The investment thesis for Web3.0 social is unfolded from two aspects: the data value of infrastructure protocol and the financial attribute innovation of upper-layer applications.
Having experienced the development and evolution of giants in the Web2.0 era, we can deeply appreciate the power and importance of data: Taobao collects users' shopping preferences, Uber can obtain users' trajectory patterns and location preferences, and TikTok achieves personalized recommendations based on user data. It can be seen that the value of various Web2 applications relies on the support and refinement of user data. Data can be considered the gold mine of this era, and major companies build moats with data, monetizing user data. Since all user data is in the hands of companies, the value generated is also entirely captured by the companies, which is very unfair to users. From another perspective, the massive and rich dimensional data in the hands of large companies make it difficult for new products and startup teams to compete, leading to an oligopoly phenomenon that is not conducive to the long-term sustainable development of the entire industry.
For social products, network effects are stronger, and users have greater sunk costs. For example, if I have 500 followings on Twitter, I would be unwilling to switch to a new application because it would require manually adding 500 followings and rebuilding my social network from scratch. Therefore, cold start is a significant problem. Many products will choose transfer the social graph directly from current giant apps. For example, when Meta launched Threads, a product targeting Twitter, it used Instagram's user social relationship data. In China, the situation of social media giants monopolizing is even more common; almost all new products require reliance on WeChat account login. In this situation, the new behavior of users only makes the data held by the giants more abundant, leading to a winner-takes-all effect and making it nearly impossible for startup teams and new products to compete. Compared to the isolation and isolation of Web2.0 data, the blockchain solution emphasizes openness and sharing. On-chain data is publicly accessible, reducing user migration costs, increasing innovation possibilities, lowering barriers, and the continuous enrichment of data dimensions can feed back into the entire ecosystem, forming a positive cycle. This has the potential to nurture more new things. Simultaneously, on the industrial R&D side, it can avoid reinventing the wheel, improve efficiency, and on the user experience side, avoid the time and energy costs of repetitive input, optimizing the user experience.
So, at this point, our investment logic for Web3 social infrastructure is relatively clear: the openness of data and the composability of infrastructure protocols are the trend. Regarding specific services for data infrastructure, it can be divided from bottom to top into data storage, data transmission, data on-chain, data analysis, etc.
The second focus for the social track is the financial attribute innovation at the application layer.
Many have likely heard about the NFT craze in 2021, and some may struggle to understand why a digital image can be worth so much, sparking enthusiastic support from young people and forming a more robust culture and social relationships than Web2 social. For young people growing up in the digital age, an innovative IP can represent their taste and abilities. Icons like Punk and monkey avatars are akin to carrying a luxury bag or wearing a high-end watch in the entire online world. The value storage and brand effects are similar to LV and Rolex for young people in the digital age. Just as some people may not recognize luxury items, not everyone is familiar with NFTs. However, those in the same circle understand and acknowledge the value, creating a subculture that satisfies the desire to show off. The popularity of this small circle and the relationships established through consensus are much stronger than most social media because people are voting with real money. In another sense, it's like a club with a membership threshold. Moreover, the transparency of blockchain on-chain data makes these digital assets more convincing, avoiding issues of counterfeiting traditional luxury items.
Another advantage of Web3 social is more robust copyright protection and monetization models. For Web2 social products, their growth bottlenecks and monetization difficulties are becoming apparent. Twitter has operated at a loss for many years, platforms like YouTube rely on advertising and memberships for monetizing traffic. Taking NFTs as an example, the design of royalties in secondary transactions allows content producers to continue to profit, and platforms also earn a certain percentage of income. There is innovation in financialization, breaking away from the dependence on simple traffic advertising monetization and providing better incentives and protection for creators and copyrights.
As mentioned earlier, the network effects and cold start problem of social products. Web3 products often use token incentives to capture early users. Some may think that token incentives are a false proposition and that profit-driven and speculative behavior is unsustainable. However, if we compare it with some user acquisition methods in Web2, we may have a new perspective on this inherent bias. It's reasonable and common for web2 apps burning money to subsidize users to dominate the market. In the case of Blur as an NFT trading platform, it used airdrop rewards to attract users, which can be understood as allocating a portion of its tokens as an advertising or subsidy budget, and Blur occupies most of the market share even if the track is monopolized by Opensea previously. This makes complete sense. Take Didi as an example, even as Didi's subsidies have significantly decreased, user stickiness and the habit of using online ride-hailing have been fully developed. Similarly, Blur has unquestionably become a leading platform. Another phenomenon-breaking application with token incentives is StepN, which gained popularity last year with its X to earn model. Although criticized as a Ponzi scheme, industry maturation and development have seen more improvements. Building on token incentives, products shape the long-tail value, achieve positive externalities, and extend the lifecycle.
Socialfi is a direction with much potential. We will see more rock innovations and massive adoption in this area. Data and token are just like The Moon and Sixpence, will give us surprise and rewards ideally and practically.