In the Web 2.0 era, companies are hijacking information about us. The Internet is embedded in virtually every aspect of human life, and the social media model is based on aggregating and analyzing vast amounts of data about users and the unique content they create. The giant companies that own the leading social networks control the information – and dominate the market, using the accumulated information to generate billions of dollars in revenue. However, Internet users themselves do not benefit from their presence and the media content they create in social networks.

Web 3.0 aims to give us back control. The rejection of centralized corporations is already being implemented in the financial sector, and the first steps are being taken in the information sector. This is the ideology behind the concept of decentralized social media called SocialFi. Let’s take a look at how it works in practice.

The essence of SocialFi

The SocialFi concept has opened up new possibilities for social economy, digital interaction and content management. 

SocialFi (Social Finance) is a technology that combines the idea of social networks with the principles of decentralized finance (DeFi). It is essentially a blockchain-based social network where users can create content and interact while being rewarded in tokens. 

The fundamentals of the SocialFi concept:

In other words, SocialFi allows users to directly participate in social interactions and monetize their activities. This is especially important for writers and influencers who have direct access to an audience. The concept is similar to Patreon or Boosty, where users give exclusive access to their content for a fee. Only SocialFi removes intermediaries and their associated costs from the interaction chain, allows creators to confirm ownership of their own content, and manages the platform according to democratic DAO principles.

The SocialFi ecosystem is the answer, a qualitatively new Web-3 iteration to the existing Web-2 platforms that dominate the social networking landscape today. Like Facebook, X (Twitter), Instagram, YouTube, TikTok and others. Unlike them, SocialFi does not provide trillion-dollar profit opportunities to the corporate owners of the projects, but distributes it to the users of the network in proportion to their participation. Based on blockchain technology, SocialFi adopts all the principles of decentralization: privacy, digital identity, data protection and security.

The main goals of SocialFi are:

Advantages of SocialFi

Let’s summarize the main advantages of SocialFi networks compared to traditional networks:

1. Personal information and content are not stored on centralized servers, at the full disposal of the network’s host company, but on the blockchain, in a distributed registry. In this way, all norms of confidentiality, privacy and data protection are respected. 
2. SocialFi solves the problem of poor quality information that exists because social networks today are heavily censored by companies. Moderators of traditional social networks can dеlete your post, video or ban you for three months at any time without a clear explanation.
3. Users of the network, as members of the DAO, participate in the processes of managing the social cryptocurrency platform and deciding on the boundaries of freedom and censorship in the content posted by users. This is done through voting. 
4. In SocialFi, the presence of bots is minimal, as every action is recorded on the blockchain and requires the payment of commissions. As for traditional social networks — we all know that most of the current topics are simply flooded with comments and posts from bots, against which there are no effective methods yet.
5. It is not necessary to provide detailed personal information such as phone and email, a wallet number is enough. Decentralized platforms do not collect or store users’ personal information.
6. Creators of media content in centralized Web 2 social networks have virtually no tools to track ownership of posted texts, videos, graphics, elements of advertising campaigns, game mechanics, etc. The decentralized platforms do not collect or store users’ personal information. As for decentralized media, this problem is solved by default: authors confirm the rights to their works through the functionality of non-replaceable tokens (NFT).
7. The main advantage of SocialFi is the extensive monetization opportunities through the platform’s social tokens for authors and active users who leave likes, comments and increase the number of views.

Disadvantages of SocialFi

The main problem of the segment is its novelty: most of the projects are still in the stage of development, testing, updates and improvements, and therefore their work cannot be called stable. Despite all their strengths, SocialFi projects face the following challenges:

1. Security threats. SocialFi’s level of protection is directly dependent on the expertise of the developers and the budgets allocated for security audits. The young segment of the cryptocurrency market, which shares all the risks of blockchain technologies, suffers from hacks and exploits. Here, we can recall the most high-profile case of a hacking attack on the FriendTech SocialFi platform in the fall of 2023, when $385 thousand was stolen from network participants.
2. Sustainability of the economic models. SocialFi projects do not currently have a stable tokenomics model. Yes, they offer financial motivation in cryptocurrency. However, market volatility affects the economic stability of decentralized social platforms, and the image of opinion leaders affects the value of tokens. In order to create sustainable economic models, the SocialFi segment must withstand the test of time through several market cycles before becoming firmly established.
3. Scalability. SocialFi’s growth potential is directly dependent on the development of blockchain technologies that address the speed and cost of transactions. At the current stage of the segment’s development, the most advanced solutions like sharding or implementation of Layer 2 tools are not applied in the sphere of social decentralized networks.

Content monetization in SocialFi

Social tokens received for posting content and online actions in the form of subscriptions, comments, reposts, likes and views can be exchanged for other cryptocurrencies or invested in various DeFi projects.

Some SocialFi platforms also have options that allow celebrities, experts and other opinion leaders to issue personal tokens and implement their own rewards economy for fans and subscribers.

Some of the most common monetization methods inсlude:

SocialFi’s development history

The first platforms combining DeFi tools and social networks appeared almost a decade ago, in the mid-2010s. The ancestor of SocialFi is considered to be the Steemit project, which was launched to a wide audience in 2016. It first implemented a scheme where authors and influencers received cryptocurrency as a reward.

The concept was actively developed during DeFi’s heyday in 2021, when blockchain-based financial instruments began to be rapidly implemented. That’s when the segment of decentralized social networks, which combine the possibilities of social interaction with the crypto industry, experienced rapid growth.

According to the analysis portal CoinGecko, at the time of writing there are 75 decentralized social platforms on the market, each with its own token and unique offer. The capitalization of the segment is almost $2.5 billion, with a daily trading volume of about $80 million. According to the DappRadar report, the volume of transactions in SocialFi more than quadrupled last year (by 305%) compared to 2022.

However, despite its rapid development, the SocialFi segment currently represents less than 0.2% of total market capitalization. This means that on the one hand it is still in its infancy, but on the other hand it has a great potential for growth. Judge for yourself: according to analytical data for 2023, the audience of social networks consists of 58% of the total number of Internet users. Each of them spends about 2-3 hours a day on social networking platforms.

Examples of SocialFi projects

Here are the most capitalized of them so far:

Conclusion

SocialFi, as a product that combines social and financial, is a catalyst for creating a new, fair and democratic Internet generation that plays a critical role in the decentralized Web3 ecosystem. The value of people and the products they create will be brought to the forefront, leaving corporate interests behind.

Thank you for your attention. May the time you spend on the Internet bring you income!

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