Web3 Social Myth: The Disastrous X to Earn Model

Author: Beichen

The Web3 industry has emerged from the sluggish bear market in the past year. Although it is far from a real bull market, there are more and more voices about the upcoming Social Summer. In particular, the recent arrest of Telegram founder Pavel Durov at a French airport on charges of fraud, money laundering, terrorism and other crimes has further aroused attention to social products.

This is not difficult to understand. The technical route of crypto native seems to have come to an end (after all, the necessary infrastructure is in place), but there is no sign of Mass Adoption. In theory, the social track is the easiest to leverage a large number of users, and it is also possible to precipitate into an ecosystem. Therefore, it carries the anxiety of the stagnant Web3 industry. Whenever social applications such as friend.tech and Farcaster perform slightly better, they will attract the attention of the entire industry.

Although I am also optimistic about the social track, I have to make a harsh voice - The entire Web3 industry is full of assumptions as laymen about the social track, and the depth of misunderstanding is actually no less than that of collectibles, RWA and DePIN.

We must first understand Social well enough before we can talk about how to combine it with Web3 to become Web3 Social (or DeSo).

  1.Socialand Community

Whether it is Web3 Social, DeSo, or SocialFi, the concept is to provide services to real users in the end, so it is necessary to distinguish whether these services are for social or community. Most of the time, people seem to confuse the two, especially in the Chinese context, where they have almost become synonyms, but in fact, social and community are two different things.

1.1.Social: Start with Communication

In a broad sense, social products start with social interaction (social, in fact, more accurately, social interaction), while social interaction starts with communication.

Social interaction is a micro-level communication behavior, which occurs between two people at the least, or may be a group composed of many individuals. The way to achieve social behavior is communication, so social products must start with communication software.

Email is the earliest communication tool, which was first implemented by MIT in 1965. In 1973, the University of Illinois developed the first online chat system, Talkomatic, on the PLATO system. The other party could even see in real time what letters you were typing. Since then, various communication software have been continuously iterated. Today, we use online chat applications such as WhatsApp, WeChat, Telegram, and various mailboxes for daily communication. The most core communication functions were already available at that time.

So why do users keep changing communication software? In fact, behind every popular communication software, there is a reason that drives users to use it. In summary, there are only three reasons: either it is free, you can find the right person, or it is censorship-resistant.

Tencent is a successful case driven by free. In 1999, when the three major operators had not yet launched SMS services, OICQ (later QQ) bypassed the telephone network and could send messages directly for free. However, sending and receiving messages on a computer was more troublesome, which gave the three major operators, who launched SMS services in 2000, an opportunity, charging 0.1 yuan per SMS, which in turn laid the groundwork for the rise of WeChat in the era of popularization of smartphones.

But why did the opportunity fall to WeChat instead of the more mature QQ? First of all, it was because mobile QQ only transplanted the old PC product to the mobile terminal in the early days of mobile Internet, and the product experience was not as good as WeChat, which was originally built for mobile terminals. More importantly, WeChat took the lead in launching voice messages, voice calls, video calls and other functions, completely replacing the SMS and call services of mobile phones.

If we follow the logic of free,the next free-driven communication software should be free satellite calls and satellite Internet access.

The successful cases driven by finding the right people are various dating apps, such as Momo for strangers to make friends, Blued for sexual minorities, and Qingtengzhilian for high-educated blind dates... The successful cases driven by anti-censorship are Telegram, Signal, etc.

Clubhouse combines the characteristics of finding the right people and anti-censorship, which makes this voice chat software, which is actually very common, hard to find when it first appears, because there will be powerful people here, and you can also talk about very lively topics.

In short, social interaction is the most basic social behavior, and the most basic function to achieve social interaction is communication. Even if the social product is very complex, the core function is to start with communication, and then continue to integrate new services to evolve into a community product.

1.2.Community: Social Media and Social Networks

A complex organism formed by the social behaviors between many people and groups can be considered a community.

Note that a community is not a simple collection (many people understand community as "creating a group and chatting every day"...), but all members support each other out of common demands (such as interests, visions, etc.), which means that members have to pay certain information, resources, etc.Whenthe resources demanded by members within the community are higher than the resources produced, the community will decline.Just like cancer cells, they will continue to replicate and consume the body's energy until the donor dies.

So the difficulty of building community products is much higher than that of social products. This is simply a religious issue. Grasping a pain point in communication (such as free voice chat in those days) can make a product popular for a while, but the subsequent performance of most social products has proved that it is far more difficult to retain users than to attract them.

Based on the different ways in which community products retain users, they can be divided into two categories: content-centric and relationship-centric products, namely social media and social networking services (SNS). These two terms can easily confuse the concepts of social and community.

Content-centric social media can be traced back to Notes, which was also born in the PLATO system in 1973 (the first online chat system Talkomatic was also born here in the same year). Notes already had the prototype of BBS, and various community products such as forums, post bars, blogs, etc. that followed were all developed from this. They are all centered on interests, so they will continue to accumulate user-generated content (UGC), and finally evolved into Twitter, Weibo, Instagram, Xiaohongshu, etc., which we are familiar with today, in the wave of mobile Internet.

Social network services centered on relationships are actually the "communication products driven by finding the right people" mentioned above, but only when the product is really regarded as a communication list, it can be considered a real social network. For example, WeChat is for offline acquaintances, Momo is for strangers, and LinkedIn is for workplace friends...

1.3.From a single function to a comprehensive platform

However, even if we have sorted it out here and strictly distinguished between social and community, the definition of social products may still be confusing, because today's social products often no longer have only a single function, but integrate functions of different levels and dimensions.

This is the root cause of all confusion about social products - only focusing on the most superficial functions of the product to play puzzles, but unable to restore the real driving force and evolution of the product.

Let's take WeChat as an example. First, through the communication functions of free text messages and voice messages, the user's real interpersonal network was quickly migrated, and a huge social network of acquaintances was precipitated. Then, the stranger social market was opened up with functions such as "People Nearby" and "Shake", and the number of users quickly exceeded 100 million.

Later, voice calls and video calls were supported to strengthen the advantages in communication, and functions such as "Friends Circle", "Official Account" and "Video Account" were successively launched, developing into social media on the basis of social networks. The addition of payment functions caught Alipay off guard.

This method can also be used to analyze X, Facebook, Telegram, and even TikTok, but almost all analysis reports on Web3 Social today are like a user who has only used WeChat for the past two years analyzing WeChat - they naturally mix various functions together for analysis, which naturally makes it difficult to grasp the key points of the product. Entrepreneurs guided by this idea are nothing more than replicating another WeChat, starting with large and comprehensive functions, but not thinking about how to obtain and retain the real users behind those functions.

Therefore, this article can also be expanded according to different communication methods, content types, social relationship types and media types, and a beautiful table can be made. Then, the results of random combinations can be analyzed in a serious manner using Internet jargon (such as "an encrypted app that supports voice calls and live broadcasts for communication between Web3 practitioners and can carry single transactions"), so as to make the research very professional, but in fact, it does not have any practical guidance value.

  2.Web3 SocialPanorama

After so much preparation about social, we are finally going to talk about Web3! Web3 Social is much more complicated than the various Internet social products mentioned above, because the entire Internet protocol is fundamentally different from the blockchain protocol.

2.1. Model level: Internet and blockchain

The Internet can be divided into 7 layers according to the OSI model, and developers only need to consider the top application layer. However, the blockchain has not yet been finalized, so it is relatively complicated. Here is a layered model for reference only, and then the analysis is based on this model.

In the blockchain world, if the blockchain network is layer1, then the Internet is layer0, which plays the role of the underlying communication infrastructure. The blockchain network can also be subdivided into different layers, such as the network layer, data layer, consensus layer, and incentive layer. Although there are different layering schemes, the current mainstream scheme is to let the public chain package them together, so we can directly discuss the public chain.

Since the blockchain is a shared data layer, these smart contracts are open and can be used unlimited times, so later developers can theoretically combine and optimize them based on these smart contracts and middleware to build a new application.

The problem is that at present, both smart contracts and middleware are still very lacking at the protocol layer (the few innovations are concentrated in the DeFi field, and there are no revolutionary products in the social track), so on this basis, it is unlikely to build a product that meets Mass Adoption in the application layer.

2.2.Two logics: bottom-up and top-down

Specifically in the Web3 Social track, there have always been two product paths competing - crypto natives prefer to build native encrypted social products from the bottom up, while intruders from Web2 prefer to build mature Web2 products from the top down and then gradually add Web3 modules.

2.2.1. Bottom-up solution

There are two bottom-up solutions, one is the identity management infrastructure built around accounts, and the other is the social graph built around content.

In the Web2 world, the most important account is the mailbox, while in the Web3 world, it is DID (Decentralized Identifier), which is created and managed by users on the blockchain and can interact privately with other applications.

The most typical representative is ENS, a decentralized domain name system based on Ethereum, which can create and manage identities/digital identifiers for individuals, organizations, and even devices (but the earliest on-chain domain name system was Namecoin, which was forked from the Bitcoin network in 2011).

However, the problem faced by such DID projects is that there is no real application scenario that is really needed except for being used as a wallet domain name...

The social graph, which is based on content, allows users to put their social data on the chain, such as personal information, posts, and attention. The most typical representative is Lens Protocol, which tokenizes and NFTizes users' social data and behaviors, and developers can build new social applications based on them. However, there are no truly viable social applications yet.

In addition, simple tools such as Blink are also worth paying attention to, which can convert behaviors on the chain into links that can be embedded in various websites and social media platforms.

2.2.2. Top-down solution

As for the top-down solution, it is very simple, which is to transform mature social products into chains, but it is also divided into two specific types.

One ​​is to first make a mature Web2 social product, and then gradually add Web3 modules. The oldest and most successful solution of this kind is Bihu, which was later shut down. Although many similar projects have emerged, especially SocialFi, which was inspired by the X to Earn model in 2022 and launched mechanisms such as posting mining, commenting mining, and chatting mining, they are basically dead now. Because the model of SocialFi is naturally not established, the reasons will be explained in detail later.

Currently, among various social products that are gradually transitioning from Web2 to Web3, the only one that performs well is Farcaster, which is very restrained and does not adopt the SocialFi model, but seriously cultivates the crypto community, and the functions of Web3 exist in the form of plug-ins. It should be known that the crypto community naturally has a wealth effect, so it naturally gave birth to a group of memecoins represented by Degen (if listing is as simple as issuing coins, Snowball will crush all big companies).

The other way is very hidden, and it is easy for people to mistake it for a crypto-native product. They often have decentralized databases, combined with modules such as DID and DAO tools, allowing anyone to build their own Web3 applications on them.

Its confusingness lies in that all modules seem to be Web3, and they appear to be large and comprehensive in terms of functions, but if you jump out and look at them, you will find that they are actually re-expressed mature Web2 social products from beginning to end in a Web3 way (for example, using encrypted signatures and distributed systems), sothere is no essential difference from Web2 products.

For example, Ceramic and UXLink seem to span the multi-layer blockchain technology stack from the application layer to the infrastructure layer, and cover multiple aspects from the underlying technology to the user interface. It is a very complete Web3 social ecosystem. This is like using reinforced concrete to imitate a wooden loft. It is possible but unnecessary. It is clear that new forms of buildings can be designed based on the characteristics of reinforced concrete.

2.2.3. Limitations of the two product paths

In general, whether it is the identity management infrastructure built around accounts, or the social graph based on content, or simply re-expressing mature Web2 social products from beginning to end in the way of Web3, the above ideas are more like preparations for doomsday survival players in the digital world, and are unnecessary for the general public. Therefore, they are often "respected but not understood", and it is difficult to produce a mass product along this path.

Perhaps we should put aside our fundamentalist prejudices and re-examine the vitality of Web2.5 products such as Farcaster, which in turn returns to the ability to do social and community mentioned at the beginning of the article. In fact, the effort lies beyond technology.

  3.X to Earnand its applicable scenarios

However, when it comes to Web2.5 products, imagination is almost monopolized by "Web3 version of XXX", such as Web3 version of TikTok - Drakula, Web3 version of Instagram - Jam, etc., and the Web3 part is only reflected in the monetization of the business model, that is, Fi, or the more familiar X to Earn.

3.1. The essence of monetization is the points mall

Monetization seems to be the only magic weapon for Web3 to change all Internet products. Whether it is the "token faction" and "chain reform" popular in 2017, or the "X to Earn" that became popular in 2021, it is essentially to use profit-sharing to encourage user retention.

In fact, a very mature points gameplay has been precipitated in the Internet field, using the method of "doing tasks-earning points-exchanging goods or rights in the mall" to increase the activity of App users, but it is only a means of auxiliary operation. After all, money will not appear out of thin air. If the wool cannot come from the sheep, it must be pulled from the pig. In short, in a normal business model, this kind of subsidy will have a cash flow bottleneck in the long run.

Only Ponzi schemes can break the bottleneck of cash flow, directly develop a product dominated by points gameplay, and then let latecomers take over. Around 2015, there were many aunts in third- and fourth-tier cities promoting various apps that were said to make money but required membership fees to be paid first.

However, the popularity of ICOs provides a more clever way than Ponzi schemes - Ponzi scheme projects still need to recruit people offline to get people to take over, while ICO projects directly issue coins, and do not even need people to take over. Existing users will even increase their positions as long as they have expectations of rising prices, and there is no problem of finding a specific person to defend rights in the secondary market.

Therefore, the monetization of the vast majority of Web3 products is essentially the gameplay of the Internet points mall, except that the points are not exchanged for goods bought with real money, but the market value expectations of the secondary market.

3.2.Challenges of monetization

Of course, we should not deny monetization in its entirety, but it has specific applicable scenarios, at least not applicable to most social and community scenarios.

The first challenge is actually the bottleneck in management - it is impossible to accurately identify the effective behavior of users with the existing performance appraisal level, and it is impossible to give appropriate incentives in a targeted manner. The final destination can only be to attract wool parties.

Even if the rules are accurate to how many minutes of retention per day, what tasks to complete, etc., they will be played by the wool studio clearly, and real users are not as competitive as robot accounts. This is something that almost all "X to Earn" model projects have not been able to avoid.

And even if the project can indeed distinguish effective user behaviors and develop a reasonable incentive plan, it is not naturally suitable for social/community products because it also faces psychological challenges - monetization shifts the user's motivation from the product itself to the incentive, so when the incentive weakens, the user's motivation to use the product disappears.

What's worse is that for a social product, a good social experience itself is a reward for users, and the SocialFi model is constantly prompting users to shift their attention from pure social experience to monetary incentives. The final result must be that users will be bored with the product itself.

3.3.The absurdity of SocialFi

If we develop a dating app based on the SocialFi model, quantify and assess the various things that couples do every day, such as chatting, sending flowers, kissing, hugging, etc., and finally give rewards, then for couples using this app, the final dating experience will be very boring.

If you also think that this dating app is designed to be absurd, then all SocialFi projects are designed in this way. The absurdity of SocialFi can be explained by the over-justification effect in psychology - monetization allows users to have sufficient internal reasons for their behavior, but adds excessive reasons, so that users' behavior is controlled by this external additional reason.

If you want to monetize user behavior, it is only applicable to those rigid payment scenarios, such as pornography, gambling, drugs, and fan economy. Users already have a strong willingness to pay, which can provide a steady stream of cash flow. At this time, using monetization to assist operations can play a icing on the cake.

All current monetization (X to Earn) projects look very sophisticated, but in fact they cannot bring long-term positive income, and can only go to decay in constant idling.

Conclusion

Web3 Social carries the expectations of the entire Web3 industry for Mass Adoption, but is currently in a fog of heavy cognition.

Myth 1:There is a widespread confusion between the concepts of social and community, so people can only focus on the most superficial functions of the product, ignoring the real driving force and evolution of the product. Finally, in terms of product design and positioning, they tend to create products with large and comprehensive functions, and are full of assumptions about the prospects of the product. In fact, users have no reason to insist on it.

Myth 2:The revolution in social products brought about by encryption technology that crypto fundamentalists believe in has not actually brought any changes in the communication level (such as from text to voice to video), but more micro-innovations based on existing functions (such as DID, social graphs) rather than paradigm shifts. And this kind of micro-innovation in functions is more suitable for doomsday survival players in the digital world, rather than the general public.

Myth 3:Interlopers from Web2 thought that with their excellent Web2 products, as long as they carried out monetization transformation in the mechanism, they would attract a large number of users and become loyal fans. In fact, they could only attract wool parties. Because monetizing user behavior will shift users' attention from social experience to monetary incentives, and monetary incentives are still limited (after all, there is no continuous cash flow), so in the long run, the product will be in constant idling and withering. Monetization solutions can only be used as auxiliary operating means to stimulate users' strong willingness to pay, rather than allowing users to generate a willingness to pay out of thin air.

Therefore, Web3 cannot start a new social product suitable for the general public, whether in terms of technology or business model. But it does not mean that Web3 social networking has no future. After eliminating various myths, it seems that there are only two paths that can be established.

Either, like Farcaster and Telegram, first carefully cultivate a crypto community product, and then support some Web3 functions in the form of plug-ins, and the crypto community will naturally give rise to various wealth effects.

Or, like ENS and Lens Protocol, continue to explore some innovative middleware at the protocol layer, although it seems to be of little use at this stage, it can be used as a technical reserve. In the future, it may be integrated into large-scale Web2 social applications in the form of plug-ins, and the new interaction model brought about may also give rise to new application scenarios (such as deriving a new credit assessment mechanism based on ENS).

This article originally wanted to discuss what Web3 Social can do, but after sorting it out, it seems that what not to do is actually more important... However, in the medium and short term, it is obviously more certain to do crypto communities.