Web3 and Social media

The core goal of Web3 is to restore ownership and control of data to individuals rather than centralized agents. This shift in philosophy has profoundly impacted areas such as payments and multinational finance. However, the transition from Web2 to Web3 could dramatically affect how social networks operate:

• Users can freely control their data without relying on intermediaries from organizations.

• Costs incurred can be minimized because there is no need to use intermediaries' services in transactions.

These ideas were the genesis of SocialFi - a Web3 version of social networking platforms.

What is SocialFi?

SocialFi, short for Social Finance, is the fusion of social media and DeFi. It is considered the social network revolution of Web3, where users take control of their content instead of relying on centralized powers operating the platform.

SocialFi empowers content creators. They can be as creative as they wish and enjoy greater control over their data, unlike current Web2 platforms. Additionally, users on SocialFi have numerous opportunities to earn money through interactions and engagement without any restrictions on monetizing content.

On SocialFi platforms, content creators, including influencers and participants, seek freedom of expression, data control, and the ability to earn money and interact on social media. Monetization typically occurs through cryptocurrencies, while NFT assets drive digital identity and ownership management.

The Context Behind SocialFi's Emergence

The DeFi market is saturated

The DeFi market has reached a significant size and is becoming saturated. As of now, DeFi has entered a saturation phase, prompting the emergence of SocialFi as a new development for the market as a whole. This motivates the entire market to attract more users and expand into new areas.

Overcome limitations of Web2 Social Media

SocialFi is a solution to address the limitations of Web2 Social Media platforms.

Every day, over half of the world's population, 58.4%, spends an average of 2 hours and 27 minutes on social media. However, the attention, interaction, engagement, and data generated only benefit a few centralized entities and their shareholders.

There have also been many cases of centralized decision-making when platforms censor content creators discussing specific topics. While these processes often aim to protect a broader user base from harmful posts, decentralized management processes, if any, would be more suitable for the nature of Web3.

The third limitation that Web2 applications face is digital ownership rights and the ability to track ownership. This is particularly important for creators and artists sharing their work online. However, the lack of digital ownership rights creates loopholes for copyright infringement if adequate controls are not in place.

Another shortcoming of Web2 platforms is the inability to monetize brand assets. In most cases, influencers who have built their brand can indirectly monetize their brand assets. However, the social media following and trust they have built do not directly translate into money in the bank.

SocialFi integrates DeFi features and utilizes social tokens to enhance user engagement and motivation.

The community participating in Web3 is increasing, and there is a need to share more content

Ultimately, the growth of the Web3 participating community also plays a crucial role in making SocialFi a new trend. With increasing participants and a growing demand for content sharing, SocialFi offers them a decentralized way to control their assets and data on social networks.

SocialFi is a further development movement from the social token trend

In March 2021, the Social token trend was first mentioned, sparking enthusiasm with numerous projects like Rally, Bitclout (DeSo), and others. Social tokens enable influential brands, organizations, and individuals to launch their tokens to represent themselves, enhancing community interaction and delivering value through token features.

While SocialFi doesn't necessarily require the involvement of Social tokens, the social aspect of Social tokens can drive the development of SocialFi projects and lay the groundwork for more active engagement within the Web3 community.

Unpacking SocialFi's Popularity

Open and adaptable data

Traditional Web2 social networks operate based on complex data networks called "Social Graphs." These graphs map users' relationships, interactions, followings, preferences, etc.

Web 2.0 social platforms are private systems where hosting companies own or control all data and behavior analytics. Users need to gain ownership or control over this data, which results in the frequent disconnection of social networks from other platforms. Therefore, users' identities and experiences may never be connected across social media platforms. Users must start over to rebuild their connections and social histories to use new platforms.

Meanwhile, SocialFi aims to establish a foundational layer where users' social media data is transparent, permissionless, flexible, and, most importantly, under their control. This model, known as "open data," allows users to seamlessly engage with new applications built on the same social network without encountering these duplicative issues. Anyone using a Web3 Social platform can bring their data to any application.

An example to illustrate "open data" more clearly: We can observe the emergence of open data in current Web2 social media applications such as Meta (owner of Facebook and Instagram), which launched Threads, allowing users to instantly follow and connect with their Instagram friends upon signing up. However, Meta still controls and manages user data on Instagram and Threads. This may impact users and, particularly, creators when platforms change monetization models, moderation, or revenue sharing.

Huge potential for new combinations

The SocialFi platform is built on blockchain technology and is highly compatible with other smart contracts and protocols. This open data architecture enables developers to integrate seamlessly with Web3 Social protocols and applications, such as connecting users' chain histories to populate their social profiles, displaying their owned NFTs, and enabling them to tokenize content and posts into NFTs for sale. Web2 social media platforms cannot do this due to each platform's singular nature.

Integrating with open data also allows developers to combine their social platforms with protocols from DeFi apps, metaverse games, DAOs, NFTs, and everything in between.

Facilitate community building and development

The blockchain infrastructure serves as a powerful tool for connecting people toward common goals. In recent years, we have witnessed the rise of token-powered communities, exemplified by instances such as:

• Bidding for the United States Constitution (ConstitutionDAO)

• Voting for DeFi protocol governance (Uniswap, Safe, Maker, Gnosis)

• Investing in digital art pieces (e.g., PleasrDAO)

• Building social clubs around NFT collections

Integrating innovations like Dynamic NFTs with emerging SocialFi protocols will elevate these experiences to new heights. This can be further enhanced by incorporating real-world data into Web3. For example, certifications, purchases, and more relevant relationships can be instantly established with new relationships and commerce emerging.

Anti-Censorship and Property Rights

Freedom of speech is paramount for social media platforms, although it should be limited to a certain extent with ethical and societal standards. With traditional platforms' power and control over our data, they have absolute authority to regulate what is displayed on the platform and remove users at their discretion. Users have no choice but to accept it.

A recent case of platform censorship was revealed after Elon Musk took over Twitter (now renamed "X"). A series of internal Twitter documents showed how the company's app-controlled information on the platform at the government's request or information they deemed unsafe.

These examples demonstrate that in traditional Web2 platforms, users never genuinely own their identities, accounts, and, in some cases, their voices. SocialFi addresses this issue to some extent. Applications built on SocialFi protocols can still moderate content. However, users retain full ownership and can leave one app and move to another while keeping their data. The core principle here is that users are not locked into a specific app, and whenever they want, they can abandon a social media app and move to an entirely new one, taking all their data with them.

Why is SocialFi important?

SocialFi applications are revolutionizing the social media industry by combining the power of social networks with the decentralized nature of Web3. Here are some key benefits of SocialFi:

Decentralization

Traditional Web2 platforms are highly centralized, storing all data on a single server. Large tech companies monopolize control over user data, privacy, interactions, and monetization.

SocialFi eliminates these intermediaries and empowers users with complete control over their network. Its decentralized nature means users have better control over their earnings and data. Distributing data across different web nodes also reduces the risk of privacy violations by eliminating a single point of weakness often found in central servers.

Content control

SocialFi balances between censoring objectionable content and allowing harmful content to circulate online. By decentralizing data on the blockchain, SocialFi platforms employ content moderation tools to manage public posts. Users on network nodes can then choose whom to interact with and block, giving them responsibility for approving harmful content. As a result, SocialFi grants content creators more freedom of speech.

SocialFi acts as a bridge between personal branding, content creation, and business in the decentralized digital age. It promises a fairer, more transparent, and equitable social media ecosystem where everyone is recognized, rewarded, and has control over their online presence and interactions.

Make money on SocialFi.

The SocialFi network offers various ways for content creators and followers to earn money. Users have the autonomy to decide which content to monetize.

For example, creators can use their tokens to control who can interact with their content. Users must own these tokens to participate in interactions, reduce spam, and encourage high-quality content. Ultimately, this can generate high income for influential individuals on social media.

Additionally, creators can earn money based on their follower count and level of interaction. They can sell exclusive products or NFTs to generate income.

Advantages and limitations of SocialFi

Advantages

For the Social Network projects

For social network projects, SocialFi offers the following benefits:

• Creating new revenue streams by integrating DeFi into the platform.

• Enhancing user interaction by creating social tokens representing ownership in the platform or allowing users to participate in decentralized governance to shape the platform's direction.

• Improving security and privacy for social network projects by utilizing decentralized infrastructure solutions such as decentralized storage, identity, and cross-chain messaging.

For Defi projects

SocialFi can provide several advantages for DeFi projects, such as:

• Accessing users who frequently engage in social media but are unfamiliar with financial activities attracts media attention and community interest.

• Creating social features for users to communicate and participate in project development decision-making processes, thereby enhancing the interaction of projects.

For SocialFi users

The development of SocialFi platforms aims to provide users with maximum convenience, empowering users to take control of their information. Additionally, users of the platform enjoy benefits such as:

• Allowing users to access and use various DeFi and social media services on the same platform by integrating different blockchain applications.

• Controlling their data and personal information through integrating decentralized identity solutions and blockchain security mechanisms.

• Enhancing user experience, enabling users to interact and monetize based on the value they share on social media.

Limitations

Complexity

SocialFi platforms can be complex and challenging for users unfamiliar with using decentralized wallets and operations of SocialFi projects on the blockchain platform.

Scalability

Blockchain technology has limitations in the number of transactions that can be processed simultaneously. This can lead to delays and high transaction fees, causing difficulties for users using the platform.

Legal regulations

Many countries still need clear regulations on cryptocurrencies and decentralized finance. This can create challenges for SocialFi projects' operations or pose legal and regulatory risks for users.

Security risks

Ensuring security for SocialFi platforms will be much more complicated than for DeFi or traditional social media projects. This requires consensus from users and project parties to prevent security breaches through vulnerabilities.

Limitation of application

Despite its significant potential, the popularity of SocialFi still needs to be higher due to the lack of support from powerful entities. They have also yet to be applied to create tangible values.

Content control framework

Decentralized social networks allow users to share content without being moderated by any organization. However, SocialFi platforms must also have a regulatory framework to ensure that user-shared content is not infringing, harmful, or inaccurate before being widely distributed in the community.

Principal Challenges Confronting SocialFi

Scalable Infrastructure

Can blockchain handle such a large volume of data? DeSo, a blockchain layer designed for SocialFi applications, claims to have better scalability than most existing layer one chains because they are built for SocialFi platforms. To address scalability, they use indexing, block size management, vertical synchronization, and sharding.

They have claimed to handle 80 posts per second for 4 million users compared to Twitter's 6000 posts per second for 300 million users. This performance is achieved by increasing block size. However, they can also rely on other techniques like vertical synchronization and sharding to increase throughput further.

Warp synchronization provides verified transactions without all nodes needing to verify the entire transaction history. Sharding provides parallel processing capabilities to increase throughput significantly. By using these two techniques, DeSo believes they can scale the platform to a billion users.

Sustainable economic model

The most challenging aspect of the DeFi regime and derivative business models is creating economic models that can be sustained through stressful and exceptional situations. Whether it's GameFi or SocialFi, some platforms promise very high rewards for participants. However, these rewards are currently only short-term growth measures.

Before these derivative business models become market trends, they are rigorously tested through market cycles and black swan events.

For example, if you invest in an influencer's social token to interact with their posts, you face risks when they post harmful content. Harmful content can quickly lead to a depreciation of the social token and create a series of losses for system participants.

In the social media platform, where influencers operate in echo chambers, the increasing losses in an important microeconomic system can easily lead to systemic spread effects.

Summary

Despite facing challenges with infrastructure and economic models, the SocialFi platform still holds significant promise. As the world moves swiftly towards innovative economic paradigms, SocialFi represents a notable advancement in this direction.

For future social networks that integrate DeFi principles, true strength will emerge only after overcoming various setbacks and demonstrating resilience. This principle applies equally to SocialFi. The growth potential is boundless if market conditions persist in supporting progress and investment opportunities in SocialFi projects.

XTech stands as an X Multiplayer Universe, where all X users enjoy the same social experience but with added on-chain features. Join XTech to undergo a complete transformation in how you engage with social media, incorporating Social Tasks, Social Games, and Social Finance seamlessly into your Twitter (formerly X) browsing experience.