SocialFi brings together the principles of social media and decentralized finance (DeFi). SocialFi platforms offer a Web3 (decentralized) approach to creating, managing and owning social media platforms and the content generated by its participants.
At the heart of SocialFi, applications are content creators, influencers and participants who want better control of their data, freedom of speech and the ability to monetize their social media following and engagement. Monetization typically happens in cryptocurrencies, while identity management and digital ownership are driven by nonfungible tokens (NFTs).
These platforms are structured as decentralized autonomous organizations (DAOs) that are better suited to prevent centralized censorship decisions. As blockchain technology has come in leaps and bounds in the last few years, SocialFi infrastructure is able to cope with throughputs required for social media interactions.
Challenges of Web2 social media
Every day, over half the world’s population, 58.4%, spend an average of 2 hours and 27 minutes on social media. Yet, the attention, interactions, engagement and data that gets generated is monetized by a few centralized entities and their shareholders. This misalignment of incentives has led to the oneliner: “If the product is free, you are the product.”
We have also seen ample instances of centralized decision making when platforms ban content creators for talking about certain topics. While these processes are generally there to protect the broader base of users from harmful posts, a decentralized curation process, if any, would be more aligned with Web3 ethos.
The third challenge that Web2 applications have had is digital ownership and the ability to track ownership. This is particularly critical for creators and artists who share their work online. Yet, a lack of digital ownership opens up loopholes for digital piracy if there aren’t enough controls in place.
Another shortcoming of Web2 platforms is the inability to monetize brand equity. In most cases, influencers who have created a brand for themselves are able to monetize their brand equity in indirect ways. Yet, the social following and credibility they have created on a social media platform don’t directly translate to monies in the bank.
Can SocialFi save the day? What is SocialFi and how does it work? Let’s deep dive into these questions in the following sections.
