In this podcast, Wu Blockchain analyst defioasis discusses several SocialFi hotspots of this year with former Huobi University president Dr. Yu Jianing, including Farcaster, friend.tech, and the cryptocurrency ecosystem built on TON/Telegram. Farcaster received a $150 million investment led by Paradigm, with participation from a16z, and is a decentralized social project currently fully supported by Vitalik.

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The Key Difference Between This Round of SocialFi and the Last Round Is the Monetization Focus

Dr. Yu:

Today’s topic is SocialFi. This concept has appeared in previous waves of popularity, such as Steem and Mirror, which attracted many users. How is this round of SocialFi different from the previous ones? Some people think it’s a new Ponzi scheme and essentially the same as previous projects; others think it’s a completely new way of playing. What do you think about this wave of SocialFi projects? Can they become mainstream social platforms with long-term user stickiness?

defioasis:

Okay, Dr. Yu raised a few questions. Let me first answer the difference between this round of SocialFi and the previous round. First of all, this round of SocialFi has a different focus on the monetization of social applications. For example, previous projects like Mirror and Monaco Planet emphasized Chat2Earn and Write2Earn models. Users could earn tokens by posting on the platform, which could then be used to promote content and expand its reach.

However, this content monetization model had a problem: content can be produced indefinitely, and there is no clear standard for the quality of content. The number of reads cannot fully prove the quality of the content. As a result, to earn more tokens, users might produce a large amount of low-quality content or even use existing tokens to further promote this low-quality content, leading to a decline in the overall quality of the platform’s content.

Back to this cycle, there are two representative projects: one is friend.tech, and the other is Farcaster. Let’s talk about friend.tech first. Its monetization focus is on people. Each friend.tech user enters through Twitter and then becomes an FT token asset called Key. Users can buy and sell these Keys. Although the friend.tech team ideally hopes the application will become a private interaction scene between KOLs and fans, it has actually become more about speculation on KOL Keys.

For Farcaster, it’s different from friend.tech. Farcaster or its front end Warpcast doesn’t have an obvious financial model, nor is its monetization focus set by the official team; it’s spontaneously formed by the community. I think its monetization focus is the community. Farcaster has many channels, each with specific content characteristics. As channels expand and develop, community token distribution may also appear, such as the previously popular DEGEN.

From Monaco and Mirror to the current friend.tech and Farcaster, they have moved towards scarcity in expanding the monetization direction of social media. From the infinite production of content to the relatively limited number of people on friend.tech, to the community of Farcaster, forming a good community is more complex and limited in number.

The Development of Embedded Plugins in Social Applications in This Cycle

defioasis:

The second difference in this cycle is the development of embedded plugins in social applications. This concept may have only recently become apparent to me, especially with the emergence of Blinks and Actions. When I discussed live content with President Yu last month, Blinks had not yet appeared, and the solutions at that time were quite limited. I personally believe that there are currently three main types of embedded social plugins.

The first is Solana Blinks, a plugin embedded in the Twitter web client. The second is Frame in Farcaster, a more crypto-native standalone client integration. The third type is TON’s mini app, which is embedded in Telegram. One of the benefits of these embedded plugins is that they are relatively safer because users don’t need to jump to third-party websites of uncertain trustworthiness for interaction, thus reducing the security risks faced by users.

Moreover, embedded plugins enhance the user transaction experience. Similar to the concept of the metaverse, these plugins allow users to engage in various non-social activities within social applications, such as playing mini-games on TON’s mini apps or minting NFT and checking their activity on Farcaster’s Frame. These features allow users to handle matters without leaving the current platform, providing an early metaverse-like experience.

What Do You Think of the Prospects of This Wave of SocialFi Projects?

defioasis:

As for the prospects of this wave of SocialFi projects, I personally hold a neutral but cautiously optimistic attitude. In theory, migrating Web2 applications to the Web3 chain is feasible. There has been constant discussion about why Web3, with its strong economic power and large crypto-native community, doesn’t have its own social media application. One major difficulty is the migration of social relationships, which carries huge implicit costs. When users migrate from Web2 social applications to Web3 platforms, such as moving from Twitter to Farcaster, they cannot bring their established social relationships with them. Therefore, users must reestablish social connection points on the new platform; if they can find new social connection points, they may stay and continue to operate and create new social relationships.

Many Web3 social applications rely heavily on the marketing of Creators and KOLs on Twitter during the initial promotion phase. For example, friend.tech quickly gained attention in the early days through an invitation system and hunger marketing, attracting big Vs and KOLs, thereby driving fans to join. This method’s startup speed is fast, but many users may ultimately be there only to speculate on Keys, not for genuine social interaction. In contrast, Farcaster’s startup process is more stable and even slow. It did not adopt strong marketing methods, which also made it difficult for users to establish social connections on it. If users can’t find new social relationships, they may give up on Farcaster and return to Twitter.

A social platform still needs to slowly cultivate user stickiness without relying on a strong Ponzi model, which is not easy. Therefore, I can understand why Ethereum co-founder Vitalik is a strong supporter of Farcaster. Vitalik often posts on Farcaster, forcing his followers to go to the platform to get his updates.

Regarding the migration of social relationships and social connection points, I maintain a neutral attitude toward the future of Web3 social applications. But on the positive side, projects like TON and friend.tech have indeed attracted some users. This year, Farcaster also received $130 million in funding, which is unprecedented for the Web3 social track. Therefore, despite the challenges, I remain cautiously optimistic about the future.

The Rapid Growth and Ponzi Model of friend.tech

Dr. Yu:

Right, you just mentioned the important shift in logic from incentivizing content to incentivizing communities. The problem with simply using tokens to incentivize content creation is that it’s difficult to effectively evaluate the quality of the content, especially with the presence of AI-generated content, which could exacerbate the phenomenon of bad currency driving out good currency. The logic of the community is clearer, but how should this be understood? Why can the community be incentivized with tokens, but not the content? For example, AAVE’s Lens Protocol also tried a similar path, but it didn’t catch on. Many projects face the challenge of avoiding becoming “dead cities,” such as friend.tech, which attracted many users in the early days but now has significantly decreased activity, which is a pity.

I think these issues are worth discussing, and maybe we can delve deeper into some of the unique features and highlights of Farcaster and friend.tech.

defioasis:

Let me start with friend.tech. It was born in mid-August last year and officially began its growth journey after receiving funding from Paradigm in late August. friend.tech is somewhat similar to WeChat’s private domain social networking, with Key assets at its core. Users generate a Key asset representing themselves after entering and binding their accounts via Twitter. Other users can trade these Keys, reflecting an organic entry and exit mechanism.

Key is the core of friend.tech. Joining a Key is akin to joining the group represented by that Key. The Key can be seen as a group owner, and users join the group by paying the base price of the Key and obtaining shares in the group. If users want to exit the group, they can sell the Key shares they own. As the number of people joining a group increases, the base price of the group’s Key will also rise. Therefore, choosing a Key to join a group involves both social and speculative aspects.

From a speculative standpoint, choosing a Key to invest in is akin to investing in the group owner, who is usually a Twitter KOL. Speculative users often buy Key assets early when the group owner first enters friend.tech and then sell them at a high floor price. This speculative nature is one of the core functions of friend.tech, forming a strong Ponzi model through the organic entry and exit of groups and the buying and selling of Keys.

Additionally, friend.tech charges a 10% transaction tax on each Key transaction, while other platforms like Uniswap typically only charge fractions of a percent. This also reflects the highly profitable nature of friend.tech’s business model.

friend.tech’s High Daily Revenue Through Key Speculation

defioasis:

The model of friend.tech primarily involves Key speculation, which is quite interesting. Every user can be considered an asset, with speculation carried out through the trading of Keys. Users don’t need to set up pools; the pricing curve of friend.tech automatically sets a price for each Key. At its peak activity, friend.tech’s daily revenue reached $1 million. Overall

, friend.tech has historically accumulated over $100 million in revenue, with half of it flowing into the protocol team’s revenue account, meaning the development team earned over $50 million. This is because every Key transaction is taxed at 10%, in stark contrast to Uniswap’s much lower fee.

This has led to a situation where the development team might lack the motivation to continue developing, as they have already earned a significant amount of revenue in just a few months. This revenue is mainly denominated in Ethereum, similar to the ICO era, where users speculate on Keys with Ethereum, and the team profits through taxation. While users may gain or lose in the speculation process, most of the funds ultimately flow to the team.

Dr. Yu:

Indeed, from what you say, it seems that the friend.tech team might lack the motivation for further development since they’ve already made a lot of money through Key transactions. Moreover, even if users lose money, the team takes no risks, as they haven’t sold any actual products, only provided a trading platform.

defioasis:

Yes, this situation at friend.tech has even sparked internal and external conflicts within the team. For example, their relationship with Paradigm has soured, and all the FRIEND tokens were airdropped to the community without giving any to the VC. Moreover, friend.tech’s operation on Base has encountered issues, with founder Racer even stating poor relations with Base. CoinBase Base head Jesse Pollak also acknowledged this conflict and mentioned that if the friend.tech team wants to leave, they would respect their choice. There are even rumors that friend.tech might create its own chain, possibly because they’ve reached a revenue ceiling in the current environment.

Farcaster’s Community Culture and Incentives

defioasis:

Farcaster’s economic model is much simpler than friend.tech’s. Farcaster is essentially a social protocol layer, and what we commonly refer to as Farcaster mainly refers to its official front end, Warpcast. It functions similarly to Twitter, with no significant differences. The incentives on Farcaster are not directly provided by the platform; whether it will issue tokens is still uncertain. The current incentives are mainly driven by the community and third-party applications, such as the DEGEN community. Users can be active in channels, post, or gain a certain number of followers to receive rewards like memecoin.

In addition, third-party applications also provide incentives. For instance, an AI project called Spectral previously conducted an airdrop for active users. The criteria for active users included liking more than 10 posts, having 10 followers, posting 10 times, and interacting with contracts on Base at least 10 times. These incentives happen naturally; users participate in interesting discussions or vibrant atmospheres within channels to earn rewards. If users participate in Farcaster with purely utilitarian motives, they may feel disappointed, as this is similar to interactions on Twitter for specific purposes, which may feel uncomfortable.

Farcaster has adopted a registration fee system, with a basic fee of about $5. If registered through an invitation link, it is about $3. This fee mainly covers the rental cost of data storage space rather than the social network’s usage. If users do not pay the storage fee after expiration, they will no longer be able to use Farcaster. This niche fee model is rare in the tech circle, making Farcaster a place for some tech enthusiasts to exchange ideas. Overall, this is the basic situation of Farcaster.

How Should Users Participate in the Farcaster Project?

Dr. Yu:

Farcaster is an underlying, fully open-source social protocol designed to create an open and transparent social relationship network owned by users. So, as users, what mindset should we have when participating in Farcaster? Especially when we shouldn’t have a speculative mindset, how should we correctly engage in this project? In the Web3 community, there are often some speculative and financial attributes, so what is the right attitude when participating in Farcaster?

defioasis:

Based on existing experience, there are several ways to participate in Farcaster. First is to refer to the reward format of the DEGEN community, such as posting or interacting in the DEGEN channel to receive airdrops. Another example is the AI project Spectral’s previous airdrop event, where the participation criteria included liking more than 10 posts, having 10 followers, posting 10 times, etc.

Warpcast also has a feature called Power Badge, currently held by about 3,000 people network-wide. If you can obtain a Power Badge, it indicates that you are a very advanced Farcaster user. The criteria for earning a Power Badge include using Warpcast several times a week, having your content responded to, retweeted, or liked by Power Badge holders, and avoiding posting spam.

If you participate with a relatively friendly attitude, you can check the most popular user posts and channels in the last 24 hours daily to understand current hot topics and interact more with these popular post users. Additionally, you can hold some DEGEN tokens as a future tool that might be used on Farcaster.

For users who don’t want to spend too much time, consider buying a Farcaster OG NFT, as some projects also like to offer special airdrops or benefits to these NFT holders. These methods can help users better participate in and experience the Farcaster community.

Farcaster Is Unlikely to Have an Airdrop This Cycle

Dr. Yu:

Some communities promote Farcaster mainly to get subsequent airdrops. So, is Farcaster likely to have an airdrop soon?

defioasis:

There was a recent report suggesting that investors might pressure Farcaster for an airdrop at the right time, but based on some unreliable information, there is unlikely to be an airdrop this cycle. Therefore, I always emphasize that if you participate in Farcaster with a strong airdrop intention, you may be very disappointed. It’s unlikely to see an airdrop this cycle.

Dr. Yu:

So, there won’t be an airdrop shortly. Why doesn’t Farcaster currently plan to do an airdrop?

defioasis:

The main reason is that the founder of Farcaster seems to have some aversion to tokens and Ponzi models. He prefers focusing on building a blockchain social application rather than operating through a token economic model. Although, in the long run, Farcaster may issue tokens in the future, it’s unlikely in the short term. Moreover, Farcaster’s current income mainly comes from the registration fees of new users ($5 per user), so their current focus is on increasing the number of new users, directly affecting their revenue.

How to View the TON Ecosystem and Token Models?

Dr. Yu:

A student asked about some SocialFi token models in the TON ecosystem, asking whether these models need to consider Web2’s time metrics or Web3’s on-chain interaction metrics.

From what I understand, TON is a relatively centralized project, essentially a business direction of Telegram’s financial department. It has a huge user base and is determined to guide these users into the blockchain world. Therefore, the TON Foundation may pay more attention to on-chain interaction metrics because it relates to the chain’s activity and the ecosystem’s healthy development.

In the current TON ecosystem, many projects have check-in features and other functions. While these behaviors may seem boring, they effectively promote the generation of on-chain data. The Foundation may be more concerned about these metrics because they directly impact platform activity and data integrity. For these project parties, meeting the Foundation’s needs may be key to gaining support.

defioasis:

From the perspective of TON project parties, building mini-apps aims to obtain opportunities for traffic monetization. Whether it’s Notcoin or other mini-games, these applications have large communities and user bases. These projects often achieve monetization through tokenization, with the ultimate goal of attracting exchange attention for listing and trading through traffic and user data. This model emphasizes the importance of social data, as the number of users and activity can directly impact the token’s value and the project’s popularity.

In this case, both social data and on-chain interaction metrics are important. Project parties need to quickly accumulate users and data to attract exchange support in the short term. For Telegram users, especially those using its wallet feature, gradually becoming familiar with the blockchain experience is also key. This not only involves the liquidity of tokens but also concerns the trust and acceptance of blockchain technology by users.

Dr. Yu:

Indeed, TON’s goal is to get users used to using blockchain technology on the platform, including wallet and other on-chain features. While Telegram is considered a safe communication tool, users may have concerns regarding financial features. Therefore, TON needs to familiarize users with and trust its blockchain ecosystem through various means (such as check-ins and mini-games). This process is not only to increase on-chain data but also to educate users, making it easier for them to accept blockchain technology.

Characteristics of Social Financialization and Financial Socialization

Dr. Yu:

Continuing our discussion, the rapid growth of the TON ecosystem on Telegram, especially without the TON token being listed on Binance, continues to expand rapidly. This ecosystem is very different from Farcaster. The TON features assetization of social relationships, converting past social software users into on-chain asset users, while Farcaster achieves this by establishing new social relationships. So, what is the fundamental difference between these two models? What are their respective advantages and disadvantages? How should we view the development prospects of these two in the Web3 social field?

defioasis:

This involves the concepts of social financialization and financial socialization. Social financialization primarily focuses on finance, with social aspects as an auxiliary, such as friend.tech, which directly generates economic benefits through tokenization. This model is highly explosive because it relies on a strong Ponzi model, capable of attracting many users and funds quickly but is often unsustainable.

In contrast, financial socialization focuses on social aspects, with financial elements as an addition, such as Farcaster. It embeds tokens through community building, content creation,

and other means, gradually forming economic value. This model emphasizes the essence of social relationships and is more suitable for long-term development. Although it may grow more slowly in the early stages, it has more potential to form sustainable user relationships and economic returns.

Projects in the TON ecosystem also exhibit similar financial socialization characteristics. It aims to enhance the value flow of the entire ecosystem, connecting information and funds. This not only helps strengthen the stability of social relationships but also lays the foundation for future financial applications.

Dr. Yu:

Social financialization may lead to the destruction of social relationships, especially in Ponzi models, where users’ participation may be more for short-term profits rather than long-term social relationships. Whether this model can exist long-term remains to be seen.

defioasis:

Indeed, the combination of finance and social aspects, whether natural or artificially stitched together, is a key question. If it’s just a combination for the sake of combination, it may lack a foundation for sustainable development. Overall, the social financialization model may be more suitable for short-term operation, while financial socialization is more suitable for long-term development. The future Web3 social ecosystem may gradually lean towards financial socialization, enabling the establishment of genuine social relationships while achieving economic returns.

Dr. Yu:

To summarize, we need to follow market changes and choose the right path. Different teams and project parties have different goals and strategies, determining which model they choose. For users, understanding the essence and development potential of these models can help better participate in and invest in these projects.

Do You Prefer the TON Ecosystem or the Farcaster Ecosystem?

Dr. Yu:

Got it. One last question: Do you prefer the TON ecosystem or the Farcaster ecosystem?

defioasis:

From an investment perspective, if you’re unsure which one has more potential, you can participate in both. Both ecosystems have their characteristics: TON leans more towards lightweight mini-games and social experiences, while Farcaster is a platform more focused on establishing new types of social relationships. They are not mutually exclusive, and users can participate in both platforms according to their time and interests. Overall, understanding the difference between social financialization and financial socialization is very helpful in judging the future direction of these two ecosystems.

Dr. Yu:

Thank you very much for sharing, defioasis. I hope everyone follows your Twitter to further understand your views and ideas.

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