Next Gen Social Media
A primer on web3 social, and why it might win
The printing press was invented in 1436. In the 586 years since, we’ve seen religious movements, political revolutions, and entire industries boom as a result of the printed word.
By comparison, the internet is still in its infancy. It was invented in 1983, and wasn’t opened to the public until the 90s. The internet is much bigger than the printing press, and it’s going to play a role in society for hundreds, if not thousands of years. The early print shops of the last millennium are no longer with us, and there’s no reason that Facebook, Google, and Twitter need to be the endgame for social media. There will be more ways that we connect with each other over the internet. TikTok’s rise is proof that there is room for more social platforms.
As I write this in 2022, people still debate whether or not web3 offers anything of value on top of the current iteration of the internet. I think one area where it will have a massive impact is via decentralized social media.
What is Web3 Social Media?
Throughout the last year, the Web3 meme has taken off:
Digital gold and digital art may have found product-market fit first, but they’re far from the whole picture when it comes to blockchain based innovation. The way I see it, Web3 is about all the other non-financial stuff: creator tokens, tokens as proof of x (ownership, attendance, membership), and distributed ownership in the platforms we use.
And this isn’t about flipping monkey jpegs.
It’s about changing the cap table of the internet.
Web3 social will be a place where:
Creators capture more value from the content they produce
Users and owners share in the collective ownership of platforms via tokens
Developers build without feeling threatened by underlying platforms
Fierce competition happens amongst frontends, while the backend remains open
Free speech is preserved at the global level
Why will it win? Because it will offer creators, developers and users new opportunities for monetization, while at the same time weakening Web2 moats due to the unbundling of databases and application logic (more on this later).
Marc Andreessen took some heat recently for giving a pretty vague example of how Web3 will provide better financial incentives for creators. His go to line was that Web3 is going to ‘inject’ money into existing applications.
That answer sounds pretty hand-wavy on the surface (and to be honest, I don’t even know what he means by ‘injecting’). But he’s on to something. Let’s think about Web2 take rates for a moment.
If you create a video on Youtube that gets 1,000,000 views, Youtube will give you ~$1,000. What is that 1M views worth to Youtube? I’ve seen that Youtube’s internal CPM is around $2, and a recent report from a16z states that their take rate is about 45%. This gets more drastic in other areas. For example, if you’re a prolific Instagram or Twitter user, creating content that millions of users see, are you making money directly via the platform for your work? No. Twitter and Meta are earning 100% of the revenue generated directly from that content.
So how does web3 generate economic value? Direct creator sales, tokens, and (*gasp*) ad revenue.
Direct Creator Sales
NFTs are good for creators because it allows them to earn by new forms of high value digital product to fans.
Some argue that Web2 has the same options though. What about Gumroad, Stripe, and Patreon? What will Web3 social platforms offer that these existing players don’t?
Web3’s opportunity here is to undercut some of these services by offering similar means of monetization with lower fees and higher levels of programmability. For example, I can use Superfluid to open a recurring payment for just the price of gas (which is very low on L2s and Polygon right now). Tokens can be used to gate access to content and you can add features to these assets to ensure that creators are rewarded in new ways. Blockchains have the potential to turn these providers into open, programmable protocols:
Tokens are what makes Web3 go round. So how will Web3 social make use of tokens? It can use them to drive behavior, offer unique financial incentives, & share ownership over the network.
Most people see tokens as quasi-equity instruments, and it’s true that they do often represent some form of ownership, and that they can technically represent the present value of future cash flows in the form of fees/yield. But they’re also useful as a signaling mechanism. Holding FWB tokens or a Cryptopunk says something about you (no matter how silly you and I might think it is).
Many Web3 social networks will will have a token, and these tokens have a few different ways in which they can be valuable. DeFi has shown that there is at least some value in pure-play governance tokens. And governance rights over large existing platforms would be valuable. What if Meta suddenly became a DAO and was governed by token holders? Major brands would have an incentive to acquire “$META” tokens to control the direction of the protocol for their own benefit.
Platforms can also explore revenue sharing that allows token holders to earn a portion of the fees generated by the protocol. This would likely get the network in hot water due to securities laws today, but one day we may get new regulatory clarity which makes this more of a possibility.
Imagine a web3 social network which airdrops tokens to early users, and issues additional tokens to users based on specific activity (posting a viral tweet, getting new users to sign up via a referral program, etc). DeFi has used this model extensively (with varying results) to bootstrap liquidity, what if new social platforms used it to bootstrap users (Balaji also proposed a similar idea in his article on Elon & Twitter).
If these tokens are widely believed to be valuable, then platforms will be able to issue them to creators to incentivize early usage. This could allow early users around the globe to share ownership over the platform, all while helping the platform solve the cold start problem. Imagine if the SEC didn’t prevent Uber and AirBnB from giving equity to early drivers/hosts? It would have allowed those who contributed to the growth of the network to share in the upside. If regulation + technology continues to evolve, we’ll see new networks bootstrapped with the help of this model.
Web3 infra platforms are already experimenting with tokens that aren’t protocol level tokens or governance tokens. As we’ll see later, DeSo allows creators to issue their own creator tokens as a way for fans to speculate on their future value, and Lens is turning almost every social media action into an NFT.
Ad Networks, With New Winners
Attention is worth paying for, and there’s no reason to believe that it won’t also be valuable in Web3. If Web3 social media wins, then billions of eyeballs will be on these new protocols and platforms. There will be enormous incentives to build attribution engines and ad networks for them. Antonio Garcia Martinez, a pioneer in Web2 ad tech, is already getting the jump on this.
This could definitely lead to consolidation and monopoly-like economics (especially for those that win the attribution game), but ideally the ad network of the future will share revenue with the users on these platforms in the form of token issuance or something akin to attention dividends (note, Brave has a model like this already). Regardless, the winners here are not likely to be existing web2 platforms.
It’s become a cliche at this point, but we are early™. What’s cool about these platforms is that they will be open. If you create an ecosystem where anyone can enter, build plugins, and think up new ways to drive economic value, you’re likely to get a system that, in the long run, outcompetes the existing players who have become plagued by bureaucracy and regulatory scrutiny.
The Composable Web
But What About Existing Web2 Network Effects?
Network effects are really powerful, but they aren’t a marker of invincibility. As Marc Andreessen has said:
“I think network effects are great, but in a sense they’re a little overrated. The problem with network effects is they unwind just as fast. And so they’re great while they last, but when they reverse, they reverse viciously. Go ask the MySpace guys how their network effect is going. Network effects can create a very strong position, for obvious reasons. But in another sense, it’s a very weak position to be in. Because if it cracks, you just unravel. I always worry when a company thinks the answer is just network effects. How durable are they?” - Marc Andreessen in the High Growth Handbook
Web3 social platforms have a real chance of beating existing Web2 players in the long run. Why? Because these new platforms will poke holes in data monopolies, have far greater composability, and solve the cold start problem with tokens.
Unbundling Application Logic and Databases
The blockchain will be the backend for many forms of web3 social media - which includes the user table and access to all user data. Note that as of today, the downside here is that everything is public. However, over the long term, there are ways of solving for this with things like homomorphic encryption.
This openness will mean that anyone can create front end experiences based on this open back end. Imagine if every post across every social platform could be indexed & turned into a different front end experience. Every Youtube video, Tweet, and LinkedIn post could be organized into new feeds, with entirely new discovery algorithms & feature sets. For further reading on what this would look like technically, Jon Stokes goes further on this idea in the Billion User Table.
This will change the power structure of the internet. If ‘Login with Google’ becomes ‘Log in With Ethereum,’ it will take a lot of leverage away from big tech platforms. Your data will be yours, and you’ll be free to take it with you. DeFi has been moderately successful so far because it is composable. We can stack money legos on top of each other to build money castles in the sky. What if we could do this with other internet services? Imagine if you could take your data with you to every new social platform? Individual developers stand to benefit immensely from this.
Revenge of the Devs
Open user table? Open season for developers.
Web2 platforms have an increasingly sour reputation amongst developers. One mental model for looking at this is that of the S curve. In the beginning, these companies actively recruited devs to build on their platforms. There were open APIs and friendly talk of collaboration. However, once these companies matured and network effects took over, the attitude toward businesses building on top quickly moved from ‘attract’ to ‘extract,’ and ultimately led to the destruction of companies like Zynga and those that built on Twitter’s API.
“When they hit the top of the S-curve, their relationships with network participants change from positive-sum to zero-sum. To continue growing requires extracting data from users and competing with (former) partners.”
Because web3 social backends will be open by default, there’s no way that web3 platforms will be able to kill their developer ecosystems. If anything, we’re going to enter a world that is aggressively friendly to web3 social developers. For crypto infrastructure, the entire game is about attracting developers. That’s why we’re all flying around the world going to hackathons and creating developer content (:
You’ll see infra like Lens, XMTP, and Farcaster seek out teams that want to build applications on their stack, and then support them for life. It will be against their interest (and beyond their capability) to prevent developers from building on the network.
The only people who can steer the direction of social media today are those who hold power within the bureaucracies of Twitter, Meta, and TikTok. Open platforms will allow anyone to build an application on top of existing infrastructure. It will be much harder to build a moat around private user data. Instead, entrepreneurs will need to compete at solely the application layer instead.
Network effects sure as hell won’t go away, but they’ll be less of a long term moat in the future. I think we’ll see a lot of big platforms with really short half-lives: fast growth and fast collapses. Remember the speed of Clubhouse’s rise and fall? I think we’ll see a lot of that in the world of web3 social. When the user table is open, network effects get more fragile.
Tokens help solve the cold start problem
Just like liquidity mining was able to solve ~some~ of the cold start problems present when needing liquidity for DeFi apps, token incentives can solve cold start problems for getting engagement and usage necessary for building a network effect in the first place. If the world believes the tokens to be valuable (because they represent the ability to dictate the future direction of the protocol, generate future cash flows, or mean that you’re a part of a specific in-group), then they can be used to direct large groups of people toward the growth of the network. And don’t underestimate the power of airdrop farmers. There are always airdrop farmers.
Who is Building Web3 Social?
Let’s break down key emerging infra and their approaches.
The Lens team probably has the largest mindshare of any web3 social media project in the Ethereum community. They’re building an open, composable social graph with NFTs everywhere and lots of programmability built in. This social graph is built as an EVM compatible set of smart contracts currently deployed on Polygon. You can claim a handle today at https://claim.lens.xyz/ (follow me at samflamini.lens while you’re at it).
When I say that there are NFTs everywhere on Lens, I mean it. Every handle, post, and mirror (the Lens equivalent of a retweet) is an NFT that someone owns. Creators can easily enable posts to be minted by their followers as NFTs as well. They can set a price to do so.
Lens is built with developers in mind. There are ‘hooks’ that will run automatically when events are emitted such as retweets, posts, etc. These hooks can contain any arbitrary logic that a developer would like, which opens up a large amount of potential applications.
Not every decentralized social media protocol needs to rely exclusively on blockchains. Farcaster falls into this camp. They make use of an on-chain registry, but that might be about it. One great thing about Farcaster though is that they are thinking through decentralized social media from first principles:
Because Farcaster places the account registry on chain, no one can take away your profile. Content is then stored within ‘host’ clients which can be run on either hardware in the cloud or your own local server. Architecture for running a host is decentralized and fairly lightweight to operate, and while the Farcaster team doesn’t expect millions of users to run their own nodes, it’s really nice to have the option. Even though you’re reliant on the network of hosts for maintaining your messages, the cool thing is that this is still an open network.
Even if the dynamics of the network might trend slightly toward centralization (i.e. there will be likely managed hosting services), you aren’t interacting with purely centralized servers in the case of Twitter, Meta, or Snapchat. And, for all you ETH fans who might be frowning at the lack of maximal decentralization on Farcaster, are you really running your own ETH node, or are you accessing the network via Metamask and Infura?
XMTP is basically an unstoppable messaging protocol. XMTP is made up of a network of nodes which persist the messages sent in the network, and use Waku2 to create pub/sub connections between web3 identities. Once a pub/sub connection has been established, there will be no fee to send messages, but if there is no pub/sub connection, then users of the network will need to pay ‘postage’ to send messages to these unfriended addresses. This is a way to prevent network spam and sybil attacks, as well as an economic model for XMTP nodes to persist message data.
Early PoCs built on XMTP include systems that allowed users trading NFTs on seaport to communicate with one another in an unstoppable manner to negotiate NFT sales. XMTP is cool, but it’s still early, and looks like more of a competitor to What’s App, Facebook messenger, and Twitter DMs than to pure play web2 social media platforms.
This is the platform that Bitclout was built on top of. It’s probably the most controversial of the group, and has been criticized for some of its tactics with Bitclout early on. What’s interesting is that they’re taking an app chain approach to decentralized social media. Instead of processing financial transactions/state changes alone, DeSo supports many other tx types at the L1 layer.
DeSo nodes are meant to run on bare metal, and will likely have high hardware requirements. However, one advantage here is that literally all information generated by the network is stored on chain.
The team has placed a focus on creator coins as a feature set. Each profile gets coins which can be traded. It’s very unclear what they’re useful for as it’s very hard to connect them to revenue sharing or anything like that. Creator coins are an attempt at enabling people to invest in a scarce resource which is merely associated with the creator. One interesting use case of these creator coins though is the potential to effectively daoify a creator community using these coins. Creators could also use them to grant access to varying levels of membership in their community. So far this concept of speculation on future star power and ‘like mining’ by giving out coins to early supporters.
Other Pieces of the Web3 Social Stack
Front end apps which are meant to interface with end users will be built on top of technology like DeSo, Lens, XMTP, and Farcaster. There will be some competition at the protocol level, but I predict that the most fierce competition will happen at the application level. So what other tools will developers leverage to win the battle?
These services may be combined with one another, and they’ll almost certainly be combined with other Web2 and Web3 infrastructure.
Storage & Persistence
Why Does All of this Even Matter?
Censorship resistance is really important.
The world does not want to be subject to the control of San Francisco, or ultimately, Washington DC. The world is large and would likely welcome these new platforms
Open platforms are better for innovation
Free speech is something that we Americans love to cite as something that’s great about our country. However, free speech laws were put in place in the US before the entire world was put on equal footing in terms of distribution, and now legacy media - the very people who used to beat their chests the hardest about free speech - are calling it into question. You can speculate as to why this is, but I think that Balaji’s analysis is the right one: truly free speech threatens the legacy media business model and position of power. The US has a system of ‘soft censorship’ - one that censors via social media cancellation & social media deplatforming. You can’t do much about the former, but the latter is something that Web2 companies seem to be engaging in increasingly often. It’s one thing to incite violence (it is against US law to do so), but it’s another to throttle opinions that you don’t like.
The level of control that San Fransisco based companies have over the platforms that world leaders use to communicate does not sit well particularly with those outside of the US. While many people within the US agreed that turning off Trump’s account in 2021 was a good idea, international leaders viewed the decision with alarm. If Silicon Valley can fire the world’s most powerful president from social media, does that make them the most powerful group of individuals in the world?
On the other side of the free speech aisle is the CCP - who is very openly and brazenly pro-censorship. They maintain the great firewall and are Machiavellian in their approach to top down media control. There are no legal protections on speech in China.
The main issue with censorship, over the long term, is that constraints on speech lead to constraints on truth & ideas. Knowledge evolves largely via speech. Through the creation of new explanations of how the world works, and through the thoughtful criticism of those ideas. These are things that more decentralized social media can and will help to evolve.
This does not mean that web3 social entrepreneurs won’t be responsible for complying with local laws regarding speech. But it does mean that global free speech will be largely unstoppable over the long term. For a government to limit free speech, it will have to execute an all out assault on blockchain technology. But blocking it will mean losing out on one of the largest innovations in the history of technology.
After all - crypto can’t help but be a political innovation, and we’ll see that it leads to immense commercial & political shifts in the coming decades.
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