SocialFi: the next biggest thing in social media and finance?

What would our modern world look like without Facebook, Twitter, Tiktok, or Instagram? It’s hard to imagine given how much influence these platforms have on human interactions in the 21st century, but the future could look very different. This is because the rise of web3 is revolutionizing the way people connect, share, and build communities. 

In recent years, both social media and decentralized finance (DeFi) have emerged as major disruptors, transforming how we interact with the economy and each other. 

Now, with the rise of “social finance”, these two trends are coming together in exciting new ways. 

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What is “Social Finance”?

Social finance (or “SocialFi” for short) is a hybrid concept fusing social media networks with web3 and DeFi. 

SocialFi offers an accelerated form of social networking where users are free to create, control, and own social media platforms and the user-generated content hosted on them.

Even more exciting, SocialFi offers a way to reward and benefit users by tokenizing social influence– think Youtube monetization meets decentralization. 

Ultimately, SocialFi can fully monetize the social media market as all parties have equal opportunities on the decentralized network. We’ll discuss below how “social tokens” can be used to tokenize achievements and reward content creators and consumers alike. 

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The benefits of social finance 

SocialFi is a new form of finance that combines the power of social networks with the transparency and security of blockchain technology. 

Social finance platforms allow users to leverage their social connections and reputation to access financial opportunities

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Decentralization 

Traditional social media networks are controlled by centralized, censorship-heavy entities and their shareholders. 

Normally, these businesses store their data on a single server– not the best solution, as server security ends up being a major risk. With SocialFi, data is dispersed across the web of blockchain nodes, resulting in fewer data breaches and eliminating a single point of failure. 

However, the real drawback to traditional social media is centralized control: the entities controlling these networks also unilaterally control the monetization of the attention, interactions, engagement, and data generated there. The real customers of these networks end up being the advertisers, not the users. 

With decentralized social media, this control shifts back into the hands of the people who are actually using the platform. 

Users, content creators, and app owners all gain better control of their data, freedom of speech, and the ability to monetize their social media following, content, and engagement – something that the large central platforms have long had a monopoly over in the industry. 

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Social tokens 

At the heart of SocialFi’s monetization is the concept of “social tokens”. 

Social tokens are a form of in-app utility tokens, which are utility tokens used to drive in-app economics. In-app utility tokens have been a common feature of DeFi and GameFi applications; now they’re propelling SocialFi in the form of “social tokens”.

Social tokens are unique because they can be created not just at the application level but at the user level by the creator. Each user can have their own token and their own mini economy that functions around it. 

Users can manage these economies for themselves, choosing how they want their tokens to be deployed in their spaces and communities or utilized by fans and followers. 

Here are a few ways social tokens could be used by creators/influencers: 

• As a way to foster more authentic engagement, with social token ownership a prerequisite for engagement with the user’s post 
• As a way to rank messages in a user’s inbox, with senders ranked highest to lowest according to how many of the user’s social tokens they hold
• As a way to fund future projects and creative content, with social token holders being conferred rights such as premium access to its release
• As a way to reward a user for content creation, with likes or shares costing the use of that user’s social token 
• As a way to create roles within the user’s community, such as by rewarding token holders of a certain threshold with permissions in Discord 

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Monetization

Social tokens allow users with meaningful brand equity to benefit from monetization without the middleman, something that isn’t feasible on web2 platforms. With SocialFi, creators can use social tokens to charge for their creative output, making it easier for them to gain revenue but also distribute their work. 

Users can also use social tokens to reward each other for making great content, giving users and content creators a greater incentive to post high-quality content and gain traction. Ultimately, social influence itself will become tokenized as the value of a user’s social token will be directly proportional to that user’s social influence. 

While monetization of social media through social tokens might make engagement more costly, it will also benefit the creative economy by preventing spam, increasing genuine engagement, and helping creators monetize their work and ultimately granting them more creative freedom control.

Another major benefit to this model of monetization is the financial possibilities it brings to users. For example, an artist could pledge to share their earnings from their next album with their token holders as a way to crowd-fund and avoid the constraint imposed by large record-label houses. Alternatively, tokens can be used to grant users a share of advertising money for tolerating a creator’s sponsored ads.

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Digital ownership and identity via non-fungible tokens (NFTs)

Another benefit of SocialFi – one that’s particularly important for creators and artists – is the ability to prove and track digital ownership. On traditional social media platforms, a lack of ownership proof and controls creates complications and opens pathways for digital piracy and plagiarism.

By borrowing on blockchain’s proof of ownership, SocialFi can facilitate true digital ownership and identity. The key is in non-fungible tokens or NFTs. 

For example, users can turn their posts into NFTs, providing true proof of ownership over their content, as well as a way to rent or sell their content to others. Imagine turning your “once in a lifetime moment” photos into NFTs with the click of a button. 

Users can also leverage “social tokens” to provide new financial possibilities for their content. For example, an artist could launch an NFT collection, offering a share of the sale to their social token holders and creating an incentive for their followers to share their work, potentially leading to increases in sales. 

PFP NFTs are collections of picture NFTs and are used mainly as profile pictures for identity and proof-of-ownership. PFP NFTs can help prevent identity fraud by requiring users to connect their wallets to confirm ownership of their NFTs. 

PFP NFTs can also provide users with exclusive access to specific communities within SocialFi and opportunities for special experiences, events, or even sneak peeks at new products or services. 

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Censorship and control

Censorship is a tricky issue: while censorship bans frustrate many content creators, most people wouldn’t want to view harmful content or use a network with no controls. 

SocialFi can provide a balance by combining censorship resistance at the chain level with user controls for individual spaces. Here’s an example of what this model could look like: 

• On-chain data, including all publicly viewable posts on the platform, is parsed and labeled by rules engines based on the topic and nature of the words or images used
• Individual nodes can choose which labels to block versus engage with, placing control and responsibility for the endorsement of harmful posts with users

This model would place legal liability for sharing or endorsing harmful material within the network on individuals as opposed to any central entity.

Overall, SocialFi can be a crucial tool for preserving freedom of speech. Users and content creators won’t need to worry about being blocked or filtered for their messages or content– or worse, have platform moderators close an account they’ve poured their heart into.

This is especially valuable for users and content creators wanting to post content typically targeted by censorship, which isn’t always inherently harmful. Many citizens in modern nations still experience censorship around political issues or are prevented from expressing their thoughts about national leaders and policies.

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Governance via decentralized autonomous organizations (DAOs)

SocialFi can leverage decentralized governance to grant users power over key decision-making processes.

A key feature of the decentralized governance of SocialFi is decentralized autonomous organizations (DAOs). Many SocialFi platforms are structured as DAOs to prevent centralized control or individual entities from having total control of the platform. 

DAOs work by providing users with voting power on crucial issues on the platform, represented in the form of a governance token. Governance token holders are able to govern the network by participating in on-chain governance. 

Networks also hold on-chain treasuries, represented by the DAO,  for the development and promotion of the ecosystem. 

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Social media and investing

Beyond bringing the emerging “creative economy”, SocialFi has the potential to transform everyday finance and investing. 

For example, SocialFi platforms could allow users to access financial services and products – including loans, investments, and insurance – that may have been previously unavailable through traditional banking channels, all by leveraging their social connections and reputations. 

This is a particularly important benefit for those who are neglected by or incapable of traditional banking: those in resource-strapped developing countries, illegal immigrants or their children, or anyone disadvantaged by the algorithms banks use to process applications. With SocialFi, these individuals could leverage their social networks to access the financial products and services they need. 

Another way SocialFi can interact with finance is through social investment platforms that combine the concept of social media with DeFi protocols mirroring traditional investing. Some platforms in fact already do this, enabling users to create and trade synthetic assets to track the performance of real-world assets such as stocks while following other users to track their trading strategy or, leveraging the power of DeFi,  even copy it in real-time. 

For creators or developers of any social networking platform that’s fusing with finance, you might want to learn more about Polymesh – while it was purpose-built for regulated assets, it can be used for virtually any token project, and you’ll get the added benefits of robust security and compliance mechanisms that the traditional financial world requires. 

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Conclusion

Without question, SocialFi has much potential to transform social engagements via new economic models for users, creators, and apps that leverage the transparency and security of decentralized finance. 

While there may be gaps in the existing infrastructure and economic models, SocialFi platforms show promise of propelling us into the new “creator economy”, with the potential to increase the democratization of wealth. 

In coming years, we can expect a boom in SocialFi comparable to the booms that DeFi or GameFi have experienced, especially as networks become increasingly creative. Ultimately, the rise of SocialFi will see a new wave of innovation transform both the social media and financial landscapes in ways we can only imagine.