SocialFi – From The Very First Step To The Bright-To-Be Future

With the era of Web 3.0, the third generation of the Internet revolution, services utilizing blockchain mechanisms cannot be ignored due to their significant existence.

In 2021, when DeFi (Decentralized Finance) and NFT (non-fungible tokens) attracted a lot of attention, Metaverse began to come into the spotlight. Furthermore, there is a DAO (Distributed Autonomous Organization) in the administrator-absent blockchain platform that supports the Metaverse.

DAO shows the best value of a decentralized ecosystem based on blockchain that does not depend on centralized entities such as governments or large corporations, and the financial mechanism that applies to DAO is SocialFi.

SocialFi can be said to be the newest blockchain service, and as in the first half of 2022, there is still no clear definition of this. However, the concept formation is definitely progressing, and if SocialFi spreads globally, there is possibly a crustal movement that will occur in the monetization method using SNS and blockchain.

What is SocialFi?

SocialFi is a concept that combines SNS (Social Networking Service) with Blockchain and Finance. In other words, it is an SNS platform where individuals can earn money.

Traditional SNS such as Twitter and Instagram have been used as tools for individuals to send various kinds of content. Since those services are provided by administrators of Social Companies such as Twitter and Meta…, profiles, comments, images, and videos have all been managed on corporate servers.

SocialFi makes it possible for users to privately manage those things through a decentralized mechanism that applies blockchain technology in the absence of administrators. In addition to sharing content, it is also possible to monetize with crypto assets by exchanging them.

In other words, the comments, likes, images, and videos that have been posted on SNS until now will become the target of business and will be able to make them assets.

How Was It Created?

The transition from Web 1.0, where the Internet was simply browsed, to Web 2.0, which made it possible to build interactive relationships on the Internet, such as SNS, whose dramatic growth was encouraged by the huge tech companies (known as GAFA).

Facebook in 2004, YouTube in 2005, Twitter in 2006, and other SNS and video sites were launched one after another, and the building of interactive relationships and the formation of communities on the Internet began to spread explosively. Along with this movement, the growth of Amazon, which has built a major global economic zone in e-commerce, and Apple, which has enabled a major digital shift through the development of smartphones, has been remarkable. The market capitalization of only four companies, including Google and Meta, has grown to such a high level that it exceeds the total capital of approximately 2,170 companies listed on the First Section of the Tokyo Stock Exchange in Japan.

And the hidden side of this is the control and utilization of big data focused on personal information by giant tech. With the spread of SNS, the act of monopolizing enormous profits by accumulating and selling profiles, behavior histories, tastes, and preferences data, regardless of the person’s intentions, eventually came under worldwide criticism. Content, retweets, and personal data on SNS are not fully owned by users themselves, and if individuals can freely use these for business purposes, the profits are immeasurable.

Based on the background of such social dissatisfaction and needs, SocialFi was developed as an ideal system that anyone can join in without an administrator and can monetize while managing personal information and content by themselves. So, how can SocialFi help people meet these needs?

SocialFi – The Main Mechanism

DAO is an organization built on blockchains equipped with smart contracts, such as Ethereum, where each member is involved in the operation without a central administrator.

All transactions in DAO are automatically executed by smart contracts and recorded on the blockchain, so it is impossible to view or take any action. DAO members have the right to vote on project policies by obtaining their own community tokens, while earning rewards through staking and trading.

SocialFi mainly adopts the method of converting content into NFTs and exchanging it on a DAO. If you use crypto assets such as Ethereum, Solana, and Polygon, you can link comments, retweets, images, videos, etc. Let’s look at an example to make the story easier to understand.

In 2021, the news that Twitter founder Jack Dorsey’s first tweet in the world was sold at auction for $ 2.9 million (about 310 million JPY) spread all around the world. It was the NFT that made this possible.

NFTs can usually be traded by being listed on a dedicated marketplace. When digital content is purchased with cryptocurrency, ownership is transferred to the buyer and continues to have unique value. In this way, digital art, videos, images, music, and the contents of tweets are traded.

It would be easy to understand if SocialFi is to shorten this process further and buy and sell NFTs as they are within the DAO without using the marketplace. In other words, in the above example, you can not only send comments tweeted on Twitter, but also sell them as NFTs on the spot. Not only that, likes and retweets will also reflect token rewards.

With DAO, there are no administrators, and you can trade using your cryptocurrency wallet address, so your information will not be exploited by anyone, and your data will not be sold without permission. It also has the advantage of significantly lower fees.

Even if YouTube distributes videos, most of the advertising fee is Google’s revenue. However, when SocialFi becomes real, it will no longer be a dream to create excellent content and receive advertising fees directly from companies. With this, SocialFi is sometimes called “Write to Earn” or “Social to Earn”.

Just as celebrities and actors appear in commercials and earn a guarantee, it can be said that SNS will be used to invest in your own content and earn rewards. It is no exaggeration to say that if this business model is established, there will be a major shift in monetization methods using SNS and blockchain.

Related article: Pros and cons of DAO – Next generation organization

Example

One example of SocialFi is “Lens Protocol”, the alpha version of which was just launched in May 2022.

Lens Protocol is a service that allows individuals to freely build decentralized social media networks. It runs on Polygon’s blockchain, and you can develop your own worldview with content such as long texts, music, and games, and decide the distribution range and monetization method yourself.

User IDs work by linking cryptocurrency wallet addresses and NFTs, rather than using real names and email addresses like traditional SNS. Shortly after its release, over 50 projects have already been built on the Lens Protocol.

Future Potential

“Fi” in SocialFi means “Finance”, which means the reason why SocialFi exists is to earn money.

If it becomes possible to monetize through SNS, which was not in the past, it will become an incentive, and we can expect to see the emergence of attractive content that has never existed before, such as valuable texts, epoch-making digital art, and rare videos. If that movement becomes a prime mover, and companies as well as investors actively invest in SocialFi projects, the future will be greatly enhanced.

However, the revenue based on SocialFi is crypto assets, and if the tokens in the service rise, the reward amount will increase significantly, but if it crashes sharply, the remaining revenue will be insignificant. Therefore, it can be said that the unstable value compared to fiat currency is a major concern for SocialFi.

In the case of YouTube, which was mentioned as an example earlier, most of the advertising fees are certainly collected by Google, the administrator. However, content creators are paid in fiat currency, so the value is incomparably more stable than crypto assets.

SocialFi’s examples are still limited, so it’s unclear how much revenue can actually be expected. However, even MANA, a crypto asset that can be used in the NFT game Decentraland, which is popular as a DAO representing the Metaverse, is currently experiencing extreme fluctuations. Even looking at price trends since the beginning of 2022, there are examples where prices have fallen to less than one-third in just one month.

Even Decentraland, which is like a descendant of the Metaverse, which has been attracting worldwide attention after being requested by Facebook to change its name to “Meta” in October 2021, is in this state. Therefore, even if the raison d’etre of SocialFi is recognized, it may take some time before it actually gains citizenship as a method of monetization.

Summary

SocialFi is a noticeable concept as a monetization method that utilizes blockchain, along with “Play to Earn” that earns from NFT games and “Move to Earn” that acquires crypto assets by moving the body, such as walking.

However, at present, the theory is somewhat preceding, and even if the scheme for practical use has been constructed, it is thought that many of them will still take time before they are released. Therefore, future trends will be under tight observation.

At Relipa, we help our customers build blockchain services step by step. If you are considering DX using blockchain, such as NFT, DeFi, and IDO, please contact us.

Relipa exists to enhance a growth mindset for the modern young generation, create a positive, knowledge-sharing environment, and a people-first attitude for all members. By doing so, we provide professional and reliable services to our customers.