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Blockchain-based SocialFi (Social Finance) protocols have attempted to solve these challenges since smart contracts first became a thing. Most attempts, however, have failed upfront or faded away as early adopter incentives dried up.
The last bear cycle finally saw some potential platforms that tend to solve the problems through sovereign content ownership, decentralized moderation guidelines, and native tokenization.
Before delving deeper into how Web3 SocialFi does that, let’s understand the problems that legacy social media suffers from.
What Are The Problems of Traditional Social Media Platforms?
"Fair" is clearly not a word one can use for today's social media platforms. Yes, half the world uses these platforms, but is it because we lack better options? Very likely.
Depending on whose perspective you take, the list of challenges or shortcomings can be long. But let me consolidate that into a few umbrella points.
Unfair Revenue Sharing
It’s no secret on traditional social platforms that, despite the hard work, content creators get only a small share of the revenue. There are two reasons why creator earnings are never commensurate with the time, effort, and labor they put into making the content.
Most centralized social media companies pay creators based on their social capital, which includes total subscribers, views, likes, and impressions. However, with limited attention spans, creators compete against each other to engage with followers and monetize their social capital.
Besides, Web2 platforms function as primary intermediaries among creators, brands, and fans to redistribute revenue. Thus, companies individually decide the profit distribution model for their benefit while ignoring the primary stakeholders — creators and followers.
Absence of Content Ownership
Content creators don’t own the content they post on traditional social media platforms. The content’s true ownership lies with the conglomerates who own the platforms. As creators lack control over their work, it leads to a power imbalance and propagates an unfair financialization model.
Most web2 platforms lack a creator-friendly environment as they unfairly use an influencer’s creative output to make profits without giving due credit.
Unilateral Censorship Decisions
Since social media companies own and store creators’ works on centralized servers, they can make unilateral decisions about content censorship. The platforms set ever-changing guidelines and frameworks that creators have to abide by.
These restrictions adversely affect an influencer’s work and monetization strategies as the companies don’t consult them before setting the rules. Moreover, creators don’t have any proper grievance redressal system to address censorship queries.
Besides companies, even governments have had a large say in what platforms users can use. One of the most recent examples is the
No Content Tracking Mechanism
Once creators post their content on social media, it becomes difficult to keep track of their usage. Fans and followers can repurpose the content on their own websites or blog posts, which may lead to content theft.
The growth of AI has further accelerated challenges, such as the ability for anyone to create duplicate content and monetize it. In the absence of content tracking, creators lose their revenue share, which comes from monetizing repurposed content.
Inaccessible Algorithms
Legacy social media platforms use opaque algorithms that arbitrarily determine how creators’ content features on user feeds. Since creators don’t clearly understand these algorithms, they find it difficult to maintain a stable income stream.
Sometimes, creators suddenly notice a dip in their content reach and eventually de-board the platform. At other times, they keep working in an unpredictable setting that is detrimental to the creator economy’s long-term sustainability.
No Privacy
Web2 social media heavily relies on advertising campaigns to generate revenue. These companies harvest creator and user data without explicit permission for targeted advertisements.
The existing financial model has little regard for user safety and protection of sensitive personal information. Since creators and followers don’t control the content or their online activities, data breaches and misuse are very common.
Web3 SocialFi Platforms: Solving Legacy Social Media’s Problems
Web3 developers and blockchain proponents have noticed the drawbacks of traditional social media and came up with a solution — SocialFi.
SocialFi platforms combine the aspects of blockchain and decentralized finance (DeFi) to build better, more creator-centric social media platforms.
For example,
More recently, during the long bear market, developers continued to build innovative web3 SocialFi platforms.
Although Friend.tech’s initial excitement soon died down, it gave a much-needed impetus to SocialFi apps in a slow market. Several other SocialFi platforms with strong fundamentals rose to prominence as they demonstrated their ability to reach the masses.
For instance,
The following section will elaborate on how SocialFi protocols address the shortcomings of legacy social media.
Transparent Monetization Policies And Privacy Protection
Content creators on SocialFi platforms have sovereign ownership over their creative output, thereby giving them more freedom to monetize their work.
While web3 social media provides space for advertisements, it cannot mine user data without their consent. Instead, users have the choice to share their data in exchange for rewards from advertising campaigns.
Further, content tracking becomes easier on the blockchain and enables creators to retain primary ownership while allowing repurposing. Since creators and followers can verifiably prove their asset provenance on the publicly accessible ledger, monetization becomes easier.
SocialFi platforms use programmable smart contracts to reap the benefits of network effects as each user adds value through derivative adaptations. Unlike web2 protocols, creators can directly benefit from secondary sales and content remixing.
Direct Creator-Follower Engagements
Web3 SocialFi platforms leverage multiple incentive methods for content creators.
For example, Steemit enables users to earn Steem tokens with real-world value for each digital activity, such as posting and sharing content. Another platform,
Keys empower creators to get direct support from their followers and make content without navigating opaque algorithms or censorship guidelines. This removes any power imbalance as creators no longer depend on companies to pay for their work.
The Key system gives creators more freedom as they don’t have to compete in the attention economy. Each creator can focus on their style, build social capital, and get direct support from their fans.
Some of these apps also use a points system to reward loyal users with airdrops and other in-app incentives with real-world value. For instance, Tomo users can earn Tomo points by purchasing Keys and successful referrals.
Democratizing Financial Accessibility
Most people tend to shy away from SocialFi protocols due to a difficult user interface like setting up a crypto wallet. The entry barriers are also high as they have to purchase crypto or NFTs to interact within these platforms.
The new wave of SocialFi platforms makes it easier for users by automatically setting up an ERC-4337 wallet at the backend. For example, Tomo users don’t require any technical knowledge as it creates a web3 wallet when users open an account.
Despite rapid digitization, a 2023 survey
These features strengthen community bonds as people can pool their resources, collectively own digital assets, and make joint financial decisions.
The Future Of SocialFi Protocols
SocialFi protocols have the potential to drive mass adoption of crypto and blockchain-based apps. However, they have to push technical complexities to the backend and offer a good user experience along with transparent monetization channels.
To appeal to the masses, SocialFi platforms have to be fun, interactive, entertaining, and immersive. They must find a fine balance between financialization and an engaging interface to drive user adoption.
Social media will keep growing in the future. A fair incentive structure and user-first experience will push people to start using SocialFi protocols en masse.