Story Highlights:
- SocialFi brings in the unique amalgamation of social media and decentralized finance.
- It prioritizes monetization, censorship, freedom of speech, and community access.
- Scalable infrastructure and a sustainable economic model still impede its progress.
Decentralized finance is a revolutionary development that has enhanced the security and clarity of peer-to-peer transactions. However, if this is integrated with modern social media networking, then the initiative would revolutionise the world. SocialFi is the platform, that does so. It is a revolutionary idea that connects Web2 social media networks with decentralised finance (DeFi). It offers a free and decentralised space for social users, allowing them to earn rewards through engagement.
Understanding SocialFi
SocialFi combines social media principles with decentralized finance. SocialFi platforms use a Web3 approach to create, manage, and own social media platforms and their content. At the core of SocialFi are content creators, influencers, and participants seeking control over their data, freedom of speech, and the ability to earn from their social media activity. Monetization typically occurs in cryptocurrencies, while identity management and digital ownership rely on nonfungible tokens. These platforms operate as decentralized autonomous organizations, which help prevent centralized censorship decisions. With advancements in blockchain technology, the SocialFi infrastructure can handle the throughput needed for social media interactions.
Its Working Principle
Decentralized Autonomous Organizations (DAOs) and social tokens are key components of SocialFi platforms. DAOs handle platform governance, ensuring no central authority controls user activity. They prevent developers from altering the platform’s code, with decisions like incentive sharing left to the DAO.
Monetization relies on social DeFi tokens, which can be native or other assets traded on the platform. Content creators can also create their own tokens to monetize social interactions. In decentralized platforms, users choose which creators to engage with and hold their tokens. Tokens incentivize engagement, enabling functional affiliate programs. Digital ownership is essential in SocialFi apps. Creators can use Profile Picture NFTs for identity verification and track content ownership through other NFTs. This model allows creators to monetize various content types, including messages, GIFs, blogs, photos, and music. Advertising revenue is distributed fairly among creators on SocialFi networks.
SocialFi: Key Aspects
Here are the key aspects where SocialFi stands out compared to Web2 platforms, shedding light on its rising popularity.
Monetization
SocialFi platforms emphasize fair incentive management through DAOs, with the added innovation of social tokens or in-app utility tokens. These tokens, marking the third tier of the economy, empower creators to manage their own economies.
Censorship and Freedom of Speech
These platforms adopt decentralized curation via on-chain data labelling. Public posts are on-chain, allowing nodes to parse and label them based on content. Each node decides which content to engage with, ensuring decentralized control and individual responsibility.
Digital Ownership and Identity
The rise of Picture for Proof (PFP) NFTs has revolutionized digital identity. These NFTs, like Bored Ape Yacht Club and CryptoPunk, create emotional connections and serve as profile pictures. Users can use their NFTs as SocialFi profile pictures, confirming ownership by connecting their wallets.
Community Access and Distribution
NFTs offer exclusive access to SocialFi communities, providing thought leadership, experiences, and investment insights. Creators can share proceeds from NFT sales with token holders, incentivizing promotion and potentially boosting sales.
Seamless Functionality
Unique features like immediate NFT conversion for special moments are seamlessly integrated into SocialFi platforms. Such functionalities are challenging to implement on Web2 platforms due to misaligned incentives and platform limitations.
Yet The Impediments
Scalable infrastructure
Web3 faces significant challenges in handling the immense data volumes generated by social media platforms like Facebook. DeSo, the blockchain layer for SocialFi, claims to address scalability through techniques like indexing, block size management, warp sync, and sharding. They aim to process a high volume of posts per second, potentially scaling to one billion users.
Sustainable economic model
Developing a sustainable economic model is crucial for the long-term viability of platforms like SocialFi. While high incentives attract participants, sustainability remains a challenge. Experimentation with incentive models is ongoing, but stress testing across market cycles and unforeseen events is essential. Participants face risks such as the devaluation of social tokens due to harmful content, potentially leading to widespread losses across the system.
Top SocialFi Platforms
Today, numerous SocialFi platforms are emerging in the Web3 industry. Here are some noteworthy ones:
Geojam
Geojam offers multiple earning opportunities for creators and users while delivering a unique experience for influencers, artists, and fans. The platform depends on the JAM token for its economy. Users earn JAM tokens by interacting with creators and engaging with the app. They can redeem these tokens for exclusive merchandise or utilize them in the network’s DeFi features, including governance participation.
Thinkin
Thinkin operates on the Algorand blockchain and focuses on incentivizing communities. It provides tools for DAOs to expand their communities and encourages interactions within the network. The platform features a write-and-earn program where users receive rewards for social interactions. These rewards enable communities to participate in Initial Dex Offerings (IDOs) on the launchpad, with allocation based on participation rather than invested funds.
LuxWorld
LuxWorld is a pioneering travel-to-earn platform built on Ethereum. The platform was inspired by the COVID-19 pandemic’s impact on the tourism industry. It utilizes the LUX token to incentivize user engagement during travel. Additionally, LuxWorld supports NFT minting, hosts an NFT marketplace, and offers check-in incentives.
Final Words
Despite facing challenges with infrastructure and economic models, SocialFi platforms hold promise. The world is swiftly moving towards creator economy models, and SocialFi represents a significant step in that direction. For SocialFi platforms to truly establish robustness, they must weather downturns and sustain themselves through adversity.
