SocialFi: Exploring Social Business Model Innovation

SocialFi is reentering the zeitgeist after FriendTech popularized financializing a user's social activity by attaching a tradable token (”key”) to the user in August 2023. Now, with FriendTech V2 and FantasyTop launching last week, the sector is receiving another moment in the spotlight. FantasyTop has already seen multimillion-dollar volume days and Friend.Tech has seen $40 million in volume for its new Clubs feature. This comes as Farcaster approaches daily active user highs and new social apps raise eight-figure seeds.

The innovations within SocialFi can largely be bucketed into two major categories:

• Social Primitive Substrate — Farcaster provides the base tooling for identity, posting, wallet relationships, and general application integration patterns via Frames and Actions. This breaks apart the prevailing tech stack associated with social apps and allows anyone to build interconnected apps on top of the same base tooling and social network leading to more efficiency and experimentation.
• Financialization — Friend.Tech and FantasyTop attach a tradable component, such as an NFT or token, to familiar social activities and existing profiles. Other users can thus speculate on the creator’s future activity or attention. In turn, creators earn a portion of the speculative trading activity enabling them to capture a new form of revenue not present in traditional social platforms.

Both innovation areas bring true business model innovation which is historically an indicator of a lasting trend versus a flash in the pan. Financialization, in particular, can potentially change the way social activity is monetized broadly, especially in a world where we continue to hit records in the amount wagered in speculative uses. It adds a new speculation-value-capture revenue stream to the traditional creator revenue surface area currently consisting of subscriptions and sponsorship revenues, which are power law distributed towards creators with larger accounts. With the current monetization frameworks, small to medium size creators do not have a viable avenue to earn a living. For example, nearly 98% of creators on YouTube would not earn enough from the platform’s ad revenue share program to meet the US poverty line.

The reason why only large accounts are able to earn a livable wage from social activity largely has to do with the advertisement-based business model of the platforms and the power dynamics of mega platforms. An ad-centered model favors predictability and of course, relies on large audiences to prolificate sponsored content and ads. This business model thus results in new accounts having little to no earning power from their online presence.