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SocialFi, or Social Finance, is a decentralized finance (DeFi) project that integrates the Web3 approach to create an interactive platform where users can control their data and monetize their interactions.
This innovative approach challenges centralized social giants like X (formerly Twitter), Facebook, and Instagram, giving users ownership over their engagements.
The primary objective of SocialFi is to provide an accessible and interactive hub for influencers and content creators to manage their interactions and generate income based on the valuable content shared.
This Web3 innovation also fosters a social-media-like community that mitigates censorship, allowing individuals to learn, monetize their expertise, collaborate, and interact.
While Web 2 social platforms have effectively connected people and fueled mass content creation, they often grapple with issues related to user data ownership, censorship, digital identity, and monetization.
By combining digital tokenization with a social-media approach, users are no longer passive participants in the platform’s revenue system. Rather, they have control and value as recognized contributors.
Web2 Limitations
SocialFi Solutions
Data Ownership
The Web3 innovation empowers content creators to exercise greater control over their data, exercise freedom of expression, and reap financial rewards through their online presence, facilitated by cryptocurrencies.
Censorship
Popular platforms like X are known to restrict users’ accounts based on information shared, which is quickly followed by a ban on certain topics. SocialFi decentralization offers a more aligned solution that entails inclusivity.
Digital Identity and Tracking
SocialFi users’ identity and digital ownership are fortified by non-fungible tokens (NFTs).
Monetization
SocialFi bridges the gap between interactions, branding, expertise, content creation, and finances in a decentralized landscape. Users’ online presence is tied to social tokens, which are calculated based on individual interactions, contents, interactions, and influence within the platform.
SocialFi stands out as a sophisticated and more attractive business model compared to the ones employed by current social media giants.
In exploring its importance, the following key aspects make it noteworthy:
- Decentralized Social Media: SocialFi is a bridge connecting individuals to the future of social networking. There is no room for centralization as the Web3 platform promotes inclusivity and freedom of speech, enabling people worldwide to have optimal access to a simplified content approach and data management.
- Transparency: SocialFi uses blockchain technology, ensuring the platform’s operations are transparent and immutable. This transparency builds trust among users, fostering accountability and ensuring that participants have all the required information to make informed decisions within the social network community.
- Financial Literacy: Another significant solution of SocialFi is its prioritization of financial education. Associated platforms like Friend.tech provide comprehensive resources for individuals to learn about financial investments through private chats and how to generate more financial perks through content.
- Innovative Product Offering: SocialFi has immense potential to introduce more products and services within the DeFi ecosystem as technology evolves. These may include the revered staking, liquidation provision, lending, borrowing, and more.
- DeFi Adoption and Growth: SocialFi is a relatively new concept, and its continued influence in the growth of Friend.tech is a testament to its importance. The increasing number of users and projects in the SocialFi space suggests that it addresses the ever-changing crypto and DeFi community needs.
While SocialFi presents promising benefits and potential, it encounters several notable challenges.
1. Security Risks
SocialFi, as well as the broader DeFi landscape, heavily relies on smart contracts and blockchain technology. These technologies have demonstrated susceptibility to security breaches.
A recent example of this vulnerability was evident in the Friend. tech platform, where an exploit resulted in losing $385,000 from four users’ accounts. The risks of cyber attacks and exploits pose a loophole in maintaining the integrity of platforms and protecting users’ assets.
The same scammer profited $385K (234 ETH) in the past 24 hours off SIM swapping four different FriendTech users. pic.twitter.com/03BoBEqGax
— ZachXBT (@zachxbt) October 4, 2023
2. Adoption and Sustainability
The future of social networking is unstable. While the success of SocialFi is closely tied to content creators’ adoption and active involvement, encouraging individuals to join these platforms and engage in an ecosystem different from the usual Web2-centric messaging can be daunting.
Although social tokens are introduced to promote sustainability, there may be concerns about their longevity.
3. Evolving Regulatory Policies
The merger of Web3 integration in social media-centric activities can raise regulatory concerns. Already, there is a series of events related to unclarified regulatory policies for Web3 platforms. Being a step ahead of the evolving legal landscape can be an unattainable longshot.
While there aren’t many well-established SocialFi blockchain platforms yet, we did uncover a few that are worth your attention due to their trendy buzz.
Friend.tech
Friend.tech is arguably the biggest SocialFi platform built on the Base blockchain network. Individuals can leverage the platform to connect and interact with friends and join communities through a social token called ‘Keys,’ which can be bought or sold.
When users purchase Keys, they can access private chats, giveaways, and other perks associated with the account.
This decentralization offers better data privacy and transforms individuals from consumers to active participants and earners within the platform.
According to a Dune Analytics dashboard by Cryptokoryo, Friend.tech has generated a total inflow of $469 million since its debut on August 10, 2023.
It also has 836,000 buyers and 213,124 sellers. Currently, it boasts noteworthy buy and sell statistics, with buy and sell values of $281,905 and $186,000, respectively.
These numbers illustrate the significance of SocialFi and the potential it amasses.
Open Campus
Open Campus utilizes a novel protocol that enables communities to create, own, and promote content they want to see in the real world. The project also motivates educators to contribute valuable content to gain recognition and earn revenues as rewards through a social token named EDU.
Some of the major highlights of Open Campus include its peer-review system, which allows users to evaluate posted content within the platform and rewards reviewers with EDU tokens. The platform also utilizes blockchain technology to encrypt educational content in the form of non-fungible tokens (NFTs).
Lens Protocol
The Lens Protocol is a SocialFi platform deployed on the Polygon proof-of-stake blockchain. The system empowers content creators to own the links shared between their followers and community forums, forming a fully composable, user-owned social graph.
Users can share content with a distributed file system, personalize profiles through NFT, and maintain content ownership. The major highlight of Lens Protocol that reflects the objective of SocialFi is its user-centric incorporation, which enables creators to decide how their data are shared.
The Bottom Line
While SocialFi platforms are still in their early stages, there are feasible growth trajectories that have shown signs of future promises.
With more adoptions, the Web3 and DeFi innovation will permeate global sectors, ensure content creators are paid for interactions and valuable content, and ensure the smooth flow of finance-driven investment opportunities for members.
