What is SocialFi?
Combining social networking with decentralized finance (DeFi) is what SocialFi is all about. When building, maintaining, and owning social media platforms and the material they generate, SocialFi platforms provide a Web3 (decentralized) approach.
Content creators, influencers, and participants are the backbone of SocialFi’s application community; they seek improved data control, greater freedom of expression, and the opportunity to monetize their social media following and engagement. Cryptocurrencies are the usual venues for monetization, while NFTs are the engine that drives digital ownership and identity management.
These platforms are designed as decentralized autonomous organizations (DAOs) to avoid centralized censoring choices. The infrastructure of SocialFi can handle the throughputs needed for social media interactions because blockchain technology has advanced dramatically in recent years.
Difficulties with Web 2.0 Social Media
About 58% of the global population uses social media at least once daily, for 2 hours and twenty-seven minutes. However, many centralised companies and their owners profit from the generated data, attention, interactions, and engagement. A one-liner that sums up the problem: “If the product is free, you are the product.”
Instances of centralised decision-making abound when platforms prohibit content providers from discussing specific subjects. A decentralised curation mechanism, if any, would be more in line with Web3 principles, even though these procedures are typically in place to safeguard the broader user base from damaging posts.
Digital ownership and the capacity to trace ownership have been the third obstacle that Web2 applications have faced. Artists and creators who share their work online must pay close attention to this. Still, without sufficient safeguards, digital piracy can flourish in an environment where digital ownership is lacking.
Web2 platforms also have the drawback of needing help to make money off brand equity. Most of the time, once an influencer builds a name for themselves, there are indirect ways to profit from that name. However, the popularity and trust they’ve built up on social media will only sometimes turn into cold, hard cash.
Is SocialFi going to be a lifesaver? How does SocialFi function, and what is it anyway? The parts that follow will provide an in-depth examination of these questions.
Elements that make up SocialFi
Sticking to the Web3 philosophy—basically, just being decentralised social applications—SocialFi will shake up the social media sector. Its primary goal is to address critical design faults with current Web 2.0 social networking platforms.
Compared to its Web2 equivalent, SocialFi aims to excel in several essential areas. If such were the case, it would be easier to grasp the appeal of SocialFi.
Financial Gain
One of the guiding principles of Web3 application design has been the equitable management of incentives for all stakeholders; the DAO model makes this achievable. The next level is provided by SocialFi programmes, which employ the idea of social tokens, also known as in-app utility tokens.
A common feature of DeFi and even GameFi is the usage of utility tokens to power in-app purchases. The SocialFi platform introduces a new economic layer with its social coins. These tokens can be created at any level, not just by applications. Social tokens have made it possible for creators to run their economies.
A token can be issued to any user whose brand equity is significant. For example, Elon Musk can establish a token and a micro-economy based on it. An individual’s social influence determines the token’s worth. Consequently, Elon Musk’s token will be worth more than the average user’s after creating their social network profile.
Next, we’ll examine the factors propelling the social token’s value in this hypothetical scenario. A handful of basic design concepts form the basis of this paradigm, including:
- One must possess a social token to interact with a creator’s posts. Thus, in our hypothetical situation, having Elon Musk’s social token to interact with his posts would be necessary.
- If you want an influencer to notice your message, you might rank higher in the response list if you own more of their social tokens.
- When a creator or influencer reaches a specific point in their social token tier, they can receive direct messages from their followers.
- Famous artists can monetize their social tokens by offering VIP access to their creative work through a subscription model.
- A monetary cost is associated with user engagement with content, such as likes and shares.
Some fundamental ideas behind how SocialFi members might earn money from their participation are the basis of economic models that are now being evaluated. Following these guidelines will make it more difficult to spam, improving authentic engagement and, most importantly, making it easier for creators and influencers to make money off of their brands.
Free speech and censorship
As a result, most Web 2.0 social media platforms still need to navigate this complex and subjective issue space successfully. While it should not lead to the unchecked global distribution of damaging content, we also do not want centralized restriction. Finding a happy medium is an approximate science.
The tagging of on-chain data is the foundation of social platforms’ decentralized curating. On a SocialFi site, any post that the public can see is on-chain. Rules engines can immediately classify postings according to subject and word type using this on-chain data. The responsibility for selecting appropriate posts rests with the nodes on the chain.
Nodes can interact with one another and block labels as they see fit. Nodes could face legal consequences if they participate in or support damaging posts. Consequently, what can and cannot be permitted on the network is not at the discretion of some top-level executive or a select group working for a larger organization. Responsibility and control ultimately rest with the person.
Ownership of digital assets and identity
A new phenomenon known as picture for proof (PFP) NFTs has recently emerged in digital identification. The “I am my ape, and the ape is me” mantra has taken root in this $18 billion industry. Bored Ape Yacht Club, CryptoPunk, and Moonbirds are examples of PFP NFTs, collections to which NFT holders develop sentimental ties.
The proud owners of these NFTs proudly display them as their Twitter and NFT profile pictures. Many people who own PFP NFTs are just looking to make a quick buck, but these tokens represent who they are for others. These NFTs evoke feelings of attachment in their owners.
Notably, unlike emotional identity, which is an abstract concept, NFT is designed to be proof-of-ownership. So, users can confirm ownership of their NFTs by connecting their wallet and using them as their profile picture when creating a SocialFi profile.
In addition to serving as a means of identification, PFP NFTs grant holders special access to specific groups on SocialFi. Members of these groups can offer their NFT holders exclusive access to events, thought leadership, experiences, or even investment opportunities. This is currently available in Discord groups and could be added to SocialFi.
Creators also have the option to broadcast their work through the distribution capabilities offered by NFTs within SocialFi platforms. Launching an NFT collection allows artists to reward social token holders with a portion of the sale price. The artist’s fan base will be incentivised to spread the word, which could lead to more purchases from the NFT collection.
Finally, you can turn that “once-in-a-lifetime moment” message into an NFT by pressing a button. Due to inherent limitations and conflicting motivations, many of these features do not exist or cannot be implemented smoothly on Web2 platforms.
Two major obstacles that SocialFi has to conquer
What are we losing out on if all of this seems too wonderful to be true? Is SocialFi the wave of the future when it comes to social media? There are certain challenges in putting the design concepts of SocialFi into practice, as discussed above. There are a few obstacles that Web3 has to get past:
1. Scalable infrastructure
Every every day, Facebook creates 4 petabytes of data. In a single minute, there are 510,000 comments, 293,000 status updates, 4 million likes, and 136,000 photo uploads. Is it possible for blockchains to handle quantities of such magnitude?
DeSo asserts that, as a blockchain layer tailored to SocialFi use cases, it can outperform most existing layer-1 chains in terms of scalability. Their approach to scalability includes indexing, sharding, warp sync, and block size management.
Compared to Twitter’s 6,000 posts every second across 300 million users, they assert that their four million user base can process 80 posts per second. Just by raising the block size, this performance is attained. Nevertheless, additional strategies like sharding and warp sync might further enhance throughput.
With warp sync, transaction validation can occur independently of each node, eliminating the requirement to validate the entire transaction history. Multiple orders of magnitude can increase throughput with the help of sharding’s parallel processing. The team at DeSoto is confident that they can reach their goal of one billion users by implementing these two strategies.
2. Sustainable economic model
In mode DeFi and its offshoots, developing economic models that can weather extreme conditions is a major challenge. Several systems offer participants very significant incentives, such as GameFi and SocialFi. However, these incentives have only boosted growth in the near run.
There is still a lot of pilot testing with all the features we mentioned in the SocialFi incentives. Before these models can be widely used, they must withstand multiple market cycles and unexpected events.
For example, an influencer may post something dangerous if you use their social token to participate in their postings. A single malicious post has the potential to swiftly cause the social token’s depreciation and set off a chain reaction of losses for everyone involved in the system.
A domino effect could quickly spread across a social media platform if influencers there work in echo chambers and a major microeconomy experiences a steep decline.
