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The rise and fall of SocialFi: What friend.tech’s 90% plunge in revenue shows about a fading model

The rise and fall of SocialFi: What friend.tech’s 90% plunge in revenue shows about a fading model
DeFi
Once in the money, Friend.tech has struggled to regain the form it showed in the third quarter last year. Credit: Rita Fortunato/DL News
  • SocialFi, a mashup of social media and crypto trading, exploded in value last summer.
  • Friend.tech was doing $10 million a day in trading volume before its sudden skid.
  • Founders scrambled to capitalise on early success.

Friend.tech, a crypto-based platform that allows users to buy and sell shares linked to accounts on X, was the talk of the town last summer.

By September, a month after its launch, friend.tech was processing roughly $10 million in trade volume daily.

It had attracted crypto influencers and performers from OnlyFans, an online content site, and spawned more than a dozen copycats. By mid-October, more than 600,000 accounts had used the site, according to data compiled by pseudonymous analyst Whale Hunter.

In the process, friend.tech established itself as an innovative new mash-up of social media and trading, a model called SocialFi.

Then the venture hit the wall: Its user base stalled at 800,000 and its monthly protocol revenue fell 90% from its high in September to $1 million in December.

SocialFi itself, which is designed to let users profit off their followers, also cratered after enjoying a fleeting moment of relative popularity.

A sector crashes

After peaking at $53 million in total value locked and almost 400,000 transactions per day in October, SocialFi lost more than a quarter of its TVL and suffered a 98% reduction in daily transactions, according to DeFiLlama and pseudonymous analyst Cryptokoryo.

(Total value locked is a measure of investments locked in a blockchain or DeFi protocol.)

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Many of the sector’s leading lights dimmed. Daily trade volume on Post.tech, a friend.tech clone on the Arbitrum blockchain, has failed to top $10,000 since November 22 after hitting $5 million in September, according to Whale Hunter.

Stars Arena, Friendzy, Friend3, Cipher and others all suffered similar fates.

‘Friend.tech is collapsing because they had one viral shot to impress the world and they did so with very little features and mostly promises.’

—  Charlie Shrem

SocialFi is the latest crypto fad to fizzle after a speculative frenzy ran dry, according to analysts who spoke to DL News.

“So far, as SocialFi networks are incentives-driven, they tend to follow the same trend we’ve seen in other sectors — DeFi, gaming, etc.,” Martin Lee, an analyst and spokesman at crypto data provider Nansen, told DL News.

Escape velocity

“When early adopters start making high returns, it attracts more people in, and becomes a strong narrative but typically fizzles out before they manage to reach escape velocity.”

From the get go, friend.tech was on a tear.

Users link their X account and deposit ETH into a friend.tech-generated wallet, allowing them to buy shares — later renamed “keys” — that grant access to private chat rooms.

The prices of keys are determined by a bonding curve. Each sale of a key incurs a 10% fee, split between friend.tech’s team and the X account the key represents.

At its peak in September, its total daily trading volume exceeded the $13.5 million volume on the NFT marketplaces tracked on DefiLlama by more than 48%.

Its decline in October was largely driven by a lack of features that kept users engaged, according to Charlie Shrem, a partner at Druid Ventures.

‘Mostly promises’

Friend.tech is collapsing because they had one viral shot to impress the world and they did so with very little features and mostly promises,” Shrem told DL News.

Friend.tech did not respond to a request for comment.

The venture’s success caught its founders by surprise. Pseudonymous friend.tech co-founder 0xRacer told Decrypt in August that he and his colleague had “initially shared the app to start load testing and didn’t expect it to go viral.”

As the protocol went viral, the duo found themselves playing catch-up, fixing bugs and setting up basic policies for the website, they said at the time.

In any event, SocialFi, much like GameFi before it, is now struggling to compete with longstanding incumbents, such as X, formerly known as Twitter.

“Social networks are only as valuable as the users on it and for now at least, existing networks such as X are still the main places high value accounts spend the most time on,” Lee said.

Steep decline

Avalanche-based Stars Arena, another friend.tech clone, has suffered a steep decline after it was hacked in October.

Daily active users on Friendzy, a competitor on Solana, rarely reach a dozen, according to data compiled by Impossible Finance.

Another reason for the downfall may stem from the burgeoning bull market in crypto.

When Bitcoin, Ether, and Solana began to rally in mid-October, that may have punctured the SocialFi bubble, Gabe Tramble, co-founder of crypto research firm Shoal Research, told DL News.

“It bled liquidity from SocialFi, which was kind of degen to begin with,” he said, using a self-deprecating term coined by crypto traders.

“BTC and alts started moving pretty much when friend.tech declined. [friend.tech] was almost something to do while everyone was bored.”

Aleks Gilbert is DL News’ New York DeFi correspondent. Ryan Celaj covers DeFi and the crypto markets. Have a tip? Contact the authors at aleks@dlnews.com and ryan@dlnews.com.

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