With over half of the world’s population currently using social media platforms on a daily basis for an average of two hours, the influence of this still-emerging business on society is now evident. Social media has completely changed the way we interact and live. For better or worse, it has fundamentally altered our culture and even the wiring of our minds.

Web 2 behemoths like Meta (Facebook), Twitter, Google, etc. dominate the social media market at the moment. The sector has been successfully monopolized by these enormous, concentrated entities, leading to services that don’t always serve customers’ best interests. An emerging trend called SocialFi, however, might pose a threat to the established quo.

With the advent of Web 3.0, SocialFi promises to liberate users from the limits of traditional social media. It allows them to experience new benefits and freedoms ranging from data privacy and censorship resistance to full control over the sharing and monetization, if any, of their personal data.

What is SocialFi?

SocialFi, an abbreviation for “social finance,” is a phrase that refers to the combination of social networking with decentralized money (DeFi).

SocialFi is essentially the next evolutionary stage in blockchain-based social media. It takes advantage of all the blockchain’s features while also introducing non-fungible tokens (NFTs) and DeFi services such as yield farming.

Similar to decentralized autonomous organizations, SocialFi platforms can be partially owned and managed by their users, as community tokens allow individuals to vote on proposals and decide the destiny of the project (DAOs).

Unlike traditional social media, which stores all the data on a single server, SocialFi networks distribute the data throughout a network of nodes, and everyone who helps maintain functionality is monetarily rewarded. Because there are fewer data breaches and single points of failure, overall security is enhanced as a result.

Financial benefits are another significant advantage that SocialFi platforms have over traditional social networking. Users and content creators can gain financially directly from producing and sharing material. Tokenization of social influence means that users are given meaningful incentives to publish high-quality material that will gain traction.

To further grasp what SocialFi is, we need to analyze the present social media issues as well as the possibility for blockchain solutions.

Challenges of Web2 social media

Every day, 58.4% of the global population spends an average of 2 hours and 27 minutes on social media. However, the created attention, conversations, engagement, and data are exploited by a few centralized corporations and their stockholders. Because of this misalignment of incentives, the one-liner “If the product is free, you are the product” has emerged.

We’ve also seen plenty of instances of centralized decision-making when platforms prohibit content creators from discussing particular issues. While these mechanisms are normally in place to safeguard the larger user base from harmful posts, a decentralized curation method, if one exists, would be more in line with the Web3 concept.

The capacity to track ownership is the third problem that Web2 apps have faced. This is especially important for creators and artists who share their work on the internet. However, a lack of digital ownership creates loopholes for digital piracy if adequate safeguards are not in place.

The inability of Web2 platforms to monetize brand equity is another issue. Most influencers who have built their own brand are able to monetize their brand equity in indirect methods. However, the social following and credibility they have built on a social media platform do not translate straight into cash in the bank.

How does SocialFi work?

SocialFi functions as a platform for monetizing material, allowing individuals complete control over their online identity, ownership of personal assets, and privacy. In contrast to social media, it provides a decentralized, open, and user-controlled ecosystem.

You can only commercialize content on social media, but the SocialFi platform provides a more immersive experience in which you can have your own social token that can be utilized and regulated at your discretion. You can earn money for every interaction you have on your post.

To enjoy the content you generate, your followers must purchase your token. The more popular you become on the network, the more people will want to collect your token in exchange for access to your content.

If you build a sufficient user base, you can even use a subscription model to commercialize on a much greater scale. It is up to the creator to reward their fans and followers for participating in any social activity hosted on the site.

SocialFi ecosystem: What is SocialFi building?

SocialFi is destined to disrupt the social media market by adhering to the Web3 ethos, which is essentially decentralised social apps. It focuses on resolving key design concerns related to characteristics of Web2 social media platforms as they are known today.

Let us go through some of the important points that SocialFi tries to achieve in comparison to its Web2 equivalent. That would also explain why SocialFi is so popular.

Monetization and Incentivization via Social Tokens

Attracting a new source of revenue is never a terrible idea, especially when you can earn some incentives while doing so. By introducing the notion of social tokens and in-app utility tokens, SocialFi has truly broadened the social media experience.

The concept is comparable to GameFi and is paired with DeFi, both of which have previously used utility tokens to drive in-economics. In the case of SocialFi, social tokens are an extra function that is in charge of governing the platform’s economics.

These tokens are accessible not only at the application level, but also at the user level. Simply put, the platform does not own the tokens, but artists can select how their tokens will be used by their fans and followers.

Creators can manage their own economies and content using social tokens. It should be noted that not all social tokens are equal in value. Every user with considerable brand equity has their own token, but not every user is legitimate enough for their token to be in demand among the community.

The value of the token is determined by the user’s social clout. Some celebrity tokens, for example, will be in higher demand than a regular user token with no fan following. As a result, celebrities’ tokens will be more valuable than average users’.

Social tokens are based on the following criteria:

• Only individuals who possess a creator’s social token are able to engage with and interact with their work. This means that if you want to interact with a celebrity post, you must have his or her social token in your wallet.
• If you happen to have the most of an influencer’s social token, your message will appear at the top of the answers. As a result, fans and followers can gain access to their favorite superstars or creators.
• SocialFi networks also give producers better distribution options for broadcasting their work. An artist can choose to split the sale revenues with their social token holders. As a result, it provides an incentive mechanism for the artist’s followers to promote their NFT collection. This strategy has the potential to enhance sales of NFT artworks.
• The impressive utility of social tokens is that creators and influencers may set thresholds that allow fans with more than a particular quantity of their social tokens to directly approach them.
• A subscription model can be created by creators, artists, influencers, or any public figure with a large following. Their fans and followers can use social tokens to purchase memberships and gain VIP access to their creative content.
• It costs money for a user to interact with someone’s material by liking, commenting, or sharing it.

Because even texting will cost some social tokens, this monetization system will encourage genuine involvement while simultaneously reducing spamming. Above all, it will assist creators and influencers in more effectively monetizing their brands.

Censorship and freedom of speech

Most Web2 social media services have battled with this difficult and subjective problem space. On the one hand, we do not want centralized censorship, but on the other hand, we do not want bad content to be transmitted globally without any controls. The balance is somewhere in the middle.

SocialFi platforms rely on decentralized curation via on-chain data labelling. On-chain are all publicly available posts on a SocialFi platform. As a result, this on-chain data is available for rules engines to analyze and categorize messages fast based on the topic and the nature of the words used. It is up to the nodes on the chain to select the appropriate posts.

Every node has the option to engage with some labels while blocking others. A node could face legal action if it decides to interact with and support a detrimental post. As a result, what must be permitted within the network is not at the discretion of a central authority or a small team within a central organisation. The individual is in charge, which also makes them responsible.

Digital ownership and identity

Picture for proof (PFP) NFTs have given rise to a brand-new type of digital identity. This $18 billion market’s catchphrase has evolved to be “I am my ape and the ape is me.” PFP NFTs are groups of NFTs that NFT owners have an emotional bond with, such as the Bored Ape Yacht Club, Moonbirds, and CryptoPunk.

The owners of these NFTs are rather proud to use them as their Twitter and NFT profile images. Some PFP NFT holders view these NFTs as their identity, while others are rapid flippers. These NFTs foster an emotional bond between the holder and them.

While emotional identification is a vague idea, NFT is intended to provide proof of ownership. As a result, if a user wishes to build a SocialFi profile, they may use their NFTs as their profile photo and just connect their wallet to verify ownership of their NFT.

In addition to the identity aspect, PFP NFTs grant members of specific SocialFi communities unique access. These groups might provide their NFT holders thought leadership, events, experiences, or even early access to investments. This is already being done in Discord groups, but SocialFi may also offer this feature.

Additionally, NFTs on SocialFi platforms give producers the ability to showcase their work. The owners of the social tokens that an artist uses to launch their NFT collection can split the sales revenue with them. This establishes a system for encouraging the artist’s fans to spread the word, potentially boosting NFT collection sales.

Finally, by pressing a button, a message that feels like a “once in a lifetime moment” can be instantly transformed into an NFT. Due to the nature of the beast and misaligned incentives, many of these functionalities do not exist and cannot be provided so smoothly on Web2 platforms.

SocialFi Challenges

So far, SocialFi sounds fantastic in every way. There are no utopias, though. What exactly is SocialFi, and what obstacles might stand in the way of it upending Web2’s social media model? Hopefully, there will be some resistance to putting SocialFi’s beliefs into practice.

Scalable Infrastructure and Throughput

First, as blockchain technology improves, SocialFi has to manage the higher throughput required by social media interactions. The good news is that by utilizing sharding, warp sync, and other technologies, SocialFi chains can boost throughput.

Sharding and Warp Sync

Sharding allows for parallel processing, which increases throughput by orders of magnitude. Warp sync enables transactions to be validated without requiring all nodes to validate the whole transaction history. With these enhancements, SocialFi’s processing power might be increased to 80 posts per second for a four million user base.

Even if such numbers are accurate, they pale in comparison to the Web2 behemoth Twitter, which processes 6,000 posts every second across 300 million users. Similarly, Meta receives around 500,000 comments per minute, and roughly four million platform posts are “liked.”

Can SocialFi blockchains possibly support such a high volume of users?

Sustainable Economic Model

To develop a viable economic model, SocialFi teams are still experimenting with incentives on a limited scale. These models, however, require more stress testing across multiple market cycles before they can be branded dependable enough to withstand black swan events and other market abnormalities.

The Challenge of Influencer Collapse

Another potential issue that must be addressed is the prospect of an influencer imploding. Nobody knows when or if a social media influencer will burn or upset a powerful group. It only takes one stupid post to spark a big desertion.

Social media flourishes in echo chambers, where herds of individuals march in lockstep with little tolerance for criticism. As a result, when a group turns against its previous hero, groupthink, and bandwagon mentality can swiftly set off a chain reaction of losses that can spread to other communities and crash other related social tokens. Furthermore, social token holders caught in the midst of a firestorm may incur huge losses if they do not sell their tokens before the herd. Once the avalanche of negative public opinion begins, there may be no buyers for the social tokens.

Short Selling Social Tokens

People who are unsure of what SocialFi is can also worry what a negative scenario could have on it. One such scenario might arise if strong short sellers purposefully undermine an influencer to cause the value of their social token to plummet. Price fluctuations would depend on how far short sellers would go to undermine the value of a social token.

Bottom lines,

Twitter and Facebook/Meta have already made use of blockchain mechanics like verified NFT profile images, their own cryptocurrency wallets, and NFT marketplaces.

However, SocialFi will go a step further and establish itself as the new method for making money from actions like posting photos, gaining followers, or even getting messages, likes, and comments.

Additionally, it will give a more beneficial user experience, safeguard user data, and share advertising revenue fairly. Despite the fact that the biggest social media sites currently have blockchain capabilities, SociaFi’s financial component will require whole new platforms and applications to empower consumers.

It will be interesting to watch how SocialFi combines distribution mode, asset protection, monetization via token model, and community management all on one platform, which has emerged as the next venture for tech giants to invest in.