Development of Social Finance (SocialFi) in 2024

Over the last 3 years, new narratives have emerged in the crypto market that crypto-enthusiasts have focused on. One of them became just the trend of SocialFi.

Briefly about SocialFi

Social Finance or SocialFi for short is a trend in the crypto-industry, denoting an ecosystem of decentralized community-oriented projects, as you can guess from the name.

SocialFi projects can be thought of as a kind of social network on blockchain combined with DeFi protocols. SocialFi is believed to open up new opportunities for users and companies to monetize content.

In 2022, another segment of Web-3 appeared — Decentralized Social Networks (DeSoc) or, as it is also called, Decentralized Society. There are no fundamental differences between SocialFi and DeSoc.

What role does SocialFi play and is it really necessary?

Adding the label "blockchain" to the project name and introducing tokenization alone will not make the project a success. Something more is needed for the platform to really become in demand.

Nevertheless, using blockchain technology has several advantages over centralized platforms like Twitter or YouTube:

1. No censorship. Your Twitter post can be deleted at any time by moderators if they believe it violates the rules of the platform. In decentralized platforms, all information is stored in the blockchain and cannot be modified or deleted from the database, although in some cases this is a disadvantage;
2. Protection against bots. Social networks have been unsuccessfully fighting the influx of bots for many years, and unscrupulous bloggers often use them to spruce up activity, thus misleading users and advertisers. Decentralized social platforms reduce bot activity because every action, such as posting content or comments, is accompanied by a blockchain transaction that requires a fee.
3. Control over your data. Users of centralized platforms are forced to provide their personal data, such as email address, phone number, and more. In Web3, only a wallet number is sufficient for registration and authorization.
4. Security. Access to centralized services is granted using standard Web2 methods: login and password. Without additional security, such as two-factor authentication (2FA), user accounts are vulnerable to hacking. However, even this does not guarantee protection, as all authentication data is stored on centralized servers, which is also a vulnerability. In 2023, for example, attacks using SIM swapping or, in other words, number spoofing became more frequent. The X-account of Ethereum co-founder Vitalik Buterin was hacked in this way. On decentralized platforms, access is provided through a personal (non-custodial) cryptocurrency wallet, to which only the user has access.
5. Ownership.Web2-services have practically no tools to effectively track ownership rights, which is especially important for designers, authors and all others involved in the creation of media content. The blockchain solves this problem by default: a content creator can prove ownership by submitting their work as an NFT.

Examples of SocialFi-projects

One of the brightest representatives in this category is the SocialFi-platform Friend.tech, which caused a stir and is essentially a decentralized analogue of Twitter (X). Bloggers and companies can publish both publicly available content and posts with paid access on Friend.tech. A similar subscription model has already been implemented in projects such as Telegram, OnlyFans, Boosty and similar projects. The only difference is that payment for subscriptions to exclusive content is made using cryptocurrency directly through the blockchain.

However, similar platforms already existed when the term SocialFi was coined. One of the most popular of these was Galxe, a platform for completing quests on different blockchains. Although the Galxe project is not a social network in the usual sense due to the lack of channels and publications, it is still a social project, just solving other tasks.

Challenges and prospects

In the early days of DeFi, the main problem for the development of the SocialFi segment was the low bandwidth of decentralized networks such as Ethereum and its like. However, things have changed in the last few years and blockchains have emerged that can handle the huge load.

To make it easier to understand the potential of Web3 social networks, let's take a look at the statistics: according to 2023 data, more than 58% of users worldwide use social networks every day and spend an average of ~2.5 hours on them.

SocialFi is already becoming a global crypto industry trend that even has its own segments:

• FitFi (Fitness Finance) — Web3 applications aimed at promoting healthy lifestyles (Stepn, SweatCoin, Athlerse);
• CommunicationFi — initiatives to integrate solutions that promote Web3 communications (Dmail, Mailchain);
• MetaFi (Metaverse Finance) — metaverses in decentralized networks (Immutable X, The Sandbox, Decentraland);
• DonationFi — Web3 applications for funding startups and any other initiatives, including non-profits (Gitcoin Grants);
• InfluenceFi — applications for Influencers to develop personal brands in the Web3 ecosystem and establish communication channels with consumers (Chirpley).

SocialFi is still in its infancy, but is already rapidly gaining momentum: according to CoinGecko, the capitalization of this market is only $3.3 billion — that's only 0.18% of the total crypto market.