The SocialFi space is currently riding the wave of innovation, with L2 ecosystems like Base leading the charge as containers for this activity. They're streamlining the crypto experience with lower fees and integrated wallets, a welcomed change from past cycles. Tipping tokens stemming from the likes of Farcaster and other crypto-native platforms (Friend Tech, Fantasy Top…etc.) are gaining traction, imbuing digital interactions with tangible economic value.

In traditional (web2) platforms, the value generated within these ecosystems tends to accumulate at the network level rather than trickling down to individual creators. At the network level, benefits are distributed broadly across the entire platform or ecosystem, enhancing its overall utility through network effects. As more participants join and interact, the ecosystem inherently becomes more valuable. For example, integrating creator reward systems akin to crypto SocialFi into traditional social platforms such as TikTok and Twitter would likely result in value accrual at the network level.

This contrasts with object level reward architectures, where value is tied to specific digital assets like tokens or NFTs, and worth is isolated to the asset itself. In crypto SocialFi projects, we’re seeing a balance between network and object level value accrual with early examples  favoring individuals more than traditional platforms have. Still, it’s important to note that if the network-level value accrual centralizes benefits disproportionately (like in some web2 models), then one could argue that crypto SocialFi isn’t fully realizing the potential of a user owned internet. This essay dives into the various levels of value accrual, provides examples of prominent projects, and explores its implications for the future of SocialFi.

Tokens have become the lifeblood of SocialFi, fueling a new economy where engagement is rewarded. In the realm of Farcaster and Lens, tokens like Degen, Higher, and Bonsai are redefining value exchange. These tokens aren't just digital currency; they're a stake in the network's growth. With distribution models tied to network participation, these ecosystems are nurturing a democratic form of participation. It's a stark contrast to traditional social media where user engagement is exploited and rewards are distributed in a more convoluted manner.

Recently, traditional platforms have begun to experiment with tokens and other concepts reminiscent of crypto ecosystems. TikTok's Coin App, launching in Spain and France, rewards users with points for engagement. These points can be converted to gift cards or sent as digital tips to creators, fostering a new economy of attention and appreciation. With the recent “points converting to tokens” meta in crypto, TikTok’s moves could be seen as a soft on-ramp to more robust economic interactions. Meanwhile, X's recent money transmitter license in 25 states signals a more ambitious foray into the financial services space. An X engineer revealed the company’s vision to build a platform where users can not only tip but also store, send, and potentially earn interest on funds held within the X ecosystem. This approach aims to create a self-sufficient financial environment, challenging traditional payment systems by offering a seamless and integrated user experience. For examples that are a bit more “crypto-native”, Telegram's integration of the TON blockchain into the TON-based digital wallet is a case in point. The recent launch of Telegram Business, with its suite of tools for professionalizing personal accounts, hints at a future where $TON tokens could play a central role in streamlining business communications and customer loyalty programs. TON also recently announced instant global stablecoin payments with $USDT in the Telegram app. Similarly, the Basic Attention Token, $BAT, within the Brave Browser is pioneering a model that rewards users for their attention while browsing. Another hint at a future where social media doesn't just connect people, but compensates them.

These programs exist on a wide spectrum of network vs. object level value accrual and vary in terms of their long term value add to users. The extent that these platforms allow for interoperability has to be noted: seamless interactions and transactions across different platforms and ecosystems without needing intermediaries, is important. True ownership and control over digital assets and data can’t be understated.

That said, crypto SocialFi's potential to disrupt the status quo hinges on its appeal beyond the crypto-savvy. Lens, for instance, showcases a remarkable earning potential for users despite a modest user base. Yet, the leap to mainstream adoption is filled with questions. Will non-crypto users, accustomed to free social media, adapt to a culture of tipping and collecting? Traditional content creators might be the bridge, enticing their followers with the allure of direct support and stronger community ties. Subtle intersections are needed to help close this gap. A project called Ham recently introduced a playful twist to tipping tokens on social media. By using hashtags and emojis, users can tip memes on Twitter, integrating crypto tokens into everyday online interactions. This approach simplifies the tipping process and embeds it into a platform already familiar to millions. A seemingly perfect nudge towards wider acceptance and eventual adoption. Integrating familiar web2 technology and reducing the barrier to entry is already underway with developments like Coinbase’s upcoming smart wallet and integration with Apple Pay, eliminating the friction of adding USDC to wallets.

Successful platforms have identified and leveraged token mechanics that resonate with users, even when the overall product remains in its infancy. Still, there's concern that speculation may overshadow the real utility of these products. To ensure SocialFi's sustainability, we must focus on models that provide genuine value and minimize zero-sum games. Critics argue that the space has become a speculative playground, where the promise of value often outstrips tangible results. To create a sustainable path forward, the focus must shift to zero-sum games where speculation is minimized and genuine value flows through these networks. The challenge lies in striking a balance where value accrues meaningfully at both the network level to ensure network growth and sustainability and the individual level to incentivize and reward users for their participation. The acceptance of tokens in SocialFi will create net-new business models by shifting costs to users through incentives, but they must be balanced to ensure sustainable value distribution.