What is SocialFi?

SocialFi, a portmanteau of 'social' and 'finance,' fuses social media with blockchain technology. It aims to reward users for posting high-quality content online and give them more autonomy over how their data is used. 

SocialFi platforms also strive to maintain the high transaction throughputs necessary for social interactions while leveraging blockchain technology to offer a more equitable distribution of value among all ecosystem participants.

Understanding SocialFi basics

At its core, SocialFi platforms empower users with greater control over their data, freedom of expression and new avenues for monetization.

One of the primary mechanisms for monetization is the use of cryptocurrencies, which allows for direct compensation for social engagement. Additionally, non-fungible tokens (NFTs) play a pivotal role in identity management and digital ownership to let creators establish a verifiable online presence and secure their intellectual property.

Decentralized autonomous organizations (DAOs) undergird many SocialFi platforms. With their open and collaborative nature, DAOs eschew many of the pitfalls of web2 social media firms in which a few entities control and benefit from user-generated content. In fact, SocialFi's emergence is a response to the growing concerns around such centralization, including the exploitation of users as products, arbitrary content bans and the challenges artists face in claiming ownership over their digital creations.

The role of cryptocurrency

The integration of cryptocurrency within SocialFi platforms reshapes how users interact and transact within the social media landscape.

Cryptocurrencies facilitate the exchange of value between users. By incorporating cryptocurrencies, SocialFi platforms enable direct and immediate compensation for content creators and influencers, who can monetize their social media activity without relying on intermediaries. 

Furthermore, cryptocurrency's role extends beyond mere transactions to embody a broader system of incentives and governance. Social tokens, a specific type of cryptocurrency, can be personalized for individual creators or serve as the native currency within SocialFi applications. These tokens build a participatory economy where users have a stake in the platform's growth and can influence its direction through decentralized governance mechanisms.

Such tokens also allow for the fair distribution of rewards, aligning the interests of all stakeholders and fostering a community-driven approach to the platform's roadmap.  

SocialFi's top platforms

Launched in August 2023, Friend.Tech is a blockchain-based social finance platform that uses "keys" for community members to access an individual's channel; keys increase in value the more popular someone gets. The platform is built on Base, an Ethereum Layer 2 developed by the crypto exchange Coinbase. 

Farcaster, built on Optimism, mandates users pay $5 for a limited number of posts to omit bot activity on the protocol. To bolster user engagement, Farcaster also launched "Frames," interactive applications built on the platform.