SocialFi Stumbled: Is It a Failure or Just a Pause?

SocialFi, the fusion of social media and decentralized finance (DeFi), arrived with a bang in 2023, then quickly faded as projects like Friend.tech and Farcaster ran out of steam.

They pulled in loads of users, then swiftly lost them due to flawed business models and weak development roadmaps. The sector went quiet, but the idea of a new form of social network based on user ownership, data portability, and content monetization hasn’t lost its appeal.

As the first wave subsides, some are re-positioning while new launches are in the pipeline. Will they be able to release SocialFi’s potential?

Table of Contents Table of Contents

1. Key Takeaways
2. Where Did It All Go Wrong?
3. The Appeal of DeFi Democratization
4. Hope Springs Eternal
5. The Bottom Line
6. FAQs
7. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. Where Did It All Go Wrong?
3. The Appeal of DeFi Democratization
Show Full Guide
4. Hope Springs Eternal
5. The Bottom Line
6. FAQs
7. References

Where Did It All Go Wrong?

2023 was a big year for Social Finance (SocialFi). While VC funding for new crypto projects dipped, SocialFi apps like RepubliK and Phaver were able to pull $6 million-plus deals.

Biggest of all was much-hyped startup Friend.tech. Though the amount of its August 2023 seed round has never been disclosed, it was enough to take the firm to a rapturous market reception.

Up to that point, SocialFi had been more concept than reality; a collection of garage-band projects aiming to decentralize social media and give content ownership and revenues back to creators.

Friend.tech made the aspiration real by allowing influencers to tokenize their clout, selling NFT-based ‘keys’ to exclusive content and chat rooms that followers could buy or sell.

Users loved it, until they didn’t. Within a few months, transaction volume cratered and users stopped logging in. Copycat project Post.tech replicated the rapid decline, followed by Friendzy, Friend3, Stars Arena, and Cipher.

Farcaster, another breakout SocialFi hit, managed to stay afloat, but only after an awkward pivot that morphed it into a kind of LinkedIn for crypto insiders.

Friend.tech’s X bot keeps auto-posting ‘top 5 clubs’ updates to nearly 150k followers, but the project’s founders abandoned it in late 2024. Proponents of SocialFi are on the back foot.

Was it just another one of crypto’s periodic speculative frenzies, or was there something to the promise?

The Appeal of DeFi Democratization

Experts say SocialFi’s problem is one that plagues all the various ‘Fi’s from DeFi on down – the limitations of Web3 user experience (UX). Friend.tech offers a cautionary tale.

Launched in August 2023, the platform allowed users to buy and sell tokens linked to accounts on X. As one of the first major projects to be built on Coinbase’s brand-new Base blockchain, Friend.tech was the talk of the town.

A month after launch, the blockchain social media network had attracted a bevy of medium-weight social influencers, including NBA players, esports stars, crypto personalities, and OnlyFans creators.

Daily trading volume reached $10 million in September 2023. By October, more than 600,000 X accounts were estimated to have logged in to the site.

Then something odd happened. After launching the platform’s V2 in September 2024, the project abruptly transferred control of its smart contract to a null Ethereum address, effectively stopping implementation of any new features or updates.

Admin and ownership parameters have been set to 0x000…000 to prevent any changes to their fees or functionality in the future.

This change does not affect the separate web client operated at https://t.co/YOHabcBL3H which will continue to function as is. No fees from either…

— friend.tech (@friendtech) September 8, 2024

It turned out the project had made less than $21 (twenty-one dollars total) in the previous 30 days. Further analysis showed that revenues and user activity had fallen precipitously in December 2023, kicking off a long, drawn-out decline.

Friend.tech’s fall took SocialFi down with it. After peaking at around $50 million in total value locked (TVL) and ca. 400,000 transactions per day in October 2023, the SocialFi sector went into free fall. Figures from DeFiLlama and Cryptokoryo show that TVL dropped by a quarter, and daily transactions fell by 98%.

What killed it? Crypto watchers have noted a botched plan to transition away from Base, the founders’ ties to a previous failed project, and an onslaught of SIM swap attacks targeting end users.

In a post-mortem for Tiger Research, crypto analysts Chi Anh, Ryan Yoon, and Yoon Lee blamed poor user experience and no coherent development roadmap to address it. They stated:

“Lack of new functionalities caused the platform to lose its novelty, and user engagement dwindled rapidly. This stagnation directly affected user loyalty, as the absence of continuous updates led many early adopters to abandon the platform.”

Hope Springs Eternal

Crypto entrepreneur Sergey Sheleg echoed that sentiment in an op-ed last year, noting that seamless UX, something vital to the success of mainstream social media, hasn’t really arrived in DeFi or sub-categories like SocialFi. He wrote:

“Issues around interoperability and the inability to fully translate DeFi theories into on-chain practicality continue to hurt SocialFi’s relevance.”

Despite the DeFi sector’s impressive growth, its decentralized apps (dApps) and protocols are still difficult to use. For all the valid criticisms of Web2, its centralized overseers have managed to make transactions, onboarding, and user interfaces intuitive and frictionless.

Sheleg points to Farcaster’s popular frames feature, which made it easy for users to embed interactive posts. User signups spiked after it was implemented – not enough to reverse the project’s long-term slide, but it suggests UX innovation is the way forward.

Until projects emerge that address the Web3 usability issue – and have the flexibility to continually adapt and improve to keep users engaged – SocialFI will be blocked from crossing the chasm from early adopters and enthusiasts to mass adoption.

The Bottom Line

On paper, SocialFi’s crypto social media mashup should be a no-brainer for Web3. It points to a future where creators of every kind maintain control over their own content, data, and personal brand equity. All of it becomes monetizable depending on the value you create online. The question is: can it ever move beyond niche enthusiasm?

A forecast by Goldman Sachs predicts the creator economy will be worth $470 billion by 2027. Globally, it’s a close-knit group operating with similar aspirations and a shared world view. That sounds a lot like the crypto community. The two sectors should be a natural fit, but until a Web2 interface has been created for the Web3 world, they may struggle to come together.

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