The social finance (SocialFi) sector can learn valuable lessons from the collapse of Friend.tech, helping to drive the next generation of projects to sustained long-term success.
SocialFi reimagines social media with decentralized structures, promising users greater control over their data, privacy and monetization opportunities.
Friend.tech linked its decentralized social media platform to X, catching a hype wave from August 2023 into 2024. But its token’s price crashed in May and was effectively pronounced dead in August.
Andrew Saunders, chief marketing and growth officer for SKALE Labs — the foundation developing the gasless Ethereum Virtual Machine-compatible blockchain SKALE — said the failure of Friend.tech is a reminder of just how difficult it is to achieve mass adoption.
“Getting innovators and early adopters is not massively challenging; however, crossing the chasm to mass adoption is very challenging,” Saunders told Cointelegraph. “This is the wall that Friend.tech ran into, as did many early Web2 social platforms like Highlight, Path and Pheed.”
“Crossing the chasm” refers to the 1991 marketing book of the same name, which deals with the complexities of scaling to mass adoption. According to Saunders, the challenges facing SocialFi are not that different from those historically faced by other technology sectors.
Crossing the chasm visualized. Source: Think Insights
Anurag Arjun, co-founder of Web3 blockchain Avail, went further. He told Cointelegraph that Friend.tech not only failed to capture new audiences but also failed to keep its core audience of early adopters engaged and happy.
“Friend.tech struggled to maintain a product that resonated with its user base over time.”
He added that “continuous engagement with feedback” was necessary to grow a product “in alignment with user needs and preferences.”
The ignominious manner of Friend.tech’s end, which raised accusations that the protocol and its team “rugged” users, also made it essential that the industry now focuses on “trust, credibility and data integrity,” said Saunders.
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From Dec. 2, 2023, to June 11, 2024, the Friend.tech team sold 19,477 Ether (ETH) worth $52 million. At the same time, the native token of Friend.tech devalued by 95%.
Great start, bad finish
A common theme raised by key opinion leaders is how Friend.tech started well but ultimately stagnated and fell away.
The total value locked (TVL) on the protocol would seem to support this narrative. TVL on the Friend.tech protocol reached its peak in October 2023 at $52 million, just three months after its launch. On Jan. 1, the TVL was $36 million. As recently as May, the TVL remained just above $30 million. Today, just $3.4 million remains on the protocol.
Solo Ceesay, co-founder and CEO of the decentralized Web3 platform Calaxy, pointed to this strong start and weak finish, revealing positives and negatives in the Friend.tech story.
“Friend.tech’s immediate success shows how palpable the desire to use Web3 applications in everyday life is within our industry,” Ceesay told Cointelegraph. “However, it also highlights how shortsighted builders and, more specifically, product managers are within our industry. Lacking core utility and an executable plan authored by leadership ultimately fueled the market’s loss of confidence following Friend.tech’s explosive rollout last year.”
The total value locked on Friend.tech. Source: DefiLlama
Arjun said, “Companies should focus on building products and strategies that are sustainable in the long term rather than pursuing short-term gains. This involves investing in research and development, prioritizing enduring solutions over quick fixes and planning strategically for future growth.”
Kitty Horlick, director of Rarilabs — the company behind digital ID protocol Rarimo — told Cointelegraph the example of Friend.tech was a reminder to “prioritize long-term value creation and sustainable growth.”
Horlick said the industry must avoid “the pitfalls of speculative schemes” and focus on “creating meaningful connections rather than short-term monetary gains.”
James Toledano, chief operating officer for the self-custodial Web3 Unity Wallet, told Cointelegraph the single biggest lesson from Friend.tech is: “Don’t believe the hype.”
“Hype-driven growth without a sustainable value proposition will lead to rapid user drop-off and huge disappointment.”
Web3 improving rapidly
Despite Friend.tech’s tribulations, the industry as a whole remains positive about the future.
Dominic Schwenter, chief operating officer of Ethereum layer-2 Lisk, said the SocialFi industry, like much of Web3, continues to iterate and improve.
“One of my favorite aspects of the Web3 industry is that we get to see projects come to market in real-time that are just too early or the tech is not ready yet, and then a few years later, another team tries a similar application, and it’s 10 times better,” Schwenter told Cointelegraph.
“SocialFi apps, like many other types of Web3 apps, are leaps and bounds more user-friendly than those that came out three to four years ago.”
Schwenter said there is still room for development before SocialFi becomes indistinguishable from Web2, but the end game is close at hand.
“One can easily expect that within two to three years, it will become hard to tell the difference between a Web3 social platform versus an existing Web2 alternative.”
SocialFi: An industry on the up
SocialFi remains an industry with hurdles to surmount. As Toledano points out, “Scalability issues, high fees and slow transactions limit widespread adoption.”
Horlick said another critical challenge is “developing novel social value propositions.”
“Ultimately, the success of SocialFi will depend on builders’ ability to innovate and create platforms that offer a truly unique and valuable experience for users. Simply replicating existing social media models will not suffice,” Horlick said.
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SocialFi may not be there just yet, but Saunders believes the industry is headed in the right direction with a solid value proposition.
“While there is still ample room for improvement in current SocialFi products, projects that empower users to build audiences and create relevant content for them while earning rewards for doing so represent a unique starting point,” he said.
Ceesay argued that SocialFi could still prove to be one of the most important sectors in the blockchain industry.
“I firmly believe that SocialFi is one of the best, most logical applications of distributed ledger technology. Quite frankly, SocialFi applications have the potential to make the technologies Satoshi pioneered accessible to those who need it most — everyday people.”