What is SocialFi?
SocialFi combines the principles of social media and decentralized finance (DeFi). The SocialFi Platform offers a Web3 (decentralized) approach to creating, managing, and owning the content generated by social media platforms and their participants.
At the heart of SocialFi are applications for content creators, influencers, and contributors. These users want more control over their data, their freedom of expression, and their ability to monetize their followers and engagement on social media. Monetization is typically done in cryptocurrencies, but identity management and digital ownership are powered by non-fungible tokens (NFTs).
These platforms are structured as decentralized autonomous organizations (DAOs) better suited to prevent centralized censorship decisions. With the rapid growth of blockchain technology in recent years, SocialFi infrastructure can handle the throughput required for social media interactions.
Challenges of Web2 social media
More than half of the world’s population, 58.4%, spend an average of 2 hours and 27 minutes on social media every day. However, the attention, interaction, engagement, and data generated are monetized by a few centralized entities and their shareholders. This discrepancy in incentives led to one-liners.
“If the product is free, you are the product.”
We have also seen many examples of centralized decision-making, where platforms prohibit content creators from speaking on certain topics. It exists to protect against certain submissions, but it would be in the spirit of Web3 if a decentralized curation process was introduced.
His third challenge for Web2 applications is the ability to track digital ownership and ownership. This is especially important for creators and artists who share their work online. Lack of digital ownership opens loopholes for digital piracy if poor controls are in place.
Another drawback of the Web2 platform is the inability to monetize brand equity. In most cases, influencers who have created their brand can indirectly monetize their brand equity. But the social following and credibility they build on their social media platforms don’t directly translate into bank funding.
Can SocialFi solve this problem? What is SocialFi? How does it work? Let’s delve deeper into these questions in the sections below.
Building blocks of SocialFi
SocialFi shakes up the social media industry by sticking to the spirit of Web3, which is just a decentralized social application. It focuses on solving key design problems with aspects of the Web2 social media platform as we know it today.
Some notable SocialFi projects are:
Let’s take a look at some of the key aspects that SocialFi tries to get right compared to its Web2 counterpart. It also helps us understand why SocialFi is so popular.
Fair management of incentives for all stakeholders is a core design principle of Web3 applications enabled by the DAO model. SocialFi apps take this one step further with the concept of social tokens or in-app utility tokens.
In the DeFi and GameFi worlds, utility tokens are often used to drive the in-app economy. SocialFi has a social token that represents the third tier of the economy. These tokens can be created at the user level as well as the application level. Creators can now control their economy through social tokens.
A user with significant brand equity can have their token. For example, Elon Musk could have his token and a mini economy around it. The value of tokens is directly proportional to the social influence of users. Therefore, Elon Musk’s tokens will be valued higher than regular users who are creating social media profiles. So let’s see what determines the value of social tokens in this model. Underlying this model are some basic design principles:
- Only users holding the creator’s social token can interact with the post. So, in this example, if you want to interact with Elon Musk’s posts, you’ll need to keep his social tokens in your wallet.
- If you want to attract the attention of influencers, having the most social tokens will allow your message to appear at the top of replies.
- Creators and influencers can set a threshold to allow followers with a certain number of social tokens to message them directly.
- Artists with a large following can create a subscription model with social tokens for those who want premium access to create their content. When a user wants to like or share another user’s content, it costs money.
The economic model will be tested on some of the key principles for monetizing the engagement of SocialFi participants. These principles reduce spam and increase true engagement because spam costs money, but most importantly, they help creators and influencers monetize their brands.