improve the token reward algorithm, and optimize the value capture model need to be solved urgently.

The second is the issue of influence monopoly

SocialFi is essentially a manifestation of personal social value. For celebrities who entered this track early or have great influence, their monopoly on content creation will be expanded to some extent.

This is very unfavorable to general users who enter the market late or have less influence, and the content they produce is often difficult to find. In other words, how to break the monopoly of ordinary content creators by people with huge social influence needs to be further resolved.

The third is the issue of community conflict management.

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5. The prospect is promising, but the timing of the outbreak remains to be seen

Whether it is the traditional Internet or the encryption market, after a period of development, they will actively pursue the application of their "social" attributes. Since the SocialFi industry has just started, new projects emerge in an endless stream, and the development potential is limitless.

In the future, SocialFi may offer opportunities for content creators to thrive in small communities.

Not only that, some social tokens will be accepted by the larger community, and currently SocialFi has 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 enterprise value by building a decentralized ecosystem and shaping 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 small. For example, in the Social Money category of the analysis website Coingecko, although not all SocialFi tokens are included, a considerable part of the social tokens are included, a total of 31, of which Rally is the largest. As of January 24, 2022, the market value Just over $500 million.

As mentioned earlier, Binance CEO Changpeng Zhao is optimistic about the development of SocialFi and GameFi in 2022. But Soundwise founder Natasha Che has a different point of view.

He believes that the emergence of social usage scenarios requires the mass adoption of new technologies. The explosive growth of Web 2.0 social media comes after 100 million users. Currently, Ethereum has 180 million addresses, with less than 1 million active users, and OpenSea has less than 25,000 active users. The current popularity of crypto tokens is not high enough to support the explosive growth of applications like Bitclout, or tens of thousands of individual creators to issue their own mini tokens.

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Four. Conclusion

The operation of SocialFi is based on content, social networking, the economic system with DeFi as the core, and the decentralized organizational structure. The complete ecology is gradually being built, showing a unique development trend.

In the context of Web3.0, one of the most prominent pillars of the modern Internet - social network, combined with DeFi, the activity and rise of the SocialFi track, is making "human beings always find the most efficient way to maximize social capital" "The intention landed.

Disclaimer: This article is the author's independent opinion, does not represent the position of the Blockchain Institute (public account), and does not constitute any investment opinion or suggestion.

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