Introduction

Earlier this year, Twitter axed third-party apps without warning. A few weeks later, it removed free API access — its cheapest package now costs $42k per month. What’s the solution you ask? - DeSoc is here but not fully yet, let’s explore

The real value of platforms like Twitter and Facebook comes from their social graphs. While features such as Clubhouse spaces, Snapchat stories, and TikTok short-form videos are just commodities, platforms with weak social graphs tend to discourage users and face a downward spiral.

Twitter introduced many of its innovative features, such as pull-to-refresh and image embedding in tweets, through third-party clients. Similarly, Facebook experienced a similar cycle of innovation when it was open access, enabling apps like Zynga, Buzzfeed, Pinterest, and others to utilize Facebook’s social graph and newsfeed for distribution, that’s the power of having an open social graph but as seen with Twitter and others, centralized Social Platforms are not the way to go.

The Social Graph should be in the hands of the user and user only. Decentralized social networks (DeSoc) aim to give users more control and value from their social graphs. By removing rent-seeking practices and encouraging competition, these networks can provide better products and features, benefiting users overall.

In this article, we are going to see one of such promising DeSoc protocols named Farcaster delving all through its architecture, ecosystem, GTM and at the last doing a whole Crypto-Asset Valuation in the case it launches a token.

Protocol Architecture(farcaster)

Farcaster is a sufficiently decentralized protocol developed by Merkle Manufactory that is built on top of the Ethereum L1 blockchain where the L1 manages user identities which is fully decentralized thanks to Ethereum, while the protocol utilizes an off-chain peer-to-peer network to propagate updates between its users, known as Farcaster Hubs which are centralized.

Farcaster IDs and Ethereum address ownership are managed through Farcaster's Ethereum contracts, ensuring that identities are decentralized and secure. Users link their Farcaster IDs (FIDs) to an Ethereum address, known as the custody address. Once an FID is claimed, the protocol does not allow anyone to reclaim or revoke it.

In Farcaster every user has 2 id/namespaces named primary and secondary where the primary namespace is fully decentralized, meaning once you register an ID (e.g., @918392), it cannot be taken from you. However, the secondary namespace, which governs handling disputes and is stored on the hubs off-chain, can remove inappropriate or falsely registered handles (e.g., @jeffbezos).

An account can choose between two kinds of usernames: Offchain ENS Names: free and controlled by Frcaster. (e.g. @nitin) Onchain ENS Names: costs money and controlled by your wallet. (e.g. @nitin.eth)

To maintain messages on the Farcaster network, accounts must pay a rent fee. This rent helps prevent spam. Users can rent storage by making an on-chain transaction to the Storage Registry. Currently, renting a unit of storage costs $7 for a year and allows an account to store a set number of messages of each type(comments, likes, posts etc.)

The other unique thing in Farcaster protocol which differentiates it from other DeSoc’s is the consensus mechanism implemented in the off chain storage using the hubs, which takes on the theory that social networks don't need perfect ordering like blockchains where a single transaction order can dissolve the utility of the underlying blockchain, little harm is done if Alice’s posts show up in your feed before Bob’s.

Farcaster’s consensus model - the deltagraph - uses CRDTs, which can reach consensus without coordination but do not guarantee a global order.

A deltagraph is made up of deltas, which are the atomic units of change(like increase in the number of posts, likes etc.). Deltas are stored on nodes, servers that accept them from users and forward them to other nodes.

The deltagraph organizes deltas into sets and graphs. A set maps to something a user can do, like posting a message. It will store deltas related to that action and enforce rules. A graph is a collection of sets that belong to a user.

Distinct Features(Farcaster)

Account recovery is a feature available on Farcaster that isn't commonly found in other decentralized social networks (DeSoc), though it can be complex for average users to understand.

Proposing protocol changes on Farcaster involves upgrading all hubs to support these changes, similar to other open-source projects.

A notable feature on Farcaster is Frames, which are interactive elements like pictures and buttons that reveal more content when clicked. This interaction allows tracking of user engagement and can tailor the experience based on social graph data.

Users can issue keys to allow apps to post messages on their behalf. Typically, users provide a key for each Farcaster app they use, with keys managed through the KeyRegistry contract.

Clients and Apps Ecosystem

On Farcaster, there are Warp Cast(native client by Merkle), Supercast(signup with email only, share access), yup, paragraph, bountycaster, launchcaster, alfafrens etc. This list includes many clients and also many Dapps(bountycaster, launchcaster, alfafrens) built on top of Farcaster Social Graph which is not seen in Lens till now.

Many of the above clients and Dapps are quite innovative and not mere copy of other clients like in Lens but the problem stays that apart from some unique utility based Dapps(bountycaster, launchcaster) all others are only farmed by Airdrop farmers and then left barren.

Memes/Tokens/Local Economy

The Based Summer Event by Coinbase significantly boosted user adoption of Farcaster after its full release in October 2023. This event also introduced novel token distribution methods that were new to the space, although Lens is catching up with similar practices.

Some token distribution methods seen on Farcaster include:

• Social Distribution: Also known as allowance tipping, this method involves giving users voting power to allocate capital or resources. It's a way to reward contributors to a project. However, this approach faced issues with Sybil attacks, and there are concerns about sustainability when token reserves are depleted and how to address the lack of tipping.

• Rounds.wtf: Developed by Nouns co-founder @seneca, this mechanism distributes rewards based on community contributions. Rounds allocates grants retroactively through Frames, where community members post memes and receive small ETH rewards at the end of each round, which can be claimed through the Frames interface.

Some Notable Social tokens on Farcaster are $DEGEN, $TN100X, $NOUN and on Lens there is only a single big token used in tips that is $BONSAI, there is a lot of way to go for these tokens to be sybil resistant.

GTM(Farcaster)

Farcaster is adopting a strategy reminiscent of early Twitter, where various private clients introduced new features before Twitter itself did.

Its go-to-market strategy is focused on curating a tech-savvy Western community, including individuals from Web2, Web3, and venture capital sectors. Targeting tech enthusiasts is a strategic move, as they are typically early adopters and more likely to engage with and contribute to open-source protocols.

This approach has already fostered a vibrant developer community, with numerous applications utilizing Farcaster’s social graph. A similar dynamic to what Instagram and Vine introduced to Twitter a decade ago could emerge within Farcaster's ecosystem.

Pro/Cons(Farcaster)

Pros

Farcaster focuses on fostering high-quality conversations by charging users for their profiles, which supports the Hubs and ensures user commitment. The platform serves as a "boiling pot" of diverse interests, topics, and languages.

Farcaster also allows content categorization, which helps users organize and manage different types of posts more effectively. This feature enhances the ability to curate one's social media presence.

Cons

However, Hubs on Farcaster have a size limitation for the delta graph, capped at 64TB.

In contrast, Lens offers a more straightforward approach where users own everything and have the ability to destroy or burn content if needed.

Improvements that can be done(Farcaster)

This situation is similar to Clubhouse using Twitter or Instagram's social graphs at launch, like how Farcaster could leverage existing social networks.

Merkle will need to demonstrate its credibility in maintaining neutrality, as both the protocol and its main client are currently developed by a centralized team. VC backing might also impact perceptions of its neutrality.

Additionally, Merkle's first-mover advantage and early knowledge of protocol developments could lead its default client to overshadow third-party clients.

The main concern is how Farcaster will decentralize over time. It’s important to make it easier for developers to run Hubs and ensure third-party developers can compete fairly with Warpcast.

Current State of Affairs

Farcaster’s centralized structure allows it to swiftly adapt to user feedback, iterate quickly, and achieve product-market fit. Its robust architecture is designed to scale for millions of users, and Merkle’s venture capital backing offers valuable financial and networking support for growth.

Early experiments on Farcaster include creating higher-quality feeds and gating communities based on users’ NFT collections.

Initially, Farcaster’s gradual, manual onboarding process helped build a strong community culture and deter bots, ensuring high-quality interactions and content. However, this changed with the public launch of Warpcast, which attracted influential Twitter users who engaged in pump-and-dump activities, as seen with social tokens like $DEGEN and $HIGHER.

Farcaster is fostering the development of tokenized games, prediction markets, and tools for better data aggregation. These innovations hint at a promising future, as evidenced by emerging platforms like Launchcaster.

But there is a problem in the adoption cycle i.e., a recurring pattern is observed where financial capital inflates the value of underdeveloped assets, creating a bubble. This effect is especially noticeable when retail investors pour in excitement over new technologies and speculative financial activities. However, the pace of actual product development is slower than the speed of speculation and the expectations surrounding new technologies.

In the case of Farcaster, this discrepancy highlights the gap between the rapid financial hype and the slower, more deliberate process of technological innovation.

Crypto-Asset Valuation of $CAST token

Decentralized social (DeSoc) protocols can either use tokens for governance or remain decentralized without them, similar to ENS and Uniswap versus Linux and Android. The choice between these approaches for DeSoc protocols will be influenced by their ability to capture market share from Web2 social networks. If they struggle to gain traction, a token-based model might become inevitable.

For example, Farcaster might consider launching its own chain and move all off-chain hubs there and integrating a token in the future to enhance transaction facilitation, governance and incentivize participation.

We’ll use the equation of exchange which is MV = PQ, and when applied to crypto the interpretation is:, we’ll solve for M, assume V to be 6 and derive PQ from some no.

M = size of the asset base V = velocity of the asset P = price of the digital resource being provisioned Q = quantity of the digital resource being provisioned

I’ll be using Chris Burniske and Brett Winston crypto-asset valuation model for this, before we delve in the model some of the things I have left out for a simple model are 2 rounds of funding Farcaster has gone through(30m at unknown valuation, 150m at 1b valuation), tokenomics distribution between foundations, VCs, lockup time etc. cause they are much redundant to talk about this moment cause of no token announcement from Farcaster till now, so let’s start crunching some numbers then shall we

End-market fundamentals

First, some inputs which are shown in the picture below

The values are specific to the social media market that the $CAST token is targeting. We'll assume that Farcaster will steadily generate transaction volumes at a fixed dollar rate per hour, mostly from advertisers paying a $7 user storage fee (which may change over time). These transactions will happen through micro-transactions as Farcaster shifts its storage from offline to on-chain, once the costs of both become similar.

I have taken most of the input data-points(social media hours spent, total advertisement budget on social media) from reliable sources such as Statista and assumed the rest.

The initial numbers such as Internet, total social media users, usage of social media per day are also taken from statista.

By multiplying social media users by hour-per-user by spend-per-hour we yield total spend on all of social media. This represents the total addressable market for the protocol in question.

Adoption curve

Overall, DeSoc protocols and applications are still in the innovator's stage of the adoption curve. This means they are primarily being explored and adopted by early enthusiasts and pioneers rather than by the mainstream market.

I've modeled adoption based on the idea that the protocol will follow a diffusion curve. The key inputs that shape this adoption include the protocol's launch year, the year it reaches the early-adopter stage threshold, the time it takes to be fully adopted by mainstream users, and the total market share that the decentralized social network is expected to capture.

I have set the saturation percentage quite low at 10% cause the GTM for Farcaster is to engage crypto-native audiences which will increase over the years but I don’t think it would get adopted as a general purpose social media site easily.

Network fundamentals

This adoption curve is multiplied with the total addressable social media hours and transactions to estimate overall network engagement and the yearly total value of transactions expected to be recorded on the blockchain.

Since most crypto-assets have a predetermined token supply schedule, I’ve assumed one here as well. The tokens are expected to become available in 2025, considering the significant valuation raised. There’s a row showing the total number of tokens in circulation (including those held by the developer team or network foundation), along with another row for the annual inflation (or deflation) rate of the tokens.

Together, these values define the core mechanics of the protocol. According to the model, by 2030, Farcaster will have just under 110 million tokens in circulation, facilitating approximately $3 billion in annual transactions.

Utility value

At its most basic level, the network’s value is determined by the value of tokens held in user wallets to support the network’s transaction flow. We refer to this as Network Utility Value (M), which is calculated by dividing total transactions by User Velocity (V).

In simple terms, each end-user on the network spends about $3.75 per month (or $45 per year), with advertisers covering this as a transaction fee. If each user keeps $7.5 in their in-network wallet to facilitate these transactions, the User Velocity of the network is 6x, meaning the $7.5 is held aside to enable the $45 in annual spending. Without a shorting mechanism, a network's value should never drop below its Utility Value. To find the Utility Price, you just divide the Network Utility Value by the total number of tokens in circulation. The Utility Price can be considered the minimum value or valuation floor of the network.

But how do we define the valuation-ceiling?

Investor value

Some tokens will be held by investors who don't use them for transactions but instead expect their value to increase over time. For many crypto-assets, especially those without a working product, all holders are investors, and the network's value is driven by their expected returns.

Investors seek a return on their investment over a specific time frame, needing to be compensated for the risk of holding the asset. This is captured by the investor's discount rate (7%) and the time horizon for selling the asset (5 years). For example, an investor might expect the Utility Value of a token to reach ~$5 by 2030, so they buy it today for ~$4, anticipating a 7% annual return over 5 years.

This approach defines the network's value based on what a first-order investor, who only anticipates future utility, would be willing to pay for a token. However, investors also consider what others might pay in the future, creating second, third, and even fourth-order investors, each layer basing their valuation on the previous one.

The token's price should reflect the highest amount any potential holder would pay. According to the model, this token would be priced around $22 in 2025, $30 by 2030, and $43 by 2035 as it matures.

Ultimately, of course, this model is a simple one, intended to illustrate some of the key drivers of token valuation.

What this model does not capture, however, is almost certainly the most important feature of any prospective network: the vision and talent of the underlying developer team and some heavy weight assumptions I did on the token launch, movement of deltagraph storage to be on-chain, various metrics involved in the inflation/deflation rate of the token such as lockup period.

At the end some tid-bids I found, curated across articles and personally think should be done for any DeSoc protocol to be mainstream are yapped below

What DeSoc need to be

The core issue with SocialFi apps is their heavy dependence on financial incentives. As these incentives wane, user engagement often diminishes, leading to a decline in participation as airdrop farmers leave and only Sybil accounts remain.

While monetization boosts revenue for creators, most users don’t initially think about financial gain when they start using a social app. For them, social media is more about interaction and content than financial rewards.

Although speculation and financialization are intriguing aspects of SocialFi, they shouldn’t be the primary selling points. The real value proposition should focus on social innovation and new use cases to drive growth and engagement.

DeSoc platforms seem promising as the future of social networking, but they face a significant challenge: practical utility. While they have the potential to rival Instagram and Twitter in entertainment value with the right network effects, they currently offer little beyond decentralization ideals. Some potential experiments to enhance practical utility include:

• Web3 Social Graph Ads: Using zero-knowledge proofs (ZK) to protect privacy while delivering ads based on the social graph.

• Tokenizing Intellectual Property: Creating practical use cases by tokenizing content IP(see Story Protocol)

• Attention Economy: Transitioning from purely financial products to those that engage users in the attention economy.

These SocialFi protocols struggle with social capital, as attracting genuine contributors without incentives is challenging. Incentives come in two forms: tokens (revenue) and the public audience. The latter is hard to cultivate because users are often driven by financial gains, making it difficult to shift to new platforms without significant incentives.

Building social platforms that enable Key Opinion Leaders (KOLs) to directly reward their communities could create a powerful flywheel effect for social capital growth, reminiscent of the acceleration seen in Ponzi schemes.

Spam and bots are common across social media, but crypto addresses’ financial history can serve as an effective filter. Users have established their social networks and status on existing platforms, and switching to new ones without substantial incentives can be challenging, as seen with Bitcloud’s failure due to lack of differentiation.

On the other hand, platforms like Warpcast embrace Web3 ideals of ownership and decentralization, aligning well with these concepts.

The value of a network grows as more people join and use it. Therefore, new networks initially have minimal value, making it difficult to attract and retain early users. Even once a niche community is established, expanding that base to reach a broader audience presents a significant challenge.

The future is close as one of the standout features on Farcaster is its seamless in-platform commerce, allowing instant checkouts for items like T-shirts and cookies without leaving the platform. This removes friction from the purchasing process in a way that one-click checkout services, which lack social feeds, could only aspire to. Additionally, this setup provides precise attribution that marketers find highly desirable.

Farcaster should focus on delivering unique product experiences rather than simply replicating existing networks. Offering innovative features that don't currently exist is much more compelling than creating a mere clone of established platforms.