What is SocialFi

SocialFi: Facebook and Twitter on the Blockchain

With the development of the Decentralized Finance (DeFi) market and growing expectations of the potential of Web 3.0, more and more decentralized projects are emerging, and concepts such as GameFi and SocialFi have been born. In 2021, the virality of the popular Axie Infinity game brought mainstream awareness to GameFi and the possibilities of crypto. As a result, public opinions are brewing that SocialFi might become the next big thing in the sea of crypto narratives.

What is SocialFi

The definition of SocialFi is social finance. It can be literally considered as a combination of elements of Social media with DeFi-related financial concepts that can potentially enable financial benefit through connecting participants with social tokens.

SocialFi is characterized by decentralization, openness and user control.

What problem does SocialFi solve?

The traditional model of social networks such as Twitter and Facebook in the Web 2.0 era of the Internet was to attract traffic and earn high advertising fees through the massive amount of information content created by users, who themselves became digital laborers for these platforms, contributing a lot of time and effort without receiving any corresponding return.

SocialFi is a solution to the problem of benefit distribution and data ownership, allowing users to change from being “workers” to “owners”. SocialFi will tokenize and financialize social influence so that everyone can get benefits by outputting content. Compared to traditional social networks, the most important thing it solves is the distribution of interests and ownership of data rights.

In addition, SocialFi is based on smart contracts and blockchain technology, providing maximum protection for the privacy and security of users’ identity information, whereas in traditional platforms user registration information is stored in the operator’s database and can be easily leaked.

Classification of SocialFi Projects

Although the SocialFi space is still in its early days and we have yet to see the birth of a product that can monopolize the market like Twitter, more and more new concepts and projects have started to emerge in this space in recent years, with Coingecko data showing that the market value of the Social Money section has exceeded $1.4 billion.

There are several main categories in SocialFi:

Personal token

Personal tokens are tokens issued by a personal influencer brand with the main purpose of building a more direct and close connection between creators and their fans. For example, Rally enables creators to generate and issue their own Creator Coin tokens for fans to enjoy membership privileges, such as access to the creator’s private community or purchase VIP merchandise.

Community token

Projects in this space include Chilliz, Zora, Circles UBI, and Loop Finance. These projects mainly manage the entire community through token incentives. Users in the community can be divided into tiers and enjoy corresponding rights and interests according to their activity and contribution.

In the SocialFi community model, the focus need not be limited to content creation. The communities established through social tokens are also active in the investment field. They can aggregate funds through voting mechanisms and smart contracts to find and discover investment opportunities. In the case of Flamingo, for example, members of the community have the right to decide on the NFT artwork they want to invest in, and can split and lend the NFTs they purchase. The community members have the right to decide on the NFT artwork they want to invest in, and can split and lend the NFTs they purchase, or place them as collateral on other DeFi platforms.

Decentralized social platform

These platforms seek to disrupt large traditional social media websites such as Facebook and Twitter. Through the token mechanism, content creators can receive a fairer return for their efforts.

A well-known project is BitClout, which claims to build a decentralized alternative to Twitter through proof-of-work and blockchain. In March last year, it disclosed a strong investment background including Sequoia Capital, a16z, and Coinbase Ventures. After several prominent influencers on Twitter promoted the BitClout account, it became famous in the industry.

Opportunities and Challenges of SocialFi

In today’s Internet and crypto world, the value of social influence cannot be underestimated – Elon Musk’s tweets over the course of 2021 helped Dogecoin reach the coveted top 10 market capitalization ranking.

There are also various meme coins that gain traction through the power of community, and whose prices are directly influenced by community sentiment. It is clear that the power of individuals and communities can create huge wealth effects, so we believe that this kind of SocialFi, which combines social and financial attributes, will hopefully lead to a new trend. With the greater improvement of the underlying technology, SocialFi will certainly achieve explosive growth someday in the future.

However, there are also many challenges in the development of SocialFi, such as how to set reasonable economic incentives for content. A common problem with the existing decentralized social media on the market is the monopoly of influence from large accounts that find attention easy to gain on the platform, while many new users with less influence are less likely to gain significant exposure.

SocialFi also faces social media-related regulatory issues. Finding a balance between content censorship, freedom of speech and user rights will be a challenge for all social media projects.

Closing thoughts

From DeFi to GameFi to SocialFi, the decentralization of traditional Web 2.0 applications is inevitable. Even though SocialFi may still be in its early stage of innovation, we believe that the future is already here.

Disclaimer: Trading crypto involves significant risk and can result in the loss of your invested capital. The materials are not related to the provision of advice regarding investment, tax, legal, financial, accounting, consulting, or any other related services and are not recommendations to buy, sell, or hold any asset. MEXC Learn solely provides information, but not financial advice. You should ensure that you fully understand the risk involved before investing.

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