GM DOers! 😎
I hope you had a pleasant weekend because web3 – more specifically, SocialFi – sure didn’t. 🙃
Stars Arena, a FriendTech fork that shared over $1.3 million in revenue with its 25,000 users so far…
…suffered an exploit on Saturday morning, where $3 million was stolen. 🤦
The team was quick to react, and by Sunday, Stars Arena announced they’ve secured funding to cover the gap caused by the exploit.
They also promised that the app will reopen very soon and that they’ll bring in a development team that’ll enhance security. 🔒
But can they survive after this exploit? Will anyone put their trust in Stars Arena again?
Let’s dive into it & see. ⏬
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Stars Arena is an app that lives on the Avalanche blockchain 🔺 and, like PostTech, it provides an experience similar to Twitter (X). 🕊️
There’s a public feed where others can see your posts, and your die-hard fans can purchase shares (called tickets) to get access to a private chat with you (similar to a premium subscription).
Unlike FriendTech – where only those who buy someone else’s shares get to consume content – on Stars Arena, everyone can.
Based on this concept, Stars Arena is a really interesting application that has gained good traction in the past 2 weeks.
25,000 people have joined the app.
And ~1.7 million transactions (buying/selling tickets) were made.
Stars Arena's popularity surged because it shares revenues with its content creators.
Not only can creators profit from rising ticket prices, but they also earn from the platform's transaction fees.
This lucrative model drew many hoping to capitalize on Stars Arena's ascent. 🚀
So far, creators have raked in over $1.3 million, while Stars Arena pocketed $300k. 🤑
So where did it go wrong? 🤷
A reentrancy hack struck Stars Arena, allowing attackers to inflate ticket values up to $2,740 each.
In response, Stars Arena nullified the ticket value, causing the TVL to plummet to a mere 5 cents.
While users could still access their $AVAX tokens within the app, the tickets they held became valueless. Therefore, the users were the ones impacted by the hack.
And because of the drastic measure to zero out all ticket values, the users were wondering if this was a deliberate 'rug pull' by Stars Arena. 🤨
Although later confirmed as a genuine hack and not a scheme, criticism against Stars Arena escalated, especially for their perceived lapses in security and decentralization.
Unlike typical incidents, the broader crypto community didn't rally behind the victims this time, and the controversial statement by Avalanche's founder, Emin Gun Sirer, added fuel to the fire.
He downplayed the incident, remarking that the loss was "only $3m".
This caused a huge uproar, as he was pointing to Stars Arena's profitability as an indication that they could easily cover the deficit.
Despite the community's shock at his public statement, his prediction held true.
Stars Arena managed to pool together funds in under 24 hours, which they intend to use to make users whole and reopen the app.
However, I doubt many will jump back on the app. I think that most users have lost confidence in Stars Arena short-term.
Do you agree? Leave a YES/NO by replying to this email!
There are 2 things that we need to collectively understand as a web3 community.
SocialFi is brand new
We’ve only seen the first example of such an app (FriendTech) 2 months ago. Since then, everyone and their grandma has forked the tech across chains.
We now have:
FriendTech on Base
PostTech on Arbitrum
Friendzy on Solana
FanTech on Mantle
Stars Arena on Avalanche
And god knows how many other apps, all of which are rightout copies of each other, on different blockchains.
That’s clearly not sustainable & 99% of them will die. Don’t be surprised when that happens.
However, what’s important to grasp is the fact that SocialFi has a great future, but unfortunately, the early days of any new technology are a total shit show.
Decentralization doesn’t matter (right now)
To build & scale a valuable product, you need to move fast. We live in a world of fast innovation and sadly, decentralization slows down the development process of anything.
Therefore, most onchain consumer apps that we’re seeing today and that’ll be built in the next few years, will need to be centralized first.
Only as they scale and grow will there need to be a plan to decentralize the platform in order to ensure long-term stability and security.
Even Ethereum and Bitcoin started as small & centralized communities. However, as time passed, they became more and more decentralized.
This is a typical progression in this space.
Lastly, I think we should all be rooting for the success of these new applications.
With every mistake & every milestone achieved, the SocialFi concept can move forward and become stronger.
Other builders can now look at the Stars Arena incident & learn from it to avoid committing the same mistakes in the future.
Keep in mind that 99% of these kind of apps will die, while those who figure out a sustainable business model and mechanics will emerge as clear winners that’ll be here for decades to come.
For that to happen, failures are inevitable and quite frankly, necessary. No technology has ever succeeded without hiccups. Why should we expect this to be different?
With all of that said, I think you should be cautious with these apps. Personally, I won’t be depositing a significant amount of money nor will I spend significant time on these platforms.
They are in their infancy and risks are huge right now.
However, I’m paying close attention to their development as I think this is the future of social media.
If you wish to capitalize on this opportunity, I urge you to read our FriendTech PRO report on how value accrues onchain.
Understand who benefits from the rise of onchain consumer apps and how you can reap the benefits.
Thanks for reading. And remember, you're strong, you’re powerful, you’re alpha! ❤️
See you soon. ✌️
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Disclaimer: This article is for informational purposes only and not financial advice. Conduct your own research and consult a financial advisor before making investment decisions or taking any action based on the content.
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