No longer lonely, finance gets to party
Traditionally, finance has been a personal affair. Think of your bank account, pension plan, or ETF holdings: they are solely yours. In the best case, they cover your spouse or immediate family, but that's it. Currently, change is brewing. Finance is about to get a lot more social - both competitive and collaborative.
The history of social finance
Today we are used to managing finances individually, this is how we work with banks. But there are some notable historic, and current examples of social finance.
Rotating savings and credit associations
These are trust-based savings groups in which everyone pays in regularly and a single member receives the payout. This is repeated until all members have been paid out. Known as "Tandas" in Latin America, but popular globally, these rotation savings groups are valuable for people cut out from banking loans, provide a guard against inflation, and an important social outlet.
Investment Clubs
People have always invested in groups, but these started to formalize around the 1900s. In 1995 35,000 were estimated to be in existence, likely to be more today. Getting together regularly and making investments is an opportunity to grow your wealth, a hobby, and a social event all in one.
Throughout the 20th and early 21st century most people's interactions with finance has largely been at an individual level.
The two examples listed above still rely heavily on trusted networks, making them difficult to scale. Even as web2.0 drastically changed our relationship with media, our financial relationships, by and large, remained the same. Perhaps with the exception of crowdfunding.
In the last couple of years, change has been brewing. We have entered a new age of social finance, facilitated by a number of trends in the crypto space. Let's unpack these now.
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Digital Profiles
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DAOs
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Play to Earn
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Gamified Finance
Digital Profiles
We are now able to build up a public profile or persona on-chain. The more we interact with blockchains, the more valuable this profile becomes. Users can collect NFTs and derive scores all from their wallet addresses. Degenscore is a great example of this. This score is now considered by some projects in their hiring process, as it proves hands-on experience with DeFi, verifiable and on-chain.
Rabbithole is another application that helps users build up their on-chain profile. Users complete a range of tasks with popular blockchain applications and level up in the process.
NFTs (non-fungible tokens) are also used to build upon chain profiles, POAP is an NFT minter which creates tokens for conference attendees, community call participants, open-source contributors, and many more. ENS (Ethereum Name Service) is also an NFT, but one that lets you name your address, personalizing your profile even further.
As well as building your reputation, digital profiles provide more immediate benefits in the form of airdrops. There have been many airdrops over 2020–21 which rewarded a solid digital profile with previous on-chain interactions. Projects such as Arcx are working on credit ratings based off your on-chain history.
DAOs
We couldn't write about the evolution of social finance without mentioning DAOs (decentralized autonomous organizations). These have come a long way from the original exploited DAO back in 2016. It's a big topic, Packy McCormick's essay gives more context, but the important take-away is DAOs are exploding. From investment DAOs such as MetaCartel Ventures, the LAO to protocol DAOs, collector DAOs such as PleasrDAO, and inclusivity focused DAOs like MetaGammaDelta, all DAOs manage at least a basic treasury and many significantly more. Already, there are 100 DAOs managing over $10billion in assets together. We expect this to skyrocket significantly over the next few years.
DAOs allow online communities to manage money in a way that was previously not possible. Members can vote on decisions ranging from where to invest, key development decisions and new member approval, etc. DAOs operate in a crypto native, international environment (note there are legal and tax implications of participating in a DAO, and none of this article is legal advice of course). Rather than setting up a local investment club with your old school friends, you can now form an investment DAO with your global online friends. DAOs are discord groups that evolve into business entities!
Running a DAO is not necessarily straightforward, but there are a number of tools that do make it easier:
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Gnosis Safe - multisig wallets for holding funds
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Coordinape - tools to compensate DAO contributors
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Tally - governance proposal explorer
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DAOhaus - no-code platform to launch and manage DAOs
Play to Earn
Games, where users can 'play to earn' assets of real value, are growing in popularity. Axie Infinity with a million daily users and $5 million daily revenue, is an example of this type of game. The appeal is clear, earning a real income from playing a game. If they are good, players can earn $435 a day or more, a significant income particularly in countries such as the Philippines where Axie is popular. Other examples of play to earn include The Sandbox and Aavegotchi. Blurring the boundaries between work, games, and finance; these play-to-earn games have a clear social element.
Gamified Finance
Just as 'play to earn' games are bringing elements of finance into gaming, gamified finance does vice versa. This has been a trend in fintech for quite a while. But DeFi is uniquely placed to explore gamified finance in a social setting. PoolTogether is a good example of this, users can win large sums in a non-loss-on-chain lottery. Pods in PoolTogether allow players to group their funds together, increasing the likelihood of them winning.
The project I am working on GoodGhosting, is another crypto native example of gamified finance. Users join a saving pool with the goal of making regular deposits, our smart contracts move these deposits on to Aave on Polygon where they generate extra income (we will plug into a wider range of DeFi protocols in the future). At the end of the pool, every player that made all deposits gets a slice of the interest generated. Players who missed a deposit still get their principal back, making it a "no loss" game.
In conclusion
The four trends of digital on-chain profiles, DAOs, play to earn and gamified finance, are leading to a landscape where finance is becoming less siloed and individual, and more social.
DeFi is one big global multiplayer game.
As the industry evolves, with more collaborations, and applications built on top of this composable ecosystem, this trend will escalate and evolve in ways we cannot currently imagine.
To recognize this industry trend, Mask Network has launched The Social DeFi Alliance (GoodGhosting is a founding partner). Visit this blog for more information. Just as social media revolutionized the way we interact with news and information, social DeFi is creating a new wave of experiences with money.
Finance has been been a solo affair for too long, let's invite our friends to the social DeFi party! 🥳