This week, I will be looking at Friendtech and the SocialFi landscape. Friendtech has been consistently in the top 5 fee generating platforms across the whole crypto ecosystem. Numerous reasons have underpinned, their rise to the top and I will look at the reasons for this growth and if it is sustainable moving forward.
1. How Friendtech works
Friend.tech is a social app launched on Base. They have yet to launch a token but have strongly hinted that they will be launching one. Users start by linking their twitter account to the platform that will then give them a creator status. Creators are allowed to mint their own keys for free at the beginning. Other users on the platform can then purchase the creator’s key to gain access to a chatroom with the creator. In the chatroom, all the keyholders can view messages from the creator but are unable to view messages from other key holders. As more users purchase keys of a creator, the key prices will increase per a bonding curve. The price (denominated in ETH) increases every time a new key is minted and decreases every time a key is redeemed based on the slope of the curve (Delphi Digital, 2023).
Key Prices per number of Keys Minted
Early key holders aim to not only gain early access to their favorite creator’s content but also on the potential price appreciation of keys if the creator grows in popularity. This speculation of key prices has led to people developing bots to snipe keys of potentially popular creators at the early end of the bonding curve. Each time a creator’s key is minted or redeemed, a 10% cut is taken away from the proceeds which gets equally split among the creator and the protocol. Content creators have used their chatroom to share crypto alpha among their key holders and are starting to even offer free subscription services to platforms such as Artemis and other data tools.
2. Key Trends and Performance Metrics
Looking at the daily transactions and protocol fees since launch, Friendtech has shown exponential growth. Despite a couple of weeks of muted activity in the middle, they have been able to achieve around 500K transactions and 1M in fees daily at their peak. While activity has cooled off over the last 2 weeks, the number of transactions and fees have averaged around 200K and 0.5M respectively which is remarkable considering the protocol has just been launched on the 10th of August.
Platform daily transactions since launch
Platform daily fees since launch
A look into the number of traders shows a similar trend with the platform boasting a retention rate at an average of 60% since inception. The platform has around 12K daily active traders. These stats put the number of transactions per trader at around 20.8. As of the end of August, active key holders spend over 30min per day using Friendtech. Do note that a lot of these stats may be inflated due to the presence of bots which carry out many transactions in a day to profit from changing key prices.
Platform daily traders since launch
3. Growth Drivers
The hype during the launch of Base led to many users exploring Dapps on Base including Friendtech. This coupled with their easy onboarding process via an in-app wallet and linking of twitter accounts, which most crypto users already actively make use off, attracted users. Users who are not familiar with crypto can even onboard with their credit cards. Many crypto influencers with relatively large followings started using the app to test it out especially since it essentially costs them nothing to mint their own keys. This kicked of a flywheel effect where the followers of such users joined the app to be able to chat privately with influencers > more keys purchased > key prices increased > profits for twitter influencers and early followers > more twitter influencers and followers came onboard.
Potential airdrop that has been highly anticipated has been another growth driver. We know just how much crypto users love to farm airdrops. Friendtech is running a point system for 6 months during their beta mode where they will be distributing 4M points each week. Points were initially allocated to users who were more active on the platform and engaged in more trades. However, they recently changed the system to reward key holders rather than traders which may explain why activity and fees have come down over the last week. In response many users started buying and holding their own keys to earn points but this has recently been penalized by Friendtech as well. The lure of an airdrop has been used by Friendtech consistently to modify user behavior on their platform. The seed round of investment by Paradigm on August 19 further drove people’s anticipation of a large airdrop.
The last growth driver can be attributed to a rise in bot activity. Bots were designed to buy keys are early as possible on the curve and quickly offload them for a profit. The top bot made around 345 ETH and held shares for an average of only 17 minutes (Delphi Digital, 2023). Around 25% of app fees are generated through bot trading.
4. Competitor Analysis
The success of Friendtech has spurred the launch of forks on other chains. The core concept has remained the same with small differences in features. Below is a high-level competitor analysis and interestingly, the one with no airdropped announced has the lowest market share.
Competitor Analysis in the SocialFi landscape
5. Sustainability of Protocol
For Friendtech to remain sustainable in the long run, it needs to focus on the social aspect more than the finance aspect. Users should use their app to have a personal interaction with influencers / stars, they otherwise would not have access too. Imagine if Taylor Swift holds a private chatroom with her fans where she can release tickets / merchandise earlier to her key holders. Friendtech has the potential to be the bridge between web 2 and web 3 users but it has a long way to go. Let’s examine some issues from the perspectives of different stakeholders.
Users / Followers
The presence of bots has made it more expensive for users to gain access to content creators. Even basic crypto influencers have around 20K followers and most of their keys will be snapped up in minutes. That means most users can only access these chatrooms at a price >$1000 (1 ETH). Is the alpha being shared in such chatrooms so valuable that it’s worth more than $1000. I highly doubt so. This will serve as a barrier to people holding keys of more than one creator. With a tax of 10%, this might further hinder long term user adoption as it makes it harder for users to switch between content creators easily. In addition, holding more than one key serves no other purpose than speculation on prices which is unnecessary.
Content Creator
While the platform allows influencers to monetize of their followers this might not be sustainable. Imagine the content creator wants to take some profits. The only way he can do so is by dumping his keys which comes at the expense of his key holders and might affect their reputation. The bonding curve mechanism actually makes it harder for content creators to reach out to masses as it just becomes too expense for users who are late to the party.
Protocol
The protocol and content creators earn more fees when users buy and sell a greater number of keys. But if users do that, it means they are not really there for the social aspect of things but more to make money which defeats the purpose of the platform.
6. Key metrics to look out for
It will be interesting to see how things pan out post the airdrop. It will give a clearer picture on who is there for the tech and who is there to farm airdrops. I do expect to see transaction volumes and fees fall post the airdrop. In addition, the airdropped token will likely be heavily sold initially given just how anticipated the drop is.
Another key metric to look out for is the buy / sell ratio. If this ratio goes below 1 over consecutive weeks, it is a strong indication that users are cashing out and those left holding their keys will likely be “rugged”.
Yellow Line: Daily Keys Buy/Sell Ratio
7. Conclusion
While I personally don’t think the current model is sustainable in the long run, it is important to know that Friendtech is still in its beta mode. I am sure the team is aware of its short comings and will likely launch new features with the guidance of their investors Paradigm. I will be waiting for more details about their token utility and supply sinks to be announced. This will give a better picture on the road ahead.
For those interested to know more about Friendtech, do read these articles from Delphi Digital. I learnt a lot from these and I am sure they will add value to your research as well.
https://members.delphidigital.io/reports/friend-tech-continues-making-waves#33oors-2309
