[DeBox Research Institute] Author: @0xCryptoUni; @SylviaOU1; CryptoMing | Date of writing: October 23

Summary

  • Finance, entertainment, and social networking are all tracks with huge money-making effects in web2. Defi Summer in 2020 has set off a bull market, and GameFi in 2021 has also made the market even hotter. With the success of DeFi and GameFi, web3 entrepreneurs will naturally think of SocialFi, and capital has also smelled the social potential in web3 and continues to bet on this track. However, SocialFi is still in a very early stage, with problems such as insufficient infrastructure, bottlenecks in user growth, and insufficient user stickiness. This article uses several representative projects to briefly sort out the current development of SocialFi, hoping to find ways to tap into potential SocialFi projects.

  • SocialFi, as the name implies, is social + finance, allowing users to earn tokens through social behavior. Monetary incentives and the narrative of data ownership can easily attract the attention of web3 users to the SocialFi track. So is SocialFi simply moving social networks to the blockchain?

  • It is not as easy as imagined. In addition to its financial attributes, SocialFi is different from traditional web2.0 social platforms in that it is built on the underlying infrastructure of Web3.0. Therefore, the architecture of SocialFi is completely different from that of traditional social platforms. The underlying layer of traditional social platforms is generally a centralized server, while SocialFi, due to its decentralized characteristics and the need for data privacy, includes decentralized storage, decentralized computing, decentralized privacy, etc. The middle layer of traditional social platforms is generally a database and various middleware, and above that is the application layer, while SocialFi does not have a standard architecture. The underlying layers can be the protocol layer, the public chain layer, the middleware, or the application layer. This architecture is also called an open social stack.

1. SocialFi Infrastructure

Let's first look at the infrastructure layer of SocialFi. First of all, for decentralized social data, decentralized storage is necessary to truly guarantee the ownership and privacy of data. Currently, representative projects in the decentralized storage track include IPFS, Arweare, etc. However, IPFS and Arweare are not designed specifically for SocialFi, so they do not consider the real-time changes of social data and data query requirements, and are not suitable for the distribution of large data streams. As a result, projects that specialize in solving the problem of dynamic storage of decentralized social data have emerged, such as Ceramic Network.

Figure 1 Ceramic Network Functions

Ceramic Network is a decentralized data network that provides computation, state transitions, and consensus for all types of data structures stored on a decentralized network. Ceramic provides the right framework for dynamic, decentralized content through stream processing, enabling developers to build with dynamic information without a trusted database server. Through the data stream network, information streams and changing files can be stored directly on the decentralized network and updates can be shared with anyone in the world. It enables the transformation of static data (such as data on Filecoin or arweave) into dynamic data.

It is worth mentioning that Ceramic achieves data composability across applications through a new abstract concept called data model, similar to data Lego. This abstract data model unifies the storage method of similar applications and can retrieve the status of each user on the network. For example, decentralized Twitter can run on several shared data models: one data model for users' tweets, one for social graphs, one for private messages, and so on. By adopting the same underlying data model, applications can natively interoperate with the same data.

Financing information: On February 16, 2022, 3Box Labs, the core developer of Ceramic, announced the completion of a $30 million Series A financing, led by Multicoin Capital and Union Square Ventures. Together with the $2.5 million in the seed round, the total financing is $32.5 million.

In addition to Ceramic Network, the infrastructure track also has Tableland, which solves the problem of high cost and small capacity of EVM smart contract data storage. Tableland solves this problem by designing a data layer that includes on-chain tables and off-chain tables. The on-chain tables include access control logic, and each set of tables is represented by NFT, so that NFT owners can have data control permissions.

2. SocialFi social graph

The biggest feature of social data compared to other data is that it is a complex and intertwined social relationship network, which is called a "social graph". In the traditional web2 world, social data between major social platforms is not interoperable, forming multiple data islands and repeated social graphs. However, in the decentralized world, social data belongs to the user, not to any platform. Therefore, for web3 social networking, users should have control over the data and be able to interact with the desired applications at any time. In order to express the social data of web3 users, social graph protocols such as CyberConnect have emerged.

CyberConnect is a decentralized social graph protocol that helps Dapps guide network effects and build personalized social experiences by building web3 social graph infrastructure. With Cyber​​Connect, users can use their digital assets, on-chain identities, and social graphs to roam across different Dapps and games on Web 3.0 without giving up control to any centralized party.

The Cyber​​Connect protocol is publicly accessible, and Dapps developers can leverage user connections to expand additional functionality to their existing user base, but only users can fully control (add, delete, and update connections) their own social graph. The protocol is not bound to a single blockchain, but supports connections from all blockchains. And the project adopts a decentralized governance and token incentive model, and its token is $CYBER.

Cyber​​Connect uses a tamper-proof data structure, where each piece of user-centric data is represented as a data stream, and only the data owner is allowed to update it. Cyber​​Connect collaborated with Ceramic to release the first version, using Ceramic's mutable data stream storage system. Ceramic's blockchain anchoring and Cyber​​Connect's custom data pinning service ensure long-term data retention. Designing a user-centric user table, all social graph information is placed in a user table, and only parties with the decryption key can read the encrypted data. Cyber​​Connect's social graph data is stored as a one-sided connection, and only the list of followers is stored in the user table.

After solving the data storage problem, the data search problem also needs to be solved, so CyberConnect also designed a data indexer. The indexer can easily retrieve the follower list and restore the other party's follower list.

Figure 2 Link3 interface

In addition to the social graph infrastructure, CyberConnect also develops some related social products, such as CyberChat, a trustless Web3.0 chat application for all blockchain users, and Link3, an information and link aggregation service built on the CyberConnect social graph protocol. In the personal version, various social platform identities, links, profiles, education, and Web3 information (wallet addresses, NFTs, etc.) on and off the chain can be aggregated into one homepage. The Link3 Event Planner tool, which was newly launched in September, held 128 AMAs in less than a month.

Financing:

The seed round raised US$10 million, led by Multicoin Capital and Sky9 Capital, with participation from Animoca Brands, Draper Dragon, Hashed, Zoo Capital, Smrti Lab and Mask Network.

Animoca Brands and Sky9 Capital jointly led the round with $15 million in Series A financing, with participation from Delphi Digital, Protocol Labs, IOSG Ventures, Tribe Capital, GGV Capital, Spartan Group, Amber Group, Polygon Studios and SevenX Ventures.

In addition to Cyberconnect, representative social graphs also include Lens Protocol, a Web 3.0 social protocol created by the Aave team. This protocol allows anyone to create non-custodial social data profiles. The user's homepage is minted as Profile NFT, and social data such as following, favorites, and forwarding also become NFTs with different attributes. Composability helps developers use Lens to build their own social applications.

3. SocialFi social credentials

In web3, in addition to using social graphs to express users' social behaviors, there is also a web3 native form, which is on-chain credentials represented by NFTs. Common examples include POAP (Proof of Attendance Protocol) and OAT (On-chain Achievement Token), both of which are used to indicate that users have participated in an activity.

At present, the most well-known voucher project is Galxe (formerly known as Project Galaxy). There are many cooperative projects in it, and each has released its own tasks. The address that completes the task can obtain NFT or OAT. The tasks of these projects may be to follow retweets, join Discord, or interact on the chain, learn to use the application, or other customized tasks of the project party. The project party can flexibly choose the activity type and adjust the difficulty of the task according to its own needs.

Galxe's success at this stage lies in meeting the needs of users, project parties, and platforms: users get NFTs and even token airdrops, event project parties get publicity and user education, and the platform also gets profits and user growth.

Not long ago, after Binance launched BAB, Galxe also launched the Galxe Passport as a universal identity proof for users across various applications in Web3, and emphasized the ability to store identity information securely and anonymously. Applying for a Galxe Passport requires KYC certification, and the passport obtained will exist in the wallet in the form of SBT (Soul Binding). It can be seen that the project party wants to aggregate all the user's on-chain achievements through Galaxy ID in the next step to form a more authentic and credible on-chain portrait.

However, this practice has caused a lot of controversy. Binding offline identities with online wallets may violate the anonymity requirements of the web3 world. There are also risks of loss and impersonation. In addition, centralized KYC collection is contrary to the user's right to self-verification of data in web3.

Financing: In January 2022, it completed a $10 million financing, led by Multicoin Capital and Dragonfly Capital, with participation from Spartan Group, Sky9 Capital, Coinbase Ventures, Binance Smart Chain Growth Fund, C-Squared Ventures, Lattice Capital, Mirana Ventures, Folius Ventures, Solana Ventures, Jump Capital, Alameda Research, etc. On February 17, 2022, a public offering of 10 million GAL was conducted on CoinList at a unit price of $1.5.

In addition to Galxe, other representative social credential projects include POAP, RabbitHole, etc.

3. SocialFi’s decentralized communications

From the user's perspective, the most common demand for social interaction is interaction, so decentralized communication is particularly important. You can open your phone and see if the most commonly used social application is WeChat? In the web3 world, addresses represent users, and decentralized communication solves the problem of interaction between addresses. Representative projects include Satellite IM, Debox, etc.

Satellite IM is a decentralized peer-to-peer communication platform that protects data privacy. Users can sign, encrypt, broadcast, search and store documents or messages through secure authentication without worrying about losing this data.

Figure 3 Satellite IM

Satellite IM's initial core desktop application is designed to be an alternative to mainstream messaging platforms, allowing people to easily message friends, conduct video chats, and send large files quickly and efficiently, while still being able to control their own data. Its infrastructure leverages IPFS for decentralized file pinning and storage. Built on an encrypted peer-to-peer network, the platform will support 4K video chat and streaming, lossless audio, and 4GB file sharing capabilities. In addition, Satellite IM's platform is open source, allowing developers to customize or build their own code based on it, thereby continuously improving functionality. Satellite IM is currently in early access, and its mobile native app Uplink is scheduled to be released in the fall of 2022.

Financing status: On August 11, 2022, it completed a US$10.5 million seed round of financing, led by Framework Ventures and Multicoin Capital, with participation from Solana Ventures, IDEO CoLab, Hashed and Pioneer Square Labs Ventures.

DeBox is a community management tool based on DID, which provides many practical functions for the community. The application interface looks very similar to WeChat. The more eye-catching feature is that when a user holds a certain token, he can join the DAO of the project corresponding to the token. After entering the community, he will be able to see the user holding ranking based on DID. When the user sells or transfers the token, he will automatically exit the community (DAO). Since the users in the community are all token holders, the credibility of the information is increased. The group chat also includes commonly used community management tools, including proposals, voting, finance, capital management, transactions, lotteries, contract tools, etc. Debox has also launched a flash room + voice service function, similar to Twitter's space, which enriches the chat function while also helping to attract community traffic.

Figure 4 DeBox

The project plans to gather the first batch of seed users and OG users through NFT. Then attract more communities and KOLs through the practicality of community management tools. The first phase of the project released 10,000 guardian NFTs, a cute little penguin, which has the following functions:

DEBOX deep governance and PFP exclusive identity; enjoy DeBox and other project airdrops; enjoy DeBox Foundation investment income; unlock DeBox pop-up room and other advanced features;

The second phase of the Guardian Eagle NFT will also be released soon. The functions of NFT include:

Genesis NFT honors; receive DBX airdrops; receive airdrops from the Debox Foundation; support pop-up chat space and other functions.

The project token DBX has a total issuance of 1 billion, of which the foundation holds 55%. It will be unlocked linearly over four years. It will be used to incubate DeBox ecological projects, and the foundation's income will go to all DeBox Guardians Pass holders and all unlocked DBX holders.

Financing information: On July 28, 2022, TokenPocket announced that it participated in the seed round of the project, the amount of which is unknown.

4. SocialFi’s content distribution

In addition to real-time interaction, users' social needs also include content distribution. Unlike traditional web2, web3 content distribution can be decentralized, which requires some effort in the design of the economic model. Representative projects include BBS network.

BBS Network aims to be a decentralized Reddit that supports content sharing and rewards creators, curators, and other stakeholders with its own native token. Anyone can create a BBS on any topic and run it on their own domain (e.g., [email protected]). Each post is actually an NFT, and users can create, buy, sell, and collect revenue from advertising space on posts they own. The revenue generated by the platform is shared among all BBS ecosystem participants in a fully automatic, transparent, and market-driven manner. Advertising revenue is automatically distributed to post publishers, content curators, and moderators, financially rewarding contributing members and encouraging healthy community solidarity.

Figure 5 BBS

BBS Network utilizes a predictive model that enables community members to promote posts using the reputation they have earned from participating in the BBS and accurately predicting post visits. When promoting a post, users must use the reputation they have earned to predict how many visits the post will receive. Accurate predictions earn higher reputation, while inaccurate predictions lose reputation. Using predictions of posts to determine potential popularity within the community provides a unique and manipulation-resistant method of content management. In addition, BBS Network also performs fraud detection through the DAO approach.

The native governance token of BBS Network is BBS. BBS is used to pay advertising fees and earn revenue. 50% of BBS is used as mining rewards, and 20% is used for liquidity provision and staking rewards.

The incentive mechanism of BBS Network can make moderators willing to manage the forum well, and at present, there is still continuous content generated every day. However, the user growth is relatively slow, and there are fewer high-quality forums.

Financing information: On December 7, 2021, Binance Labs led a US$1.5 million seed round of financing, with participation from DCG (Digital Currency Group), Polychain Capital GPs, Node Capital, NFX and DAO Maker.

In addition to BBS Network, content distribution, as a traffic entrance for social applications, has spawned many applications, including: Rally, ShowMe, whale, etc. related to creator economy; Orbis, Torum, Deso, etc. that want to be decentralized Twitter; mirror, a decentralized content publishing platform; and various X to Earn projects, such as ReadOn and Readem related to Read to Earn.

5. Final Thoughts

In short, socialfi is currently in its early stages, and there are many problems in terms of infrastructure construction, user numbers, and user stickiness. For social networks, there needs to be a process of quantitative change to qualitative change. When the user scale grows to a critical point of explosion, network effects will be generated. Although one of the great benefits of web3 applications is that the addition of financial attributes can reduce the difficulty of cold starting a project and give users a reason to enter, it also brings side effects: the project has a short survival time. Since the growth of the number of users will have bottlenecks, as early participants leave the market for arbitrage, the money-making effect of latecomers will gradually decrease, the popularity of the project will gradually ebb, and there is a possibility of entering a death spiral. Web3 entrepreneurs are also well aware of the harm caused by this Ponzi attribute, and are racking their brains to design various complex economic models to extend the survival time of the project and accumulate users in a healthier way.

For a SocialFi project to be sustainable, there needs to be people who are truly willing to pay for the social behavior of users, rather than relying solely on latecomers to pay. However, since the number of web3 users is more than an order of magnitude lower than that of web2, advertisers are not very willing to place ads in web3, and the knowledge payment method faces the problem of lack of high-quality content. Some SocialFi projects that were very popular in the early stage have also become quiet, such as Monaco.

Socialfi is built on a decentralized network. The requirements of privacy and security will inevitably limit the development of application usability. This also requires developers to make some trade-offs. How to make users willing to tolerate gas fees and interaction efficiency for the privacy and security of their data is a question worth studying.

Although SocialFi had many problems in its early stages, investors still favor it. The reason is probably to seize the initiative. After all, when a SocialFi project has a scale effect, it will be more difficult for other projects to surpass it. You can pay attention to those SocialFi projects that are still working on this track, constantly optimizing, and iterating technology in the bear market. They gradually accumulated users in the early stage when users were scarce, and they are steady and hopeful to usher in an explosion when the next heat comes.

Original link: https://mirror.xyz/0xdebox.eth/VZdaT_YXelYoH9Eu-2dAktaknGDNH_p6pgDwRE7jXk4