SocialFi, an innovative fusion of social networks and decentralised finance, is one of the fastest-growing narratives in Web3 in 2024. With a market capitalisation reaching $2.2 billion according to CoinGecko as of 1 September 2024, this sector is emerging as a response to the challenges of centralisation, censorship and personal data management posed by traditional social networks.
By reinventing the way users interact, control their data and monetise their content online without centralised intermediaries, SocialFi promises to transform not only the user experience, but also the underlying business models of these platforms. However, like any emerging sector, SocialFi will have to overcome challenges, particularly in terms of scalability and mainstream adoption.
Status of SocialFi in 2024 In 2024, SocialFi is attracting increasing attention. According to DappRadar, its market share surpassed that of NFT and DeFi in the second quarter. While DeFi fell from 30% to 17% year-on-year, SocialFi rose from 13% to 19%. Only the gaming sector, which has remained relatively stable, is still ahead of it.
UAW: Unique Active Wallets The DappRadar report highlights remarkable growth in the SocialFi sector: transactions grew 305% between 2022 and 2023, while the number of unique active users (UAWs) grew 66% in Q2 2024, reaching nearly 2 million UAWs per day.
This upward trend continues, with market forecasts estimated by Statista at $178.90 billion by 2027.
Major projects in SocialFi Friend.tech (FRIEND) , a SocialFi pioneer since its launch in 2023, dominates the sector with a 62.55% market share according to Defillama. The platform allows social profiles to be tokenised, particularly in relation to X, offering a new way of monetising influence. However, despite its initial success and a sharp rise in TVL in the first two months after launch, TVL has steadily declined, with a marked drop since May 2024, indicating a sharp decline in interest after the initial hype. To everyone's surprise, its development team took the decision to halt the project on 8 September.
Cheelee (CHEEL) is distinguished by the gamification of social interactions. By incorporating game mechanisms, Cheelee encourages participation and the creation of quality content. The social network has already distributed tokens worth a total of $11 million.
CyberConnect (CYBER) , launched in 2023, offers users the ability to create and manage their social graphs on a blockchain. This platform allows users to own their digital identity, content and connections within an interoperable ecosystem.
Lens Protocol provides an infrastructure for decentralised social networks, facilitating the creation and management of content through interoperable applications. Its best-known social network is Hey (formerly Lenster).
Open Campus (EDU) is redefining education with the first layer 3 blockchain specifically designed for this sector. Open Campus is a DAO and community-led protocol that reinvents the concept of "Learn-to-Earn" by connecting learning to profit opportunities.
XCAD Network (XCAD) is innovating by embedding tokens in video content, allowing creators to monetise their audience in a direct and transparent way, while offering users ways to interact with their favourite creators.
Hive (HIVE) , with its total decentralisation, offers a publishing platform where creators have complete control over their content, removing the constraints of traditional platforms such as censorship.
Farcaster gives users total control over their data and interactions. It is a protocol designed to create decentralised social networks, promoting user autonomy, confidentiality, interoperability and resistance to censorship.
DeSo (DESO) provides a layer 1 blockchain infrastructure dedicated to the creation of decentralised social network applications. It is capable of hosting storage-intensive applications for billions of users.
Audius (AUDIO) is revolutionising music streaming by giving artists total control over their revenues through a decentralised platform.
Current challenges SocialFi, while innovative and promising, faces several challenges that could hinder its adoption and large-scale development.
Scalability remains one of the main challenges. SocialFi platforms have to handle large volumes of data and transactions in real time. Although blockchain is innovative, it is still struggling to compete in terms of speed and volume, with transaction costs sometimes too high and frequent network congestion. Solutions such as sharding and Layer 2 technologies (read our analysis) are being explored to improve this scalability, but their large-scale effectiveness has yet to be demonstrated in the SocialFi field.
Another major challenge lies in the sustainability of business models. Many SocialFi projects attract users with generous token rewards, but this strategy is not very viable in the long term. These incentives, often perceived as short-term "growth hacks", can lead to extreme volatility in tokens or dilution of their value due to too many tokens. This can lead to a rapid decline in user interest. To thrive, these platforms need to develop robust business models that are resilient to market fluctuations, while promoting long-term user retention.
These business models also depend on solving scalability issues, as high transaction and infrastructure costs can make platforms less attractive to users.
General public adoption also remains a major hurdle for SocialFi. Convincing users of well-established platforms such as X or Instagram to adopt decentralised alternatives requires demonstrating real utilities and clear benefits.
Alongside this, accessibility and user onboarding also represent significant challenges for SocialFi adoption. The registration and login processes on these platforms need to be simple and quick to attract an audience that is not necessarily familiar with Web3 tools. Account abstraction could be one of the answers to this challenge.
Some protocols in the ecosystem have begun to respond to this challenge. For example, Warpcast offers fluid and rapid onboarding, allowing users to sign up easily by simply using an email address after downloading the application. However, other protocols have yet to overcome this challenge. Lenster, for example, requires the connection of a mobile wallet, which can complicate access for less experienced users. Improving the simplicity of the user experience and reducing technical barriers is therefore essential to drive wider adoption of SocialFi.
Finally, security and regulation are constant concerns for the blockchain sector, and SocialFi is no exception. Although blockchain is renowned for its robustness, SocialFi platforms are not immune to hacks, scams or other threats. In addition, the regulatory landscape surrounding blockchain remains unclear and complex, varying from region to region, which could complicate and slow the development of SocialFi.
Future prospects Despite the challenges it faces, SocialFi is positioning itself as a major player in the evolution of social networks towards more equitable, transparent and decentralised models. As an alternative to traditional social networks, SocialFi is responding to growing concerns about censorship, centralisation and the management of user data. These issues have recently been highlighted by events such as the arrest of Pavel Durov, the founder of Telegram, on 24 August, or the revelations about Facebook, where Mark Zuckerberg admitted in a recent letter that censorship on his platform had been carried out under pressure from the Biden-Harris administration, with the approval of the French government.
These events and issues reinforce the demand for social networks that respect freedom of expression and protect user data, driving more and more users to seek alternatives. Thus, the future of SocialFi looks promising, as it is positioned as a direct response to these needs.
However, although the trend is emerging and many SocialFi protocols and applications are being developed, most of them are still very new, with many projects launched in 2023 or 2024. As a result, there are still many challenges to be faced, particularly in terms of scalability and the viability of as yet unproven business models. The major challenge also remains convincing the general public to adopt these new forms of social networking, beyond the already convinced Web3 users, such as Vitalik Buterin.
At present, SocialFi is still at an emerging stage and is struggling to compete in terms of user volume with traditional social networks. Existing protocols often have low retention rates and attract mainly users already familiar with decentralised technologies.
To succeed in the long term, SocialFi will not only have to overcome its technical and economic challenges, but also manage to capture the interest of the general public. This represents a major challenge, but thanks to constant efforts to innovate and raise awareness, SocialFi has the potential to transform the social networking landscape for good and redefine the way we interact socially and financially on the web. In addition, monetisation models are set to evolve, offering new opportunities for content creators and users.
