Future of Social Networks (3 of 3)
VeradiVerdict - Issue #261
In 2017, a group of MIT Media Lab researchers claimed in Wired that decentralized social networks “will never work”. In their piece, they cited three impossible challenges: (1) the question of onboarding (and retaining) users from scratch, (2) the (mis)handling of personal information of users, and (3) lucrative user-targeted user advertisements. In all three cases, they argued, incumbent tech giants, such as Facebook, Twitter, and Google, simply had too far-reaching economies of scale to make room for any significant competition.
Fast forward half a decade later, what was once hailed as “impossible” seems no longer so far-fetched, and we seem to be on the dawn of a paradigm shift in the way we conceptualize social media networks. In this three-part series, we will examine how new ideas in decentralized social (DeSo) seem to address these “age-old” questions, specifically, (1) the use of open social graphs in solving the cold start problem, (2) using proof-of-personhood and cryptographic techniques to solve the userhood problem, and (3) leveraging tokenomics models and incentive structures to solve the revenue problem.
Creating the “Killer App”
The ultimate question of whether web3 social as a vertical will succeed or not is if it can produce a new “killer app,” one like TikTok or Instagram before it, providing a truly novel social experience that onboards users on a mass scale. Without this “killer app,” all the development in the underlying infrastructure (such as decentralized social graphs and proof-of-humanhood identity protocols) lose much of their intended purpose.
However, the problem with these “new social experiences” is that they are almost impossible to predict. Although people repeat the mantra of “building a killer app” over and over again, no one quite knows in what form this app will take place – after all, you are quite literally trying to predict the course of human behavior. In this article, instead of trying to do the impossible and concretely predict what the next “killer app” in social will be, I will try and explore two high level strategies – augmenting existing social experiences with web3 features and the creation of a web3-first social community – and describe some of projects following these potential routes of innovation.
Augmenting Existing Social Experiences with Tokenization
The low-hanging fruit approach in building a web3 “killer app” is simply to add some new features to an already existing “killer app,” a mainstream social platform which users are already familiar with. Most commonly, this “additional web3 feature” is an element of tokenization in the form of an X-to-Earn project.
From Reddit Community Points Program: https://www.reddit.com/community-points/
One of the most interesting projects following this path is Reddit’s Moons program, launched in May 2020, rewarding users on the r/CryptoCurrency subreddit for posting and curating content. Reddit Moons are an ERC-20 token launched on Arbitrum Nova, whose issuance is based on a user’s Reddit “karma,” calculated from the upvotes and downvotes a user has received . Moons allow users to vote in community polls to decide on the future distribution of Moons and overall direction of the community .
The overall tokenomics strategy of Reddit Moons has also been praised by the community, with the supply dropping by 2.5% every monthly issue and asymptoting the yearly inflation of the token to 1%. As such, over time, the “karma to Moons ratio,” or the amount of Moons earned for a user’s “karma,” is believed to steadily decrease, thus making Moons more scarce in hopes of increasing its value in the long run .
Reddit Moon Tokenomics 
Reddit is a particularly interesting case when it comes to integrating web3 functionalities (Moons tokenization in this case) into an already-existing “killer app”. Out of all of the mainstream social media platforms, Reddit is arguably the most decentralized and community driven, owing to its unique “subreddit” structure that permits a large degree of autonomy and self-moderation on these platform enclaves, rather than enforcing that traditional top-down approach to content moderation. Arguably these design decisions could make Reddit one of the most suitable platforms for experimenting with web3 mechanisms. Indeed, Moons are just one example of Reddit’s innovative community points program, which allows subreddits to launch their own ERC-20 tokens, and even provides an Ethereum-based wallet called the Reddit Vault to store these tokens. Apart from Moons, r/FortniteBR’s Brick tokens are another notable example of this program .
As of August 2023, Reddit Moons have gained traction following its listing on several major centralized exchanges, including Kraken . Yet, despite the immediate euphoria of these tokens “mooning,” the long term success for such a simple “post-to-earn” mechanism remains unclear. According to the above data and August 12 price data, the Reddit “Maxers” Moons income would be around $4200 USD, and the median income would be just around $0.9 USD . This is a sobering statistic that underlies one of the fundamental problems of the X-to-Earn model: you simply ain’t earning much, or at the very least, far less than the “live-changing money” that such projects may sometimes advertise. Moreover, the income is often skewed and concentrated to just a few users, and so the average user may not be able to enjoy much of the “to-earn” part, even as they participate in the “X” activity. Eventually users may get disillusioned with these meager earnings, and in cases such as StepN, set the project towards a road of collapse .
Thus, the emphasis on the “earning” for a simple “social-to-earn” project may not be sustainable in the long run. Instead, there has to be the creation of a novel social experience for the end user, a process that a user would gladly pay for, rather than getting paid to do. The recent buzz of the friend.tech project on the Base network highlights this point. Friends.tech is essentially “a stock market for X (fka. Twitter) profiles,” where you can buy and sell “shares” of an X (fka. Twitter) influencer’s profile . Through owning “shares” of an influencer, the user is promised increased access (such as through private chats and other exclusive benefits) and the user can freely trade these shares.
Data and prices as of August 12, 2023. Source: Dune Analytics 
Building a Web3 First Social Community
Instead of trying append web3 features such as tokenization to existing web2 social platforms, built to a very different revenue model, another approach to creating a “killer social app” in web3 is to build it from the ground up, bootstrapping from a unique crypto-native community and culture.
Phaver is a prime example of a “web3-first” social community. Built on top of the Lens’ social graph (and more recently integrated with Cyberconnect’s social graph), Phaver appeals to a web3 native community through its integration with other web3 social identity tech, such as NFT communities and soul-bound tokens. This is a platform with a unique dual-token model, using a novel scoring system consisting of “cred” and “points” that allows users to level-up to earn rewards and perks on the platform .
Phaver Cred System 
“Cred” is essentially the user’s credibility on the platform. Users can increase their credit through linking soul-bound tokens or NFTs to their account, as well as through daily engagement on the platform. “Points” are rewarded to users based on the quality and engagement of their posts themselves, and will be eventually redeemable for Phaver tokens. Importantly, the higher the user’s “cred,” the more points they are able to get for a post .
Because users have to link soul-bound tokens and specific NFT collections (eg. Cryptopunks and Bored Apes) to get “cred,” this provides a useful way of discriminating between users and bots on the platform. In fact, it is almost like a “proof of stake,” but for social identity; think about how mindblowingly expensive it would be for a bot-farm to buy a Bored Ape for every single bot in order to get high Phaver cred! Thus, Phaver proposes that projects can use its “cred system” to prevent airdrop bot-farming and guarantee that users are humans, rather than bots – all without scanning any retinas too .
From above, we can see that Phaver creates a novel tokenomics system to create a web3-first social community. But for Phaver, as with many web3-first social apps, the primary challenge is to expand beyond just this native web3 audience, towards a crowd of users that don’t have any experience with web3, and not knowing what a Bored Ape or a soul-bound token is, all while giving these users a clear rationale for using the platform. Even though Phaver states that it follows a “web2.5” model , allowing users to register without a Lens profile, much of the “unique experience” of Phaver is heavily reliant on web3 industry knowledge, bearing an educational cost which may act as a significant barrier to widespread adoption.
Another notable project inspired by web3's community subculture is POAP, or “Proof of Attendance Protocol,” derived from the crypto space’s unique “conference culture” and annual global event series, such as ETHGlobal. Essentially a POAP is an NFT, or ERC-721 token, minted through the POAP smart contracts, digitally representing a user’s attendance at an event or conference and stored immutably on-chain. Since 2021, POAP has issued over 6 million of these NFTs, in collaboration with internationally well-known brands such as Adidas, Vogue, Github, and the US Open . Perhaps the most interesting part of POAP, however, is how it can be used as a social primitive, as a way to bootstrap social networks and find others that have similar interests and networks.
Moreover, events, conferences, and conventions are things that don't require web3-specific knowledge to understand – it is easy to imagine anime conventions, world expos, and national galleries implementing similar POAP-style mechanisms for various communities and subcultures. The core question here, however, is how to sustain these POAPs’ utilities, whether it be rewarding attendees with loyalty programs, trading opportunities or exclusive events, in order to ultimately bootstrap novel social communities and thus create a new form of digital social experience.
So, how shall we create that “killer app” after all?
In the end, web3 social’s long-run success has to be in the creation of a new form of social experience, rather than in the replication of some web2 mechanism and say that it’s special just because it is “on-chain” and “tokenized.” Rather, there needs to be a qualitatively new experience, particularly one that is culturally rooted and inspired by web3 – whether that is NFT communities, asset tokenization, or crypto conference cultures.
More importantly, while tokenization and other web3 mechanisms allow for many new application designs, for a “killer app” to be scalable to audiences beyond the crypto-native, there must be an easy to understand use case (such as event attendance), rather than being filled with web3 jargon and concepts. In essence, going forth web3 social must leverage the distribution and abstraction techniques of traditional social media, such as TikTok or Instagram to “go viral.”
With social media ultimately being a way for users to express individuality and personal preference, any successful web3 social media needs to have an open-ended design space, one where users have a sufficient “blank canvas” to create their own use cases. Oftentimes, the reason for the “viralness” of a social application is something wholly different from what it set out to be. TikTok as a company, for example, could not possibly have predicted all the different fads and challenges that have appeared on the platform. The strength of such a platform lies precisely in the open creativity platform that such an app unleashes. It is only once web3 embraces this design decision, rather than being focused on financialization and on-chain copycats, that we can truly begin to build a wholly new “killer app” that scales web3 social to the point where it becomes the only “social.”
 Reddit Moons Wiki: https://www.reddit.com/r/CryptoCurrency/wiki/moons_wiki/
 Reddit Moon Tokenomics: https://www.reddit.com/r/CryptoCurrency/comments/15eeshy/a_serious_sneak_peek_into_moons_tokenomics_supply/
 Reddit Community Points program: https://www.reddit.com/community-points/
 Moons price data, accessed August 12, 2023. https://coinmarketcap.com/currencies/moon/
 On X-to-Earn Unsustainability: https://medium.com/the-spartan-group/most-existing-x-to-earn-protocols-are-simply-not-sustainable-811c6946619d
 Friends.tech data on Dune Analytics: https://dune.com/msilb7/friendtech-on-base-activity
 See Phaver’s stated “web2.5” approach: https://cointelegraph.com/press-releases/phaver-x-cyberconnect-bringing-web3-to-the-masses
 From https://poap.xyz/
- Paul Veradittakit
Democratic policymakers are rethinking their stance on stablecoins in the wake of the fintech giant's PYUSD announcement, says John Rizzo. Here's why.
Fintech, Web3, and artificial intelligence are one economic whole, and our ability to grow each relies on their deep synthesis, says Lex Sokolin, founder of Web3 investment fund Generative Ventures.
The approval makes Coinbase the first crypto-first platform to offer regulated and leveraged crypto futures alongside alongside traditional spot trading
The much-awaited Shibarium network saw over 21 million wallets created during its testnet and is expected to position Shiba Inu as a serious DeFi contender.
Digital miners are creating the Digital Energy Council to advocate for their interests among politicians.
The exchange co-founded by Kyle Davies, Su Zhu and Mark Lamb was formally reprimanded by the Virtual Assets Regulatory Authority (VARA) in May.
NEW PRODUCTS AND HOT DEALS
Ledger users can now buy crypto through the Ledger Live App using PayPal, with direct storage to their hardware wallet.
The raises comes nearly two months after BitGo ended its plan to buy beleaguered rival Prime Trust.
LETS MEET UP
Blockchain Applications Stanford Summit, Stanford University, August 26-27
Science of Blockchain Conference, Stanford University, August 28-30
Starknet Summit 2023, San Francisco, August 31
TOKEN2049, Singapore, September 11-13
Mainnet 2023, New York City, September 18-22
Walks and coffee meetings in San Francisco throughout the year!
Hi, I’m Paul Veradittakit, a Managing Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. I’ve been in the industry since 2014, and the firm invests in equity, early stage token projects, and liquid cryptocurrencies on exchanges. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.
Thanks for reading VeradiVerdict! Subscribe for free to receive new posts and support my work.