Variant Fund partner discusses asset-first or idea-first approach to Web3 social networks

Variant Fund partner on asset vs idea approach to Web3 social networks

Author: Lijin, Partner at Variant Fund; Translation: Blockingcryptonaitive

I see two main approaches to building web3 social: asset-first or idea-first.

In our first Variant newsletter last week, I advocated for the asset-first approach (see Blocking’s translation of Web3 social networks should be asset-first). But I like to consider all sides of an argument, and I believe there is also a viable alternative path to success for web3 social networks. So in the following, I attempt to lay out the arguments for and against the financialization of web3 social networks.

Why Asset-First Works

The asset-first approach focuses on users’ desire for profit, unlocking funds at the forefront of the platform through digital ownership. Financialization features allow users to consume, collect, and earn within the network.

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BitClout is a prime example of the asset-first approach, allowing users to create a speculative social game at the center of the network by betting on the trajectory of creator tokens through trading. Lens is another example of an asset-first web3 social network, where users’ posts are instantiated as NFTs that can be collected and purchased, with top creators earning up to $90,000 through the collection of post NFTs. The PFP NFT community can also be considered an asset-first social network: accepted into the same interest group through the collection of assets. In all these cases, the motivation for user participation is not purely intrinsic, but involves potential economic incentives to some extent. It’s like collecting stamps or baseball cards: they are both fun and enjoyable, but what if they could be worth money someday?

By contrast, the idea-first approach to building web3 social networks requires appealing to users’ values and beliefs. This means emphasizing blockchain-supported features, including censorship resistance, data privacy, and portability of social graph and content. The actual user experience may be very similar to web2 social products, but the underlying architecture involves storing some data on the chain, with all the benefits that come with it.

My view is that web3 social networks will succeed by adopting the asset-first approach, i.e. creating profit opportunities that attract users. In other words, these networks are not purely social networks, but socio-economic networks. This approach also creates a more pronounced differentiation in user experience, which theoretically should generate broader resonance. (Income is a universal need, while ideas may feel abstract to many.) This also reflects the path that crypto technology has taken more broadly, including NFTs, DeFi, and even L1s, where a desire for economic gain launches new networks and applications and plays a critical role in their adoption.

It should be clear that adopting an asset-first approach does not mean catering exclusively to speculators and creating a financialized game that is easy to manipulate. Social networks are easily polluted by spam and malicious actors, leading to negative network effects. Unlike DeFi lending protocols, where all liquidity is valuable, even if it comes from users with financial incentives, the quality of content and users is important in social networks. Simply rewarding all content creation, coverage, or use is a blunt economic incentive that risks creating an environment filled with spam or useless or downright toxic content.

The successful financial game at the heart of web3 social networks should combine intrinsic and extrinsic motivations. Stealcam is a content-sharing platform where fans can get a cut when the NFTs they own are subsequently bought at higher prices. For true fans who want to keep the content created by their favorite creators as collectibles.

Adopting an asset-first approach will also allow networks to build novel social graphs. Social networks are built around different social graphs that form the basis of their network effects: Facebook started by leveraging your real-world friend/university graph; LinkedIn lists your professional relationships; TikTok’s social graph is based on your interests, inferred from your behavior on the app. Asset-based social networks can pioneer and popularize ownership graphs, where users connect based on shared on-chain ownership. This is not just about aggregating users into PFP communities, which is the primitive version of this idea we have already seen. As the density of user ownership history grows on-chain, over time, this ownership graph can richly reflect user interests, supplementing self-proclaimed interests or real-world connections.

In short, there is a unique window of opportunity now to build web3 social networks. Existing web2 social companies like Twitter and TikTok are facing upheaval, and users crave something new.

Our vision for web3 social networks is rooted in leveraging the unique capabilities of encryption to provide a differentiated user experience that rewards ongoing usage.

Why Ideology-First Can Also Work

Another approach is that a new encrypted social network may mean minimal changes to the user experience, but behind the scenes, new business models are enabled, thus sustaining the new network.

Encrypted social networks can make smaller, more highly educated groups viable through new business models. Today, most web2 social platforms aim to grow at all costs, consistent with their advertising business models. This means that products that focus on smaller groups, such as Facebook Groups or Twitter Communities or now-defunct Blockingth, do not have good business models.

Cryptocurrencies can change this by making it possible for these smaller communities to survive and thrive. This can take the form of a shared treasury (Nouns DAO or FWB), establishing consistency for maintaining the health of the community, or casting on-chain artifacts of the community as a means of revenue (such as Crypto, learning community Culture & Society DAO).

A few years ago, Facebook experimented with a feature that allowed Groups administrators to charge membership fees to support the cost of managing and maintaining their communities (which, for many, is a full-time job). For some reason, the feature was discontinued, and FB Groups monetization is still lacking. I believe users are willing to spend money to support smaller, healthier communities, but the infrastructure to achieve this goal is limited. With encryption technology, these communities can more easily choose and configure their own business models, and we can see the flourishing of small communities.

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