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Social Creates Value — Is Social Fi the Next Big Trend?

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Social interaction is an indispensable part of our daily lives. If all our activities migrate online in the future, what new forms will social interaction take in the metaverse?

A recently leaked internal Facebook email describes a future metaverse world. The email features a virtual user named "Priya," who can interact and collaborate with others in the metaverse, and even marry a green "ogre." It is easy to imagine that the metaverse not only mirrors the complex relational networks of real-world society, but also allows each individual to set up multiple virtual identities, freely decompose them, and completely break free from the rigid social roles and divisions of labor of the industrial era, forming more diverse and interesting interpersonal relationships and communities. Such a world inevitably demands more imaginative social tools.

Compared with gaming, finance, and other application scenarios, social interaction is perhaps a more fundamental need — it has a broader reach, is closer to ordinary people's daily lives, and is used more frequently. It is a blue ocean in the crypto market. Currently, the crypto industry has made many attempts and explorations in the social space, leveraging blockchain technology to integrate social needs with economic incentives, creating a brand-new species called Social Fi, enabling individuals and communities to convert their influence into tangible value.

So, what imagination does Social Fi bring to metaverse social interaction? How does social interaction create value? Could Social Fi become the next big trend?

1. How Does Social Interaction Create Value?

Social Fi = Social + DeFi, meaning socialized finance. It tokenizes, financializes, and DeFis social influence, allowing everyone to earn returns by showcasing their value.

In the traditional internet era, UGC platforms like Twitter and Weibo transferred the cost of information and content production to users, gaining massive free content while bringing considerable traffic to the platforms themselves. However, users themselves became "digital laborers" for these websites, contributing significant time and effort without earning any actual returns.

Social Fi solves this problem — it turns users from "employees" into "owners." It is also an expression of one of the core attributes of blockchain: "returning data sovereignty to users." Social Fi empowers every user's creative content and social influence, helping users monetize their personal value and share in platform traffic and returns.

As can be seen, Social Fi creatively combines the unique financial attributes of blockchain, achieving value transfer on top of the foundation of information transfer. As more individuals benefit from such a self-consistent economic system, the value ecosystem of Social Fi will further develop and expand, gradually establishing more imaginative and complete ecosystems such as influence-based communities and creator economies.

However, can the influence of individuals or communities truly create value? How does social interaction combine with finance?

In several real-world examples, the value of social interaction has already been demonstrated. For instance, Tesla CEO Elon Musk's multiple tweets directly propelled Dogecoin to become one of the top ten globally ranked digital assets this year. The "Musk Effect" has swayed the prices of Dogecoin and various other digital assets, fully proving the enormous power of individual influence.

Likewise, various meme coins that emerged from grassroots internet culture have gained attention through the establishment and dissemination of community culture, with their market movements directly controlled by the community. It is clear that the power of individuals and communities can generate massive wealth effects. How to harness these forces is precisely the goal of Social Fi.

Social capital theory holds that relational networks create a valuable resource, and individuals can leverage their unique positions within these networks to gain benefits. Therefore, social capital and economic capital can be converted into one another within certain limits. For example, certain KOLs (Key Opinion Leaders) sit at the intersection points of different organizations, controlling information gaps and the flow of information, making them more likely to earn returns.

Through blockchain technology, the abstract process of converting social capital into economic capital has been made tangible — transformed into the more visible issuance and circulation of tokens, spawning more new methods of wealth accumulation.

2. What Imagination Does Social Fi Bring to Social Interaction?

Since this year, an increasing number of brand-new concepts and projects have emerged in the Social Fi track. As of December 2, CoinGecko data shows that the Social Money sector has reached a market cap of $1.44 billion. However, Social Fi is still in its early stages of development, with most projects further expanding concepts and iterating on technology based on social tokens. The following introduces two development directions of Social Fi, selecting only some projects with greater influence or stronger innovation — it is not an exhaustive listing of the entire Social Fi ecosystem.

(1) Social Tokens

Social tokens are tokens backed by personal reputation, brands, or communities, built on the premise that community value will continue to increase. Among these, token minting and distribution, and content capitalization are the more mainstream project concepts. Representative projects include Chiliz, Zora, Circle UBI, and Loopss.

These projects manage communities through tokens, stratifying users based on their activity and contribution within the community, granting them tokenized benefits, and increasing returns for internet celebrities, cultural producers, and relevant participants. Some projects have already established complete new creator economies in areas such as music and writing. Similar developer-focused funding projects include Gitcoin, which incentivizes developers to help each other and share returns by tokenizing open-source collaboration mechanisms.

Communities established through social tokens are also active in the investment field. These communities can pool funds and discover investment opportunities through voting mechanisms and smart contracts. Taking Flamingo as an example, its community members have the right to collectively decide on NFT artworks to invest in, and can split, lend, curate, or use the acquired NFTs as collateral on other DeFi platforms.

Currently, many auxiliary tools and related projects for social tokens are also being implemented. For example, DAO Fi, a decentralized social token trading platform; SourceCred, a community data evaluation and reward tool; Kickback, a community currency activity management platform; and Tip.cc, a reward management bot — these are shaping the social token ecosystem from multiple dimensions.

(2) Decentralized Social Platforms

Many projects in this space are attempting to benchmark themselves against large social platforms in the current traditional internet, introducing token mechanisms to give users control over the platform. For example, BitClout, which has already secured investments from major institutions including Sequoia Capital, a16z, and Coinbase Ventures, and has attracted numerous Twitter influencers to the community, gaining significant recognition in the industry.

There are also many projects focused on their own niche markets. For instance, DeSo seeks to build a social network with open data, while Follow specializes in community relationships within the NFT digital art space. Since many facilities for current decentralized social platforms are still imperfect, some applications have taken alternative paths, entering the market by starting with basic components and high-frequency-use features. For example, a recent application called Context entered the social scene through NFT data tracking features.

Another category of projects belongs to Web3.0 portal tools, encouraging non-crypto-native media platforms to connect with mainstream audiences by issuing social tokens, helping platforms and users transition seamlessly from Web2.0 to Web3.0. Some projects in this area have achieved more decentralized product form innovations — instead of aggregating information from other platforms and users to themselves like traditional internet platforms, they become plug-ins, embedding their product logic into a variety of other products. This type of product form may gain more use cases and users, while more prominently showcasing its service attributes, rather than having users unconditionally surrender their data sovereignty.

3. Is Social Fi the Next Big Trend?

Following last year's DeFi Summer, hotspots such as NFT Fi and GameFi have erupted in succession. One trend that can be observed is that "Fi" remains constant while the prefix continues to spawn more specialized tracks. In other words, as the user base continues to expand, the blockchain industry's development evolves toward being "locally diversified," but it always remains anchored to the fundamental question: how to use digital assets to create more economic value. By this logic, could Social Fi be the next big trend?

Social Fi aligns with the financial attributes inherent to blockchain technology itself, with its core lying in monetizing social interaction. This is nothing new — there are already numerous practices in our current internet, which can be summarized into three methods: product monetization, advertising monetization, and service monetization. However, all three methods have certain issues.

Let's first look at product monetization. Whether it's influencer-driven sales or WeChat Moments micro-businesses, both require cultivating potential consumers through social scenarios, building relationships and establishing trust to sell products. But this method also has its failures. In some scenarios, social interaction and marketing seem incompatible — some would even argue that marketing behavior damages relationships. This is particularly evident in micro-businesses that place greater emphasis on interpersonal relationships, as many people avoid or even resent marketing information in their WeChat Moments.

The essence of advertising monetization is selling the attention of one's covered audience to advertisers. This method also faces the problem of incompatibility between content and marketing, and between social interaction and marketing.

Finally, there is service monetization. Its typical forms are live streaming tips and content paid subscriptions, where creators benefit from the continuous output of quality content. The problem with this model is that platforms control the content distribution process and allocate traffic weight among different creators, causing many excellent works to be buried by algorithmic bias. Furthermore, platforms take significant commissions, largely compressing creators' actual earnings. On the other hand, information on the traditional internet can be infinitely copied and freely circulated, but there is no effective mechanism to guarantee the transmission of its value. This further exacerbates creators' income problems and normalizes copyright disputes.

Social Fi's solutions to the above problems can be described as a comprehensive revolution.

Addressing the issues of product monetization and advertising monetization, Social Fi establishes a new influence economy, effectively building value communication channels between internet celebrities and fans. Internet celebrities can mint and issue personal tokens through projects like Rally, with their popularity on social networks directly affecting token value. Fans, by holding tokens, share returns with celebrities — the money, time, and even emotions they invest can be maximized in value conversion, rather than falling into the hands of certain commercial entities. Under such circumstances, internet celebrities do not need to fully cash in on their popularity through products or advertising, and their returns become more sustainable.

Addressing the issues of service monetization, Social Fi establishes a new creator economy, achieving a transformation in the interaction model between creators and fans. Its basic model lies in: using NFTs to tokenize digital content ownership; through fan crowdfunding and copyright distribution, forming a closed loop of content-based production, investment, resale, and consumption. On the other hand, groups of people gathered around content form temporary DAOs and collaborate on decentralized content production. This loose, heterogeneous connection makes creation more vibrant.

It is evident from this that the economic model of Social Fi does not simply treat the community as a service object or marketing target, establishing a "consumption" community. Rather, it taps into the value of fan communities, pooling the power of members for co-creation or business activities, making the community a "production" community.

However, there is also the view that what Social Fi does is merely icing on the cake, which is quite different from DeFi. A series of DeFi's decentralized mechanisms solved some pain points and even critical problems in traditional finance. But the social field does not face these problems, so the development of Social Fi may not be as rapid as DeFi's.

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