SocialFi integrates the principles of social media and decentralized finance (DeFi). The SocialFi platform provides a Web3 (decentralized) approach to create, manage, and own social media platforms and the content generated by participants.
At its core, SocialFi empowers content creators, influencers, and participants in applications who wish to have better control over their data, freedom of speech, and the ability to profit from social media engagement. Monetization typically occurs in cryptocurrencies, while identity management and digital ownership are driven by non-fungible tokens (NFTs).
The structure of these platforms involves decentralized autonomous organizations (DAOs), which are more conducive to preventing centralized censorship decisions. With the rapid advancement of blockchain technology in recent years, SocialFi infrastructure can handle the throughput required for social media interactions.
Challenges of Web2 Social Media
Over half of the world's population (58.4%) spends an average of 2 hours and 27 minutes per day on social media. However, the attention, interactions, engagement, and data generated are often monetized by some centralized entities and their stakeholders. Examples of centralized decision-making, such as platforms banning content creators from discussing certain topics, demonstrate the need for decentralized governance processes that align more with the spirit of Web3.
The third challenge faced by Web2 applications is the ability to establish digital ownership and track ownership. This is particularly important for creators and artists who share their work online. Lack of sufficient control measures can lead to vulnerabilities in digital piracy without proper digital ownership.
Another drawback of Web2 platforms is the inability to monetize brand assets directly. While influencers who create their brand can indirectly monetize their brand assets in most cases, the social attention and reputation created on social media platforms do not directly translate into money in the bank.
Building Blocks of SocialFi
SocialFi aims to disrupt the social media industry by adhering to the spirit of Web3, which is essentially decentralized social applications. It focuses on addressing key design issues in today's Web2 social media platforms.
Fair management of incentives for all stakeholders has always been a key design principle for Web3 applications, and DAO models make this principle possible. SocialFi applications take it a step further by using the concept of social tokens or in-app utility tokens.
In the worlds of DeFi and even GameFi, practical tokens are commonly used to drive in-app economies. Through SocialFi, we now have social tokens marking the third layer of the economy. These tokens are not only at the application level but can also be created at the user level. Creators can now manage their economy through social tokens.
Lacking Scalable Infrastructure of SocialFi
Permanent Data Storage
One of the most significant aspects of SocialFi is granting users true control over their data, which is essential for the economic value of social app data. Current SocialFi products must focus on the underlying data storage to achieve truly meaningful Web3 social products. The way data is stored determines the user limit and whether a SocialFi product can meet the social vision of users in the Web3 era.
Sustainable Economic Model
Perhaps the most challenging part of the DeFi model and its derivative business models is creating an economic model that can withstand pressure and exceptional circumstances. Whether it's GameFi or SocialFi, several platforms promise very high incentives for participants. However, the narrative of attracting users solely through token incentives has been debunked in the case of Web3 SocialFi applications.
User Data Privacy Protection
User data privacy is crucial in SocialFi products, meaning users have complete control over their data, can choose with whom to share, and what information to share, and can participate in social activities anonymously, avoiding third-party tracking or abuse of their data.
SocialFi Ecosystem
The SocialFi ecosystem is rapidly expanding, covering various segments. Currently, existing social tokens involve personal financing, private communities, fan economy, platform subscriptions, sports and entertainment, personal funds, community brands, and more.
SocialFi projects manage their created communities through coin issuance, allowing creators, cultural producers, and relevant participants to increase revenue through tokenized benefits. Most social tokens are based on ERC-20 and primarily extend their technical innovation and project revitalization in four main directions: distribution mode, asset preservation, token model, and community management.
Popular Projects in the SocialFi Space
CYBER
CYBER is a web3 social network that enables developers to create social applications, allowing users to own their digital identity, content, connections, and interactions. CYBER aims to challenge the dominance of profit-driven companies in the current social network landscape and empower users to control their digital lives free from centralized and biased technology.
Lens Protocol
Lens Protocol is a Web3 social graph on the Polygon proof-of-stake blockchain. It enables creators to own the link between themselves and their community, forming a fully composable, user-owned social graph. The protocol is built from scratch with modularity in mind, allowing the addition of new features and fixes while ensuring the immutability of user-owned content and social relationships.
Farcaster
Farcaster is a fully decentralized social network built on an open protocol that supports various clients, similar to email. Users can freely migrate their identities between social applications, and developers can freely build applications with new features on the network. Farcaster allows users to send messages broadcasted to their Ethereum addresses, and verifying address ownership enables a range of features, including showcasing NFTs and using NFTs as verified avatars.
In Conclusion
Despite challenges related to infrastructure and economic models, SocialFi platforms show promising prospects. The world is rapidly accelerating towards a creator economy model, and SocialFi platforms are taking a significant step in that direction.
For more analysis, please follow Aibit's media account for real-time updates! This article is for reference only, does not represent any position, and is not intended as investment advice. Investment is risky, caution should be exercised.
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