SocialFi is like a Shakespearean play: idealistic, momentous, and ahead of its time, yet never out of favor among the masses. Seemingly dystopian at times, the thought of monetising your social network, even if it’s just a few hundred followers, equals financial freedom for many — the financialization of people, as some like to call it.
In this regard, 2023 marked a rather successful year for SocialFi with significant investments. But while the interest seems real, the numbers do not necessarily reflect the sector’s true state. The sharp drop in users recently across major platforms, including on the runaway hit of 2023 Friend.Tech, has put proponents of SocialFi on the backfoot.
Present trends make it seem that SocialFi platforms are being visited more for airdrops and other one-way incentives than actual social interactions. This is, in turn, affecting the haloed loop of user interest, engagement, and retention that makes Web2 social media a dopamine stash.
Seamless UX, another major success of mainstream social media, hasn’t found its mark yet in dApps. Issues around interoperability and the inability to fully translate DeFi theories on-chain continue to additionally hurt the sector’s relevance.
That being said, the allure of SocialFi is far from weakening. In fact, user sentiment for better iterations remains positive, as can be seen by a clutch of investors having already placed renewed bets on the sector.
Upping Investor Confidence
It’s a case of once bitten, twice shy for investors. The silver lining is that amidst the rubble of SocialFi’s latest crash, there is a distinct emergence of its various market segments.
Notable among this is the InfluenceFi segment – users who measure social capital in terms of their skills, experience and learnings, including providing financial and crypto advice. This segment is already driving a plethora of off-chain activity on traditional social media.
Led by solopreneurs, the creator economy is poised to touch$470 billion by 2027, and it helps that the creator community is among the most well-knit globally, seconded perhaps by the crypto community. Bringing these two together is thus a recipe for sureshot success.
Untapped Opportunity: Solving For Community Managers & Web3 Marketers
SocialFi’s promise to enable monetisation of their real-world assets on the blockchain is just one of the game-changing aspects. Considering the sector’s potential as the future of social media, it becomes imperative that any new attempt sees developers discard the old ways and solve for a user-determined market above anything else.
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Firstly, monetising social reach remains a sticky point for most creators on social media – the ones between 1000-10,000 followers on Instagram, for example. Creators in this range make zilch, or in some cases, a fraction of the earnings of the top 1% of influencers. SocialFi will need to empower both sides of the spectrum. Not only will the 1% need avenues to upscale their revenue opportunities, but the mid and lower-end creators will need to see legitimate benefits of the sector’s call for democratization.
It’s a classic case of balancing the scales. Build for the first, and you build another Web2 clone competing against existing social media giants. Build for the second, and the lack of influencer pull will make network effects take longer to kick in, eventually drying up marketing capital and crypto innovation.
Secondly, while the idea of token-gated access combines well with the promise of real-world asset monetisation and peer-to-peer commerce, the glue holding them is superior community management. A centralised user engagement hub, along with a robust front-end, better data analytics and transparent advertising options, will bring in more marketers to the platform. This is ultimately what social platforms – whether web3 or web2 – require if they are to deliver value to their users. Facebook’s resurgence in the early 2010s is testament to this. Without advertisers, there is no scalability. Period!
Additionally, tokenizing real-world assets will allow for peer-to-peer exchange on SocialFi platforms, embedding a level of e-commerce that can further drive engagement. For example, instead of merely provisioning tokens to access user-generated content, the tech must give a derivative value to these tokens for consumable purchases. This will help usher in further financial use cases for both creators and their network of users. But this is harder than it seems, and new platforms would do well to solve this seamlessly instead of providing a clunky version and losing user interest early on.
Thirdly, DeFi has shown that it can solve various aspects of real-world asset tokenization. Integrating it into social platforms, though, needs to come with a certain level of awareness. SocialFi platforms may be built on Web3 tech, but the fact remains that its potential users are mostly familiar with navigating the Web2 terrain. The more seamless their transition, the higher the chances of the platform going beyond a niche audience.
Ultimately, the philosophy behind SocialFi isn’t to see every follower in your network as just another commodity. Empowering yourself as a creator requires your followers to feel empowered as well, else it defeats the purpose of a democratic network where every participant is equal, resulting in a quick fizzling out, as has been the case so far.
Will DeSo/Community Platforms Fill The Void?
Currently, Web2 creator platforms, such as OnlyFans, Patreon etc., are functioning with high levels of user engagement by integrating traditional financial structures. Although SocialFi platforms allow for more innovative revenue streams thanks to the infinite potential of DeFi, luring creators to invest their time and energy in a new platform will require a reliable showcase of the end benefits. DeFi integrations will seem unnecessary to most creators, unless the process is simplified and they buy into the larger vision of SocialFi, which in most cases is yet to be fully defined practically.
The unlikely benefactor of this could be offbeat web3-focused messenger or even client apps with a significant user base running into millions who are better positioned to get on-chain and leverage their existing user base. As successful platforms, they also meet investor expectations, considering that recent outings in SocialFi have led to more losses than gains. Such social platforms that have already managed to effect change and build communities around their product, are better positioned to provide users a sense of familiarity while the tech undergoes iterations in test environments.
The recent success of the Frames feature on the Farcaster protocol is a good example of how client apps can swiftly tailor new ways of user engagement when presented with tools that leverage the benefits of interoperability offered by decentralised networks.
As with all emerging tech and new sectors, disrupting the status quo requires maintaining the trust of the current solution. It will be the same for SocialFi, if it is to find its feet as social media’s new avatar.
Sergey Sheleg is a passionate tech entrepreneur and crypto advisor, leading the development and growth of Web3-focused messenger platform Nicegram.
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