In the era of digital transformation, where traditional interaction models are undergoing radical changes, the concept of SocialFi has emerged, opening new opportunities for social interaction, making profits, and managing content.
Let’s delve into what SocialFi is and how content creators can monetize their products in the Web3 space.
What Is SocialFi?
SocialFi, or social finance, is a blend of decentralized finance (DeFi) and social networks. At its core, SocialFi is built on DeFi platforms where users not only interact and create content but also receive rewards in the form of tokens.
SocialFi’s core principles are:
- Decentralization. The absence of centralized control, freedom from censorship, and transparency of processes within the platform.
- Governance. Any content is owned by its creator, and governance token holders can make decisions regarding the development of specific projects.
- Rewards. Such platforms offer economic incentives for users, rewarding activities such as content creation, likes, comments, or participation in platform governance.
History of SocialFi Development
The first projects combining social networks and decentralized finance began to appear with the active development of blockchain and cryptocurrencies in the mid-2010s. One of the first SocialFi projects is considered to be Steemit, launched in 2016. The developers used cryptocurrency as rewards for creating and promoting content on the platform. This project was the first attempt to implement the SocialFi concept.
With the advancement of blockchain and the growing interest in DLT systems and cryptocurrencies, the number of SocialFi projects began to grow rapidly. Currently, according to CoinGecko, there are more than 70 platforms, each offering unique features and functionalities. As of August 13, 2024, the total market cap of SocialFi stands at $2.27 billion.
For more details on the types of SocialFi platforms, their features and functionalities, and the most successful and major projects, read the special article by the CP Media team.
Differences Between SocialFi and Traditional Social Networks
SocialFi projects differ significantly from traditional social networks in several key aspects.
Here are the main differences:
| Aspect | Traditional Social Networks | SocialFi Platforms |
| Governance | Centralized control by a single company | Managed by users through decentralized autonomous organizations (DAO) |
| Monetization | Companies earn from advertising and paid services | Users are rewarded for their activity |
| Censorship | Administration blocks accounts, restricts topics, and removes content unilaterally | Decisions are made collectively, giving users more freedom of expression |
| Identification and Tracking | Users’ identities are often easily determined, as services do not offer a high level of personal data privacy | Access is often via digital IDs, allowing for online anonymity |
| Ownership | Users have no direct rights to their content beyond posting it on the platform | Content ownership is often supported by non-fungible tokens (NFT) |
How to Monetize Content Through SocialFi Platforms
The primary advantage of SocialFi platforms is their ability to enable users to monetize their content. There are various ways to achieve this, including:
- Rewards for posts. On some SocialFi platforms, users receive cryptocurrency for creating and publishing content. The level of reward increases if the content becomes popular and gets positive feedback from the community.
- Tips and donations. The model of rewarding content creators, familiar from traditional platforms like Twitch and YouTube, has successfully transitioned to the decentralized environment. Many SocialFi platforms allow users to support creators by sending them tips or donations, but only using digital assets.
- Subscriptions and premium content. Another traditional mechanism for rewarding creators is charging for access to exclusive content. This is also available in SocialFi via cryptocurrencies.
- NFT content. SocialFi platforms enable the tokenization of original content in the form of NFTs, which owners can then sell on NFT marketplaces.
- Liquidity pools and staking. Some SocialFi platforms offer users the opportunity to invest their tokens in liquidity pools or participate in staking, receiving rewards in the form of interest from the invested assets. This approach allows users to increase their assets even if they don’t create content.
Prospects for SocialFi Development
The SocialFi sector is in its early stages but already shows significant potential, attracting the attention of users and investors. Besides, the development of artificial intelligence (AI) and machine learning technologies contributes to the creation of more personalized SocialFi platforms, greatly increasing their popularity as an alternative to traditional social networks.
Another crucial factor in the development of the SocialFi ecosystem is integration with other decentralized apps and services, gradually forming a more cohesive Web3 space. The symbiosis of various decentralized projects simplifies interaction processes for users and diversifies the ways to earn cryptocurrency for free.
Main Drawbacks of SocialFi
Despite its promising potential and several advantages over traditional social networks, the development of SocialFi faces several significant challenges, including:
- Security. As part of the DeFi ecosystem, SocialFi relies on blockchain and smart contracts, whose security largely depends on the developers’ expertise and the budget allocated for security audits. One of the largest known exploits of SocialFi platforms occurred in October 2023, when a hacker managed to steal $385,000 from FriendTech users.
- Government regulation. The legislative framework regulating the use of cryptocurrencies and blockchain varies significantly between countries, and in some, it’s entirely absent. Legal uncertainty is one of the obstacles to the development of the SocialFi sphere.
- Stability of economic models. SocialFi projects imply financial motivation for users, but the sustainability of tokenomics remains their weak point. Moreover, the economic stability of SocialFi platforms directly depends on the fluctuations in the value of native tokens and the overall crypto market.
- Scalability. As the number of users and the volume of generated data grows, SocialFi platforms face the problem of scalability of the underlying blockchains. The efficiency and speed of SocialFi platforms directly depend on the development of DLT systems.
The key issue with SocialFi projects is their novelty. Most platforms are in the development and testing stages, which means they operate unstably and undergo constant updates. Even the existing audience of Web3 projects isn’t well-informed about the benefits of SocialFi platforms, leading to skepticism and continued use of traditional social networks.
To summarize, SocialFi projects represent an evolution of social networks based on the principles of Web3 technologies. They offer economic incentives and a completely different level of control over the digital environment where social communication takes place. In the future, SocialFi projects could become the foundation of a global digital social ecosystem, where every user owns their content, can directly participate in platform governance, and maintains a high level of personal data privacy.
