Crypto Social: A New Business Model for Love and Reputation

Author: Li, Source: Author's Blog; Compiler: Song Xue, Golden Finance

While "social" is often generalized into a single overall category, there are actually a lot of differences in today's social apps.

One point I like to analyze social networks is the role they play – how much the user desires love and fame.

Years ago, Twitch co-founder Kevin Lin told me that Twitch offers creators three dimensions of value: love, fame, and money. (There's a video on YouTube of Twitch co-founder Emmett Shear outlining the framework.) For the purposes of this article, I'm going to put aside the money or income prospects, because it's an orthogonal dimension, and I'm going to put it aside. More on that later.

**All social networking apps fall under the umbrella of love to fame. **

When it comes to love, there are products that focus on deepening the connection with others. Examples include iMessage, WhatsApp, early Facebook, and Discord. The value proposition is to connect more intentionally with others, nurture existing relationships, and enhance affinity. ** These products are often marked by a two-way relationship, such as friendship on Facebook or iMessage. When users use products like Discord or WhatsApp, they are usually doing it for a specific community or individual, not to discover new content. These products reinforce this value proposition through deterministic algorithms (if A sends something to B, someone else will always receive it).

When it comes to fame, there are products that can help users gain fame or influence. ** These products are built around new content and the discovery of creators. Examples of reputation-focused social products include YouTube, Instagram, TikTok, and Twitch. These products are characterized by one-way relationships (or "followers"). Influencers become professional, become creators and reach a growing audience – a dynamic that does not exist on two-way social networks. Products in this area use probabilistic algorithms to display content based on the likelihood of engagement, so there is no guarantee that users will be able to reach their followers.

The dichotomy between these two extremes can be summed up as social networking vs. social media.

There's an inherent tension in building for love and fame, rooted in the zero-sum nature of time and attention: users have a limited amount of time to spend on any one social app, so apps that emphasize creators finding new content overly involved in existing connections are clearly for fame rather than love. **

An example here is TikTok's default For You feed: it underestimates the weight of the follower graph and instead defaults to showing users new creators and what it recommends.

The dichotomy of love and reputation is a spectrum; Platforms often have elements that cater to love and fame. Instagram – which tends to become famous as a whole over time – has both fame features (exploration, reels) and love (direct messages, stories, close friends). Reddit's homepage can be browsed as a celebrity product to showcase content on Reddit, but users who use the platform's specific subreddits, as well as the affinity between those community members, are using it as a favorite product. The combination of both types of features can create a higher retention rate because there isn't enough inventory of engaging romance content. WhatsApp, Messenger, and iMessage are still pure love utilities due to their network effects, but other social apps must add fame features to improve retention.

A broader trend in "famous" products

I often hear people say that they feel that, on a broader level, social networks are moving towards social media; Apps that used to focus on friends are now focused on entertainment, and everyone is now expected to be creators. Once used to learn about the lives of friends, Instagram is now mostly used to follow creators and brands.

I think it's true, and it's guided by business models and incentives rooted in network effects. Once users reach the limits of the people they know, social networks featuring two-way social graphs reach the upper limit of network effects. The utility of products like iMessage or the original Facebook doesn't scale as the total user base grows. On the contrary, once the user connects with all their friends, it reaches the upper limit. However, fame-based products have a more unfettered network effect: users can see anyone's content, and their usefulness increases as more users join. **Under the advertising-led business model, it is our goal to get more users to participate in the game for a longer period of time, and the fame-driven model is more beneficial to expand the user's attention and revenue. **

Interestingly, social products in love often don't make money well with ads: users don't want to insert ads into messages sent to friends or a smaller community, which is understandable. Conversely, the dominant business model for love products tends to be subscription-based, whether for platforms (e.g., Discord Nitro, or WhatsApp's initial $1/year fee) or for specific creators or communities (Twitch subscriptions). This is even more true for dating apps, with Hinge, Bumble, and Tinder offering even higher subscription prices. People are willing to pay more for more serious relationships and connections.

As described by Eugene Wei in his article on Status-as-a-Service, a successful reputation platform also has a core skill-based status game. In contrast, this status game is less prominent in romance products and is limited to smaller networks. Most love-based social products are more of a feature-rich communication tool than a platform for pursuing social status. They have utility in the user's life, connecting them with friends or groups rather than serving as a place for performances. Obviously, there are products that introduce status games to love platforms – imagine upvotes/downvotes on Reddit posts – but status games are usually smaller in nature.

Many users have pointed out that the meaningful vibe shift on X (formerly known as Twitter) shows that it has transformed from a love platform to a reputation-focused one. ** While the default newsfeed previously prioritized tweets from accounts you follow, the new algorithm is filled with people you don't follow. The new default "For You" feed (a tribute to TikTok) shows the algorithm to determine viral posts you might like based on the probability of engagement. Analysis of its open-source algorithm also showed an increase in feed rankings for X Premium (formerly Twitter Blue) subscribers. This design meaningfully changes the tone of the platform by downplaying the user-curated follower charts over time in favor of a more engagement-oriented and recommendation-based model; It transformed it from a mix of handpicked creators into a more viral, hit-driven platform.

As we've seen in established social networks, the trend towards fame has created opportunities for new networks focused on deepening connections. ** Love-based products have room to serve smaller communities and groups, especially when incumbents rely on an ad-based business model seeking increasing user attention to grow their business.

Newer social media apps often focus on initial wedge use cases for smaller groups. ** Apps like BeReal, Retro, and Lapse each work to create deeper connections with friends that fame-based social media have overlooked (with varying degrees of lasting success). But apps that focus on smaller use cases often struggle with monetization and can become victims of their own success, eroding their value proposition of deep connections with smaller groups as they grow and novelty wears off.

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Crypto Social: A New Business Model for Love and Reputation

To date, crypto social has been mostly about love (helping users form deeper connections and profit from them) rather than reputation. ** Compared to web2, where advertising-based business models put pressure on social media and entertainment offerings, cryptocurrencies uniquely make it possible for love-based networks to thrive. I wrote before:

Crypto social networks can allow them to thrive through new business models that enable the presence of smaller, high-background groups. ** Today, most web2 social platforms aim to achieve growth at all costs, which is in line with their advertising business model. This means that products that focus on smaller groups, such as Facebook Groups or Twitter Communities or Path, which is now defunct, don't have a great business model.

Cryptocurrencies can change this by enabling these smaller communities to survive and thrive. This can take the form of shared vaults (noun DAOs or FWBs) and forming alliances to maintain the health of the community, or minting the community's on-chain artifacts as a means of generating income (e.g., Crypto, Culture & Society DAO, a type of learning community).

A few years ago, Facebook piloted a feature that let group admins charge an admission/membership fee to support the cost of managing and maintaining the community (which is a full-time job for many). For some reason, the feature has been deprecated, and FB Groups are still not profitable. I think users are willing to pay to support smaller, healthier communities, but there is limited infrastructure to make that happen. With cryptocurrency, it will be easier for these communities to choose and configure their own business models, and in this way, we can see small communities thrive.

Narrowing it down, the biggest achievements in history in social have come from the creation of new networks:* from real-life friend-based networks (Facebook) to interest-based networks (Reddit, TikTok) to knowledge-based networks (Quora). Cryptocurrencies have the opportunity to try to build a new type of ownership-based network that leverages on-chain assets as the foundation for new communities. We call this idea a socio-economic network (and not a purely social network).

These communities can deepen the connection between users based on shared ownership, helping them find their tribe. In the real world, shared ownership is often the basis for connections from neighbors to colleagues at startups. DAOs and NFTs are early examples of communities where shared on-chain ownership forms the foundation of a high-affinity community. In October 2023 alone, more than 17 million NFTs were mined on Ethereum and L2; As the volume of user activity grows, you can imagine inferring a user's interest based on on-chain operations and exposing connections based on a rich activity history.

Fame and influence are a tricky value proposition in cryptocurrency, as there are only about 400,000 active wallets on Ethereum every day. At the same time, this number is growing steadily and is now large enough to build discovery-focused platforms, especially those that monetize through models other than advertising. To create a sticky, fame-appealing social product, it's important to tap into the user's psychology and desire for social status. This means the introduction of a new skill-based game.

Skill-based games in cryptocurrencies typically focus on things of a high earner, consumer, or financial nature. For example, Friend.tech's leaderboard can be thought of as a status game, where the ranking is based on the highest key price, i.e. the number of holders is 1. I think money-based status games are inherently exclusive – they're good for those with more capital, but intimidating for newcomers. Consider that new users of TikTok may feel like they can win in the app's creative video centrality game, but new users of the financialized social network may feel like they have little chance of winning.

Cryptocurrencies can offer a new type of status game with a lower barrier to entry, known as "proof of preemption": who first did something, discovered someone, or mined something, based on on-chain activity. **

One example is Sound.xyz's "oldest" view of each user's profile, which showcases the artists they supported the first time. There is a precedent for this type of behavior in Web2, where users like to comment on a piece of content "first" or "early" or "invest in [#] likes" to indicate that they discovered the content early on. In crypto-social applications where user actions are time-stamped on-chain, this "first proof" may not just be user-generated, but emerge in a more automated way and revolve around its gamification mechanism.

As established social networks become more famous, there is room for new networks to focus on deepening connections between communities. As users connect on shared ownership and interests**, the unique characteristics of cryptocurrencies create opportunities for new networks across the spectrum of love fame to thrive. ** I believe that new business models will emerge to support different and smaller networks that are viable than the ad-based model can do, meeting the human need for social status and connection in novel ways.

Source: Golden Finance