Centralization exists because it was the simplest way to leverage capital and information to create market opportunities.

Introduction

Since the early 2000s, tech giants like Facebook (now Meta), Twitter (now X), TikTok, Reddit, and YouTube have enabled users to create online opportunities through content. The creator economy is valued at over $155 billion and is expected to surpass $525 billion by 2030. From YouTube stars to Instagram influencers, creators leverage their skills and content to build loyal audiences. Despite enhancing digital connectivity, these platforms' centralized frameworks often limit creators' earning potential and control over their content. Our digital lives have become curated experiences, driven by algorithms designed to captivate and retain our attention. The internet, once a space for exploration, now analyzes, monitors, and commodifies our daily interactions for monetary gains.

From Web2 Struggles to Web3 Success

One of Web3's standout incentives, which is often lacking in Web2, is the concept of engagement rewards. In Web3, users gain rewards by actively participating in activities such as sharing content, posting updates, or using referral codes that provide bonuses, all of which contribute to a rewarding user experience. SocialFi platforms are accelerating this shift by enabling direct, microtransaction-based payments, and fostering adoption through convenient revenue models like pay-per-action or pay-per-view. This approach broadens income potential for businesses and empowers consumers with greater autonomy in their content consumption, offering new opportunities to earn through smaller, incremental transactions.

What does this mean for the average content consumer? While it may not directly impact consumers, who typically aren't focused on earning rewards, it significantly influences the experiences of their favorite content creators. This issue becomes clearer when examining the current challenges facing creators in the Web2 landscape. In Solving The Discoverability Dilemma In The Creator Economy, the author emphasizes, "The largest threat to the creator economy is the growing issue of discoverability. If overlooked, limited visibility for small to midsize creators translates to reduced revenue opportunities and a decreased likelihood of their sustained participation in the creator economy."

Monetization Challenges

Another significant pain point for content creators is monetization. Currently, social media platforms distribute earnings unevenly, often leaving the majority of content creators with meager profits. For example, on Spotify, the top percentile of artists generates a staggering 90% of royalties, making an average of $22,000 per quarter. The remaining creators earn a mere $36 on average. A similar trend can be observed on YouTube. View counts, interactions, and engagements generated by content creators are metrics that platforms rely on to determine monetary rewards. Typically, these decisions are made by centralized entities and their shareholders within Web2. Understandably, these platforms tend to favor rewarding top content creators by boosting their algorithms to generate more revenue, thereby setting a high entry barrier. In contrast, the majority of Web3 projects prefer to adopt a DAO (Decentralized Autonomous Organization) approach. In this setup, users have the power to vote on each proposal and determine the platform's direction by using the tokens they hold as voting tickets, creating a fair and transparent distribution system.

Censorship and Control

Another critical aspect to consider is the contentious issue of censorship. Mainstream social media platforms limit users' control over their data, content, comments, chats, and more. Some centralized platforms restrict content creators from discussing certain topics, while others reduce visibility for content that includes external links. In contrast, SocialFi empowers content creators, influencers, and users who value free speech and enhanced control over their data and privacy. Utilizing zero-knowledge (zk) technology, users can log in without exposing their identities. This approach is particularly sensitive when considering underage users consuming content and the regulatory aspects surrounding it.

Tech Giants Embracing Web3

In response to this new movement, tech moguls are exploring Web3 innovations to attract content creators onto their platforms. For instance:

• Twitter allowed non-fungible tokens (NFTs) as profile pictures.

• Spotify testing NFT galleries on musicians’ profiles.

• Ray-Ban Meta Glasses and Reality Labs, Meta focuses on developing immersive tech, bridging AI with virtual environments for broad user access along with web3 element with their partnerships with Polygon.

These efforts, however, reflect a nostalgic attempt to recreate the internet's early ethos, a space for unmediated discovery and community building. But is this truly decentralized? The centralization of these platforms raises questions about whether they can genuinely uphold the decentralized principles of Web3.

Building on the concept of SocialFi, DeSoc short for "decentralized society" is a term within the crypto space that leverages blockchain technology to create a new standard for digital information and idea sharing. Unlike traditional social media apps that require an email for sign-in, DeSoc apps use a blockchain wallet’s private key signature for authentication. Once signed in, users can share content, follow others, and collect digital goods in the form of fungible and NFTs. Data ownership rests with the user’s wallet, and data is stored in a decentralized file storage system, unlike the centralized data hosting used by giants like Facebook and Twitter. Some DeSoc apps offer data transferability, providing a unified experience across various platforms without the need for new profiles. The architecture of DeSoc apps ensures seamless integration between a user's profile data and their blockchain wallet.

A report by Galaxy Digital analyzed on-chain activity since 2021 across the most popular DeSoc apps, including Farcaster, Friend.tech, and others. It delves into growth strategies fueling DeSoc adoption, particularly focusing on Farcaster, which accounts for over 30% of all DeSoc-related transaction activity in 2024 and recently raised $150M Series A at a $1B valuation with only 80,000 daily active users (DAUs) at its peak and 350,000 signups. Farcaster, the social protocol, invites developers to build other apps called “Frames” on top of it, the most popular app is the social network Warpcast, which is similar to Twitter (X).

Farcaster employs a hybrid strategy by keeping user identities on-chain while storing data such as public posts, follows, and reactions off-chain. Users must "pay rent" to Farcaster to maintain their data storage, currently costing around $7 worth of ETH for 5,000 posts. If a user chooses not to pay, their older posts (referred to as "casts") will be deleted as new ones are made. On-chain transactions are only required for security related actions.

Friend.tech on the other hand had a different trajectory, their V1 generated substantial revenue through the support of KOL. Users can buy and sell "keys" linked to Twitter (now X) accounts, granting access to private chat rooms and exclusive content. Marketed as “the marketplace for your friends,” the platform hosts chat groups where entry requires a purchased key, which users can later resell. This model builds on high profile Twitter users’ past practices of selling tokens for exclusive access, though it sometimes led to legal scrutiny. Friend.tech takes this pre-existing aspect of Twitter and fleshes it out with a set of standardized crypto platform features like airdropped rewards and fee sharing, and requires invite codes to join boosting demand as new users seek access. However, due to high fees, retail users lost money daily.

Optimistically with the launch of their V2 new features like clubs and alluring $FRIEND token in hopes of reviving the platform. Clubs are group spaces managed by keyholders, keyholders elect a president who runs the club, and transactions use $FRIEND with a 1.5% fee. Clubs are similar to a discord channel, engagement farming the users on the platform. The rollout faced confusion and lackluster reception. It appears that users can only claim 10% of their airdrop (provided they follow at least 10 people) and need to join a club to claim the other 90%.

The project’s downward spiral began with the early launch of its token, which has since seen a 90% drop in price. Adding to the controversy, the project team permanently relinquished control over its smart contracts, triggering a 26% price dump within 24 hours. This led to community speculation that the Friend.tech team was exit scamming. An analyst noted that, in addition to creator earnings, the Friend.tech team has also made over $60M in fees, suggesting that the team isn’t entirely hands-off. However, the team has responded on Twitter, denying these allegations, clarifying that no tokens were allocated to the team or investors, and stating that relinquishing control prevents future changes to fees or platform functionality.

There are debates on how the team should have handled the responsibility better in terms of launching the token, user retention, and fee revenue going back into the platform, as it is very common for the community after receiving the airdrop and instantly dump. Ultimately the community did not see value accrue from the fees back to the tokens and the community felt disappointed. The lack of incentives for creators to retain their group are lacking as the value derived from the creator comes from selling Keys which is upfront, leading to a lack of engagement and providing value after the Keys are sold in groups.

Friend.tech is a testament to the ever-evolving nature of technology and society's demand for more control, transparency, and fairness in digital interactions. As developers build more sophisticated dApps and as more users enter the space, we can expect the ecosystem to mature, solidifying its role in the future.

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