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Variant: The Web3 social stack will continue to verticalize

BlockBeats2024/06/02 04:37
By:BlockBeats
Original title: "Verticalization of the Web3 Social Stack"
Original author: Mason Nystrom, Variant
Original translation: Lucy, BlockBeats

Editor's note:
Variant's investment partner Mason Nystrom delves into the development trends and different vertical integration approaches in the SocialFi field. Mason makes a detailed comparison between the transaction-first and social-first approaches and provides relevant examples to support his views. The article emphasizes the importance of building applications with vertical integration designs in the evolving SocialFi ecosystem and points out the challenges and opportunities.


As crypto social platforms and financial games become more popular, the way they are built is also evolving. We can foresee a trend that more and more projects will pursue vertical development, striving to provide users with a more seamless and comprehensive experience, thereby creating new consumer behaviors and assets based on attention or social. While not all Web3 social experiences are financially related, the Blockchain technology underpinning crypto consumer applications enables new token-based incentive behaviors and digitally native assets to be integrated into social experiences.


The current SocialFi stack consists of four core layers:


· Discovery: Where users discover content to purchase

· Execution: Where assets are bought and sold

· Liquidity: Where assets reside and are pooled

· Asset Issuance: Where assets are created


Today, the stack is fairly fragmented, with user discovery and social experiences separated from execution (e.g., trading), liquidity, and asset issuance. But as the SocialFi space expands, applications will continue to verticalize attention and marketplaces to control the user’s social experience and the liquidity of attention assets.


SocialFi application developers will need to own multiple layers of the SocialFi stack to ensure the defensibility of the protocol. Focusing on asset trading (e.g. execution) and issuance are universal layers of the stack - token issuance is becoming easier and execution functionality can be added anywhere that attracts user attention. Owning discovery or liquidity layers will become increasingly important as these are defensible layers of the SocialFi stack with strong network effects.



In the SocialFi space, most apps face two choices in terms of verticalization:


A transaction-first approach: build an exchange or marketplace that lets users trade attention assets (e.g. Robinhood memes), then grow from that foundation into a social/discovery platform.


A social/discovery-first approach: build a social platform with discovery capabilities, then add financial elements and basic primitives on top of that, with consumers/attention merchants being the key stakeholders of the platform.


Transaction-First


Any social network or discovery platform faces significant headwinds: launching new social graphs, inspiring new consumer behaviors, and keeping users engaged in a competitive attention market. Given these hurdles, a transaction-first approach may be easier to launch, as users’ enthusiasm for speculation helps overcome these headwinds. However, this approach faces more competition, as exchanges are easier to launch than social networks, and social networks retain more of an advantage once a certain user density is reached.


Deep verticalization of the SocialFi stack from a trading-first approach has proven effective as trading-first applications have built-in functionality focused on asset trading. For example, Friendtech has become one of the most vertically integrated SocialFi applications, taking control of the entire stack. The application serves as a focal point for key discovery and exclusive execution, and leverages a native financial primitive - the bonding curve - which issues assets with specific utility for the Friendtech application.


A new generation of SocialFi protocols are also vertically integrating the SocialFi stack. For example, meme coin issuance and discovery platforms like Pump and Ape Store allow users to easily deploy a meme coin on a bonding curve. This allows users to purchase tokens directly from the bonding curve without having to wait for someone to inject liquidity into a DEX or liquidity pool. Although some of the meme coin execution and discovery enabled by Pump can be found on other platforms - such as DEX Screener and Twitter - protocols like Pump still provide a unique social discovery experience and execution platform for newly launched tokens.


Social First


Historically, the social-first approach to SocialFi has seen success through the likes of Twitter, Farcaster, and Telegram, as well as through market terminals like DEX Screener and CoinGecko. Many of these applications attempt to integrate down the stack, providing execution (e.g. trading) of tokens, but have yet to fully lean into providing a custom, proprietary trading experience.


The only exception is Telegram, which has successfully integrated a social finance experience. However, Telegram’s UX is limited, and while degens chose it for convenience, there is room in the market for more Robinhood-like experiences that offer seamless trading UX, simple onboarding, and retail-friendly features like zero-commission trading. Additionally, new primitives like Farcaster frames and casts and Lens open actions further facilitate new types of financial transactions in these social-first networks.


Final Thoughts: Have a say


By thinking about the impact of monetization and financialization on their applications in a unique way, builders can create compelling social finance games and networks. A transaction-first approach is easier because it doesn’t necessarily rely on creating new consumer behaviors; people already want to trade attention. But a social-first approach, where one platform controls the eyes, has historically been more defensive than one that only controls the orders (e.g., trades). The main goal of a social-first or discovery-first approach is to iterate quickly, testing new consumer behaviors and social finance dynamics until users show explicit preferences for potential development into large social networks. I believe that the most successful applications will have a point-of-view, vertically integrated design that creates liquid markets for new types of assets or markets, or markets that facilitate new consumer behaviors.


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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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