Maxime Gay, CEO of SiBorg, emphasizes key SocialFi narratives, highlighting the integration of podcast and Twitter spaces with the Lens Protocol while ensuring user data ownership.

Introduction

The Social Finance (SocialFi) movement is fundamentally reshaping the dynamics between online content creators, users, and the platforms they use. Major players like Facebook, YouTube, Instagram, X (formerly Twitter), and TikTok have dominated the social media landscape. Statista reports that Facebook alone has 3.03 billion monthly active users. With many young people in Western countries and LATAM aspiring to become influencers, competition in the space has surged. This has led to increased scrutiny over platform algorithms, censorship, and profit-sharing practices. Scandals like the Twitter Files and accusations of Facebook’s dubious data practices have intensified calls for change from both users and creators.

The primary issues with social media giants stem from their centralized and opaque structures. Creators are often at the mercy of platforms that can arbitrarily suppress content and set monetization rules. For instance, YouTubers dissatisfied with their compensation or content suppression must comply with platform policies due to the lack of comparable alternatives. Additionally, creators are incentivized to produce content favored by platform algorithms rather than what they genuinely want to create.

This article explores how SocialFi addresses these concerns by decentralizing social media platforms, disintermediating user-creator dynamics, safeguarding data privacy, and financially empowering both creators and users.

Understanding SocialFi

Community Growth & Engagement: SocialFi aims to prevent audience fragmentation across platforms. Web3 projects like Guild.xyz offer platform-agnostic memberships across applications like Discord, Telegram, and Twitter. Blockchain technology is used to “token gate” communities, allowing a single subscription to provide access to exclusive content across platforms.

Creator Monetization: SocialFi enables direct fan-to-creator monetization, allowing creators to earn fair compensation without intermediaries. Unlike traditional platforms that share minimal ad revenue, SocialFi projects like MadFi and Paragraph facilitate brand deals and Web3-powered newsletters, providing creators with more control and financial independence.

Data Ownership: Traditional social media platforms often obscure who owns the content and data generated. SocialFi platforms leverage blockchain to give users control over their personal information and its sharing. Data is encrypted and stored on a decentralized network, with ownership linked to unique identifiers like NFTs. Only users can grant permission for their data to be accessed or shared, preserving their rights and control.

Social Tokenization: Social tokenization involves creating digital tokens representing ownership or a stake in community-created content. These tokens can be used for governance, access to exclusive content, or as currency within the community. An example is FriendTech, which pioneered tokenized “Keys” to create and trade content, promoting smaller, exclusive communities.

The SocialFi Ecosystem

Community governance in SocialFi platforms, often led by Decentralized Autonomous Organizations (DAOs), diverges significantly from conventional social media governance. DAOs offer protection against arbitrary deplatforming. For example, CultivatorDAO, the first social DAO for decentralized content moderation, places content rejection decisions in the hands of the community rather than a centralized entity.

SocialFi platforms integrate social tokens or in-app utility tokens, enhancing user engagement and monetization. These tokens reward activities like content creation, enabling exclusive access to creator content and direct communication. This system promotes genuine participation, aligning platform growth with active user involvement. Users become active contributors to the platform’s economy, not just passive participants.

Web2 Decentralized Social Media Competition

The Web3 SocialFi movement is not the first attempt at social media decentralization. Web2 examples like Mastodon, a German non-profit platform, and Nostr, a decentralized Web2 protocol, demonstrate alternative approaches. Mastodon’s growth was hindered by excessive moderation and a complicated user interface. Nostr addresses data-transfer issues with a simpler network of independent servers or relays, providing a decentralized social media experience without the complexity of blockchain.

Meta’s Threads, a Twitter competitor, also aims to decentralize social media. Mark Zuckerberg has expressed that decentralization is “inevitable” and “preferable,” as it makes users feel more in control and enhances overall service quality. Threads plans to integrate with the decentralized protocol ActivityPub, allowing users to run their own “fiefdoms.”

Web3 SocialFi projects should learn from these Web2 competitors. While Web3 offers innovative governance through DAOs and cross-chain capabilities, it must contend with the simplicity and user familiarity of Web2 decentralized platforms.

Opportunities and Challenges

The DeFi market, experiencing a 76% decline in TVL in 2022, is exploring new narratives like SocialFi to drive fresh inflows and rejuvenate the sector. SocialFi has the potential to attract a diverse audience, bridging the gap between social media engagement and financial activities. For instance, the Lens Protocol reported over 200,000 minted profiles shortly after going permissionless, reflecting growing interest in this sector.

A key challenge for SocialFi projects is aligning their user interfaces with Web2 social media expectations. Often, a disconnect in UI design impedes user adoption and engagement. SocialFi platforms must focus on making their interfaces accessible to non-crypto-native users to compete with more convenient Web2 platforms.

Managing the data generated by social platforms is another challenge for SocialFi. Solutions like DeSo and the Lens Protocol’s Momoka layer aim to improve scalability and reduce fees, enhancing the user experience.

Case Studies

Lens Protocol: Functioning as a Web3 social graph on the Polygon blockchain, Lens Protocol prioritizes user data control and privacy. It utilizes ERC721 NFTs for a three-tiered tokenization system, offering interoperability and modularity. Lens Protocol enables users to carry their data across various applications built on its foundation, creating a user-owned, open social graph. Despite its popularity, the protocol needs to focus on creating a user-friendly interface to attract long-term users.

Phaver: Launched on the Lens Protocol, Phaver merges Web2 and Web3 technologies to create a unique social media experience. It gamifies social media, rewarding users for in-app activities and promoting quality content creation. Phaver has forged significant collaborations and has seen substantial adoption, with over 300,000 unique installs and 15,000 daily active users.

Conclusion

The SocialFi landscape is poised to revolutionize digital interactions by creating a more equitable, transparent, and decentralized social media ecosystem. Projects like Lens Protocol and Guild.xyz exemplify this shift, offering cross-platform interoperability and user-centric data rights. However, Web2 decentralized platforms like Nostr and Threads present significant challenges to Web3 SocialFi. While Web3 offers innovative governance and cross-chain capabilities, it must compete with the simplicity and user familiarity of Web2 decentralized social media. The future of SocialFi will depend on its ability to integrate user-centric, decentralized models with intuitive, accessible interfaces.

Source: Cointelegraph