SocialFi in Crypto: Insights and Perspectives
By Artem Khomenko 200 19 Sept 2023
SocialFi merges the world of cryptocurrency by integrating social network applications with the decentralized finance (DeFi) sector.
In essence, SocialFi represents decentralized social networks built on the blockchain or harnessing its technology. This allows users to engage more freely in online spaces, connect with other members, and monetize their content and audience through cryptocurrency.
Today, we'll provide a comprehensive overview of the SocialFi sector and the top applications that offer earning opportunities.
Main Features of SocialFi
Contemporary SocialFi apps are grounded on the following tenets:
- Information on the platform remains constant and is eternally preserved. This means personal data can be adjusted, but not erased since the blockchain records details in consecutive blocks.
- Each user has the latitude to generate any content and capitalize on it through native tokens or external assets, either minted or added.
- The trajectory of SocialFi is heavily intertwined with the broader evolution of the Web3 space and its societal assimilation.
SocialFi in Crypto
Employing blockchain technologies and smart contracts not only amplifies autonomy over one's details but also fosters a growing appetite for cryptocurrencies as they meld into applications.
Moreover, the reach of SocialFi isn't restricted to emerging apps; it can encompass prevailing platforms. For instance, developers from X (Twitter) and leaders like Elon Musk have recurrently signaled their intent to embed DOGE within their framework, envisioning it as both a transactional mechanism and a gratuity system. Mark Zuckerberg's Meta is predominantly aligned with the metaverse, while Telegram has recently enriched its messenger capabilities with a cryptocurrency wallet.
In essence, tokens and digital currencies provide an avenue for erecting a decentralized payment apparatus in social networks, steered solely by app participants and adaptable to multifaceted objectives.
Advantages and Drawbacks of SocialFi
The key strengths of SocialFi lie directly in the fundamental principles of its apps. These encompass decentralization, user control, and the ability to monetize content. Additionally, thanks to the integration of cryptocurrency technologies, users can safeguard their privacy without the looming threat of third-party exposure.
However, there are certain challenges associated with SocialFi, which currently impede its rapid expansion:
- Technical Complexity: A significant majority, around 90%, of SocialFi users primarily belong to cryptocurrency communities or have had prior experience with digital assets. For newcomers who distrust cryptocurrencies or don't grasp their workings, embracing SocialFi might be a stretch.
- Price Volatility of Cryptocurrencies: The inherent volatility in token prices and digital assets means that SocialFi participants can face potential financial losses when engaging with these apps.
- Loss of Anonymity: Several SocialFi projects, like DeBank and Friend.tech, necessitate the disclosure of personal identities, as remaining anonymous on these platforms defeats their purpose.
- Scam Vulnerabilities: Users could be at risk from a gamut of cryptocurrency-related frauds, from smart contract hacks to phishing attempts, extortion, and a range of other cyber threats.
- Regulatory Hurdles: Most countries currently lack a comprehensive legislative framework for cryptocurrencies. As a result, regulatory agencies, whether it's the SEC or its European counterparts, might have reservations about the operations of SocialFi platforms.
Many of these challenges are expected to be mitigated as cryptocurrency and the wider Web3 industry achieve mainstream adoption.
Top Social Finance Projects
According to CoinMarketCap, the SocialFi sector boasts a market capitalization of $500 million. Leading the charge are platforms like Mask Network, Decentralized Social, Artificial Liquid Intelligence, CyberConnect, and XCAD Network.
CoinGecko presents slightly different data, showcasing projects such as Theta Network, Hive, Steam, and Galxe in its top five apps. It's important to understand that these projects, while connected with specific activities in other apps and user interactions, don't function as comprehensive social networks.
Several SocialFi applications don't have their own tokens, so they aren't listed on the aforementioned analytical platforms. For example, Friend.tech allows users to purchase shares of influencers and celebrities, in return offering the chance to interact with them directly.
Currently, the Total Value Locked (TVL) for Friend.tech stands at $32 million, as per the analytics platform DeFiLlama. This metric has surged more than six-fold in just two weeks of September, with the volume of generated transaction fees reaching $160 million.
Other noteworthy projects in the SocialFi sphere include DeBank and Lens Protocol. On our website, there are detailed articles about how to navigate and benefit from each of these platforms.
There are various ways to profit from the SocialFi sector:
- Content Creation: Produce and market your own content, NFTs, and tokens. This approach is particularly feasible for influencers and public figures with significant audiences.
- Investment: Pour funds into SocialFi assets to benefit from their potential price increase.
- Platform Engagement: Use SocialFi platforms to potentially receive retroactive airdrops, especially if a project launches its token.
Each strategy has its inherent challenges. It's vital to manage potential risks and comprehensively study a project before getting involved.