This is a preliminary analysis of innovations, opportunities, and challenges in the decentralized social space.
The key challenge of decentralized social lies in the scarcity of reward-worthy content versus the abundance of social media feeds.
In the long term, we will likely see more creator-driven platforms emerging in Web3 to rival and even replace their Web2 counterparts.
Decentralization is an intuitive solution to the scarcity problem by empowering creators to monetize their influence without a centralized platform being the middleman.
The selling point of decentralization in addressing the abundance problem lies in the portability and authenticity of data generated in the social space.
We will likely see more projects emerging in the decentralized social space to combat the current inefficiencies of on-chain credentials by streamlining the issuance mechanism.
Given the natural advantage of centralized platforms in user data collection and utilization, the value proposition of decentralized social networks is ambiguous at the present time, but it might strongly correlate with the overall outlook on Web3 adoption.
Social media platforms are “cash cows” of the traditional Web2 world. By renting users’ eyeballs to advertisers, Web2 platforms run on a monetization model that aims at retaining or even trapping users and their data for greater Average Revenue per User (ARPU) and Lifetime Value (LTV). An emerging trend in the crypto space attempts to correct what is wrong with the Web2 social mechanisms through decentralization. In the Web3 world, users ideally have the opportunity to own their identities, created content, and other social assets generated in dApps and protocols. In this analysis, I will dive into the innovations and challenges in the decentralized social space.
Decentralized social is a conceptual extension of its counterpart in finance. The idea is to establish users’ sovereignty over their own social assets instead of relinquishing them to centralized platforms. “Social assets” can be anything users generate during their digital experience, including connections, content, reputation, popularity, attention, etc. Those social assets have proven their value to be monetized in the Web2 world, whereas in the Web3 context, users are less likely to bear the whims of varying platform policies and regulations. Decentralization can empower users to have autonomy over how, where, and for what purpose their social assets are deployed as well as enable a fairer sharing of platform revenues for creators and average users.
Although the decentralized social space is still at its early stage, there are emerging key players that attempt to address the overall mission from various angles. The social spectrum is currently dominated by Web2 platforms that retain users with high switching costs, which gives rise to the question: What exactly is the selling point of switching to decentralization?
One answer has everything to do with bridging digital social experiences and the hype of cryptocurrencies. Several early innovative attempts in the decentralized social space were about recreating Twitter and Facebook in Web3. Monaco Planet, backed by IMO Ventures and Three Arrows Capital, launched a Twitter-like platform where users who post content and participate in discussions are rewarded with stakes in the form of 1 billion platform-native tokens MONA. Monaco reportedly gained 10,000 new followers per day in November 2021 and more than 100 million wallet addresses in total. A combination of MONA and Rare Yacht NFTs was used for governance and utility purposes. Specifically, users holding Yacht NFTs became eligible for membership invitations and “content mining”—earning rewards by contributing content. Monaco denotes its mechanism as “write-to-earn.” Nevertheless, on November 30, 2021, the price of Monaco’s Yacht NFT in the secondary market plummeted as it announced that only English content mining was supported and only content with “organic creation” could be rewarded. This incident revealed a key paradox in Monaco’s tokenomics: the scarcity of quality content versus the abundance of social media feeds. Aligning user content creation with the concept of mining is a self-contradictory notion. The Monaco platform’s design is inevitably faced with difficulties in measuring the value of each piece of content given their aggregated volume and diversity.
A counterexample of Monaco Planet is Mirror, launched by Denis Nazarov, a former partner at a16z crypto to be a Web3 toolkit for sharing and funding. Similar to Monaco, Mirror also introduced its token $WRITE in February 2021 to gate access to publication on its platform. In addition, existing users can use $WRITE to vote for the entrance of new writers into the community in a weekly showdown between aspiring members. In August 2021, Mirror adopted a referral mechanism through airdropping 302 $WRITE to active contributors so that they can share those tokens with potential new members. This campaign aimed to further democratize writer onboarding and scale-up Mirror’s membership. In contrast to Monaco Planet, Mirror uniquely solves a scarcity problem. ****Acknowledging that quality content creation is a rare, non-fungible resource (unlike “mining”), it enables writers to crowdfund their content through the sale of NFTs. Mirror is reportedly valued at $100 million after its most recent round invested by Union Square Ventures.
Mirror is not a standalone innovation in the decentralized social space. In the long term, we will likely see more creator-driven platforms emerging in Web3 to rival and even replace their Web2 counterparts. For instance, Audius is a decentralized music streaming service governed by its platform-native token AUDIO. In July 2021, Audius surpassed 5.3 million unique users with a market cap of $1.2 billion. Similar to Mirror, Audius enables musicians to be more fairly compensated for their creations and more effectively connect with fans. On the other hand, Highlight is a toolkit for building membership communities on Web3. Highlight enables creators and influencers to gate community access and offer exclusive content using NFTs and tokens. Decentralization is an intuitive solution to the scarcity problem by empowering creators to monetize their influence without a centralized platform being the middleman.
Then what about the data abundance problem in the social space? Centralized platforms have a natural advantage over collecting user data and using those data to improve the user experience and inform search, recommendation, and other utilities. The selling point of decentralization in addressing the abundance problem lies in the portability and authenticity of data generated in the social space. Vitalik Buterin, co-founder of Ethereum, recently launched a whitepaper entitled “Decentralized Society: Finding Web3’s Soul” where he introduced something called “Soulbound Tokens” (SBTs). SBTs are designed to be permanent, non-transferable tokens that allow individuals to verify on-chain their personal identities such as education, work history, certifications, etc. Users can port their SBTs across a variety of dApps to exhibit their verified traits.
Nevertheless, SBT is not the only attempt in the Web3 reputation space. Proof of Attendance Protocol (POAP) launched in August 2021 is an Ethereum-based digital collectible that enables keeping records of online and offline experiences. Those badges are in ERC-721 token standard and more than 2 million POAPs have been minted to date. Despite the project’s popularity, its dApp has been overwhelmed by airdrop farmers and speculators, revealing a key paradox in its minting and distribution mechanism: POAP is costless. This not only incentivizes distributors to mint more POAPs than needed to connect with and reward participants but also allows airdrop speculators to easily game the system. A badge without credibility is a decoration. The same problem exists for On-chain Achievement Tokens (OATs) issued by Project Galaxy where issuers have the choice to decide how participants can earn an essentially free gift.
We will likely see more projects emerging in the decentralized social space to combat the current inefficiencies of on-chain credentials by streamlining the issuance mechanism. Earlier this month, Paradigm co-led a $5M seed funding of Dework which combines Trello and LinkedIn-like features for Web3. Contributors using Dework’s service earn credentials by performing work for DAO projects, which in turn make them attractive candidates for other DAOs. On the other hand, Layer3 is a recently launched marketplace of bounties where users can earn governance tokens by performing various tasks. Those two projects share a vision more similar to Vitalik’s SBTs which are designed to correlate with a user’s identity in a portable, verifiable, and non-transferable way. In addition to work certificates, reputation can be useful in a variety of verticals and have the potential to onboard even more users into the Web3 ecosystem.
Infrastructure projects in the decentralized social space are still early, but there are several noteworthy players. In February 2022, the team behind Aave Protocol launched Lens Protocol, a permissionless and composable smart-contract-based social network on Polygon. Lens is designed to be an infrastructure for building dApps that offer social utilities. A similar social graph protocol CyberConnect was launched in October 2021 with the objective of returning data ownership back to users. The features offered by both protocols are similar whereas the technical implementations are different. Lens employs three layers of tokenization via ERC-721 NFTs to represent user profiles, connections, and collections, whereas CyberConnect stores those data in InterPlanetary File System (IPFS) through Ceramic, a permissionless data streaming network. This goes back to our prior discussion about data scarcity versus abundance. Despite the homogeneity of dApps currently built in both ecosystems, their different technical implementations shed light on potentially different growth trajectories in the future. The smart-contract-based Lens Protocol presents a creator-centered solution that can give rise to more decentralized creator-driven platforms. Empowering creators to monetize their influence through decentralization has intuitive value propositions as discussed in the “Media” section.
On the other hand, the CyberConnect Protocol presents a more user-centric solution and its value proposition is largely dependent on the growth of the overall Web3 market. Simply put, if more users become used to wallet-to-wallet interactions while playing around with a variety of dApps in GameFi, DeFi, NFTs, etc., a decentralized social network will likely become a valuable underlying infrastructure that can inform search, recommendation, and other social utilities. Given the natural advantage of centralized platforms in user data collection and utilization, the value proposition of decentralized social networks is ambiguous at the present time, but it might strongly correlate with the overall outlook on Web3 adoption.
Although the decentralized social space is still at its early stage, there are emerging key players that attempt to address the overall mission of decentralized social from various angles. A major challenge lies in the scarcity of reward-worthy content and the abundance of social media feeds. Intuitively, the data scarcity problem can be addressed by decentralization as creators are empowered to monetize their influence without a centralized platform being the middleman. As for the abundance problem, the selling point of decentralization lies in the portability and authenticity of data generated. In the long term, we will likely see more projects emerging to implement creator-driven platforms and on-chain credential issuance mechanisms. We can also anticipate a rising interest in decentralized social infrastructure along with increasing Web3 adoption.