An Analysis of the New Paradigm of SocialFi: DeepGo Social Investment Metaverse

Written by: Byte, the author is a researcher at DeepQuant and a core contributor to DeepGo SocialFi

Introduction

With Facebook rebranding to Meta, the concept of the metaverse has reached new heights of popularity, with various parties jumping on the bandwagon. However, what truly constitutes a metaverse? Where are the current opportunities in the metaverse? Most people have questions. The author has years of investment research experience, having gone all-in on the crypto industry from traditional finance since 2017, with a primary focus on quantitative financial engineering and a secondary focus on the mechanism design of crypto economics. This article will analyze the impact of the metaverse on real-world business from the perspective of the SocialFi sector and explore new opportunities for practitioners using the DeepGo metaverse as a case study.

1. What is the Metaverse?

As the first stock of the metaverse, "Roblox" proposes that the metaverse must possess the following eight essential elements:

• Identity: Having a virtual digital identity, regardless of its relevance to the real-world identity.
• Friends: Establishing social connections, whether known in real life or not.

• Immersion: The ability to immerse oneself in the experience of the metaverse.
• Low Latency: Events occur synchronously, without delay.

• Diversity: Providing a rich content experience.
• Ubiquity: The ability to log into the metaverse from any device, anytime and anywhere.

• Economic System: Having an independent virtual currency economic system.
• Civilization: Establishing an ecological civilization.

There are as many interpretations of the metaverse as there are readers. Currently, there are two prevalent understandings of its form.

One understanding is the extension of the mobile internet, emphasizing realism, scale, low latency, and other characteristics. As the next generation of interactive devices emerges, the mobile internet will give rise to innovative forms of entertainment and social interaction. Therefore, this type of explorer focuses on hardware entry points, typified by global internet technology giants. The other understanding is a decentralized virtual world, emphasizing economic entities, diversity, and sustainability, thus providing an experience completely different from the centralized world. This type of explorer is led by practitioners in the crypto industry, already spread across multiple sectors such as DeFi, GameFi, and SocialFi.

The author believes that both interpretations have their merits. In the short term, the extension of the mobile internet will dominate, as global internet technology giants control the vast majority of traffic brands and network effects. However, in the long run, what should defeat the mobile internet is not merely its extension but a new paradigm, so the decentralized metaverse is likely to prevail.

2. The Mechanism Design of "Meta"

When the author first encountered the term "metaverse," they couldn't help but marvel at the beauty of language. "Meta" signifies the original source, and the first realization of "meta" began with the birth of AlphaGo Zero. What makes AlphaGo Zero more remarkable than AlphaGo is its ultimate algorithm. Similarly, the "metaverse" is just an environment; the core lies in "meta." The meta generates all things, and "meta" represents the essence of decentralization. In the author's view, "meta" primarily refers to the self-governing mechanism of the decentralized virtual world, which is the core of the entire metaverse.
A healthy self-governing mechanism, where tokens play an indispensable role, will greatly incentivize participants to collaborate, and the economic benefits belong to the participants rather than a centralized platform, thus achieving long-term sustainable development. In the metaverse, what role do tokens play, what utility do they possess, what value do they create, how to avoid market failures and information overload, and how to formulate disaster recovery strategies? Only with a well-designed mechanism can tokens capture the value of the metaverse.
If the metaverse is a large decentralized virtual world, then there will be different themes within this world. To reflect the importance of the economic system's core, practitioners in the crypto industry generally combine "Fi" from finance with specific themes, which is the future "Fi+," similar to the historical "Internet+". For example, if the theme is gaming, it is called GameFi; if the theme is social, it is called SocialFi.
The concept of the metaverse is hotly debated, yet few truly consider how to design the architecture of the metaverse. The author tends to understand the metaverse as a decentralized virtual world; therefore, unlike the "terminal" architects understood in the current traditional internet circle, the author divides the architecture of the metaverse into four levels:

• Theme: Units that directly provide value to users, such as gaming themes, social themes, investment themes, art themes, etc.
• Experience: The scene design of the metaverse, where the experience layer needs to allow participants to immerse themselves and explore themselves within the metaverse.

• Emotion: The metaverse is not a cold virtual world but is bonded by emotions, establishing social relationships through digital identities. It is precisely because of social connections that the metaverse is no longer confined to niche circles.
• Core: The most crucial driving engine of the metaverse should be the behavioral mechanism, with a decentralized economic system at its core. This is why many researchers refer to blockchain as the cornerstone of the metaverse.

After understanding the basic concept of the metaverse, the author will analyze specific cases of opportunities in the metaverse from the SocialFi sector.
3. SocialFi Social Investment
As metaverse scenarios gradually materialize, "Metaverse is eating the world" will become a reality. However, technological development needs to be gradual; the metaverse is not built in a day, and the realization of a decentralized virtual world also has an evolutionary path. The author believes that metaverse scenarios that meet the following conditions are more likely to explode:

• High Value per Unit: With the same unit system operating costs, if it can carry higher value, it will be more easily recognized by participants, such as finance, art, gaming, and social connections, which is why NFTs exploded first.
• Profitability Effect: In any emerging industry, early explorers must bear high risks. To compensate for potential losses, early products often need to have a strong profitability effect; otherwise, it is challenging to achieve risk balance, which is why GameFi's play-to-earn model can generate an industrial chain.
• Social Attributes: Establishing social relationships helps increase the activity of metaverse users. As the growth inflection point of metaverse users appears, the network effect of social connections will become a catalyst for the exponential growth of metaverse users, akin to the internet after 2003.
  Based on the author's years of investment experience, traditional investment platforms face issues such as fraud, cheating, and centralized malfeasance. The world has long suffered from centralization, and DeFi in 2020 rose precisely due to the transparency advantages of blockchain. With the continuous increase of DeFi users, it can be anticipated that social investment based on on-chain reputation will create more value for users. In a decentralized transparent collaboration model, talents are utilized, data is authentic and immutable, and SocialFi social investment will become mainstream.
  Taking the traditional social investment platform eToro as an example, eToro, which allows ordinary users to copy professional investors' portfolios and focuses on social investment, has experienced astonishing growth, maximizing the network effect in the financial investment industry. Additionally, due to its social connection attributes, eToro users are far more active than those on general platforms. According to eToro's pre-IPO financial report, its users log in an average of four times a day, with an average session duration of nine minutes, demonstrating strong stickiness.
  4. DeepGo's Innovative Solution
  DeepGo has built a complete ecosystem that primarily carries three layers of innovative value.
• Social Layer: Social to Earn, earn while connecting. DeepGo users first establish social connections through investment strategy subscriptions, based on on-chain reputation for greater sustainability.
• Intermediate Layer: Play to Earn, earn while playing. The creator economy will incentivize a large amount of content, inevitably generating information noise, with various investment strategies of varying quality. The intermediate layer of DeepGo is designed as a game experience to filter investment strategies, aiming to select high-quality investment strategies and cognitively capable investors, with such professional investors in the DeepGo metaverse referred to as "Navigators."
• Core Layer: Invest to Earn, earn while investing. Whether it is earning while connecting or earning while investing, for metaverse explorers, Invest to Earn is the most efficient way, which is also the most important outcome of investment strategies. In the core layer of the DeepGo metaverse, creators will tokenize their investment strategy content, not only attracting subscribers to learn but also allowing followers to participate in investments, thereby providing high-value liquidity to the market, where professional investors "Navigators" are indispensable.
  DeepGo focuses on investment strategies, allowing ordinary investors to learn from professional investors through long-term holding, dollar-cost averaging, and portfolio approaches. By connecting with Navigators and creators, ordinary investors can learn more investment knowledge on their journey to becoming professional investors, where the integration mechanism of NFTs with functional tokens and utility tokens allows participants to earn while playing together.
  5. Investment Strategies as Social Units
  Investment strategies are the investment methods of every investor, carrying the value of investment cognition. Compared to general social content, using investment strategies as social units is more eye-catching. Based on on-chain behavior, creators' reputations are built, and investment strategies possess high IP value. If crafted into NFTs, they can enable strategy creators to monetize their influence.
  In the DeepGo metaverse, on-chain investment strategies, due to their authenticity and credibility, will achieve position attribution based on algorithms, analyzing the reasons for investment strategy profits or losses, while also conducting profit forecasting and risk assessment, allowing creators and followers to enhance their investment capabilities. Quantitative algorithms will gradually be open-sourced, enabling more people to verify their effectiveness.
  6. Creator Economy
  The prosperity of the decentralized world mainly comes from empowering individual intelligence. In fact, the internet industry has long had a "UGC" model, where users produce content. However, the biggest difference between the creator economy and UGC is that users not only produce content but also own the content and gain autonomous income, without being monopolized or exploited by platforms. This is also the growth engine of the decentralized virtual world. In the metaverse, "Create to Earn" will become the main motivation for users, thus giving rise to diverse content.
  The currently popular "Play to Earn" in the crypto industry is from the perspective of the experiencer; however, the biggest issue with "Play to Earn" is sustainability. Most blockchain games are merely on-chain games, lacking diverse content innovation, having only gold mining mechanisms without a creator economy. At the same time, user experience is poor, often resulting in early adopters profiting at the expense of later users. Once user growth declines, the economic model will inevitably collapse. Only when the supply of product types becomes more diversified and the demand side is continuously met can stable user growth be maintained.
  The primary incentive of the DeepGo metaverse is to empower creators, thereby continuously generating high-value investment strategies. The metaverse ecosystem also requires intermediate invitees to be responsible for the work of discovering, filtering, and matching, thereby attracting more participants to subscribe to quality investment strategies, with invitees also receiving corresponding mining incentives.
  7. Eternal Proposition: Liquidity Efficiency
  Liquidity refers to the ability of assets to transact at fair value. In the "Fi+" metaverse, liquidity is infrastructure, akin to land resources in the real world. In the author's view, liquidity efficiency is an eternal proposition in the financial industry, and solutions to improve liquidity efficiency may be the growth engine of a new bull market. For example, the influence of traditional trading platforms largely depends on the liquidity provided by market makers. A significant reason for the rise of decentralized trading platforms like Uniswap is that they provide new liquidity solutions, and the primary purpose of the Uniswap V3 upgrade is also to improve liquidity efficiency, thereby solidifying its competitive moat.
  Under the new paradigm of social investment, the most important value of DeepGo is also "Liquidity as a Service," thus becoming the liquidity infrastructure layer of "Fi+". Based on social relationships and filtering results, DeepGo has created the CDO (Collateralized DEX Offering) mechanism, fully leveraging the collaborative value of each participant to achieve healthy guidance and distribution of liquidity.
• Initiators: Come from strategy creators, who pledge risk reserves to establish tiered fund pools for their created investment strategies, with their fans providing liquidity participation.
• Navigators: Cognitively capable participants can serve as Navigators, choosing the excess return share of the tiered fund, executing the initiator's investment strategy with the liquidity they provide, bearing certain risks to obtain excess returns.
• Fellow Participants: Ordinary participants can choose the stable return share of the tiered fund, with their provided liquidity serving as the leveraged liquidity for the Navigators. Navigators must prioritize ensuring the principal safety and stable limited returns for fellow participants.
  8. Conclusion
  From the PC era to the mobile internet era, the conclusions drawn from various ecological constructions are not that new terminals have revolutionized old terminals, but that new empowering mechanisms have emerged. In the book "The Cathedral and the Bazaar," we can see the driving role of openness in the internet ecosystem. Throughout the development of the internet, it has essentially been a continuous realization of decentralization, gradually empowering each individual. However, each individual is not isolated but possesses social network effects, not monopolized by any centralized platform, which is the ultimate essence of the metaverse.
  The metaverse is not built in a day; however, "Fi+" has gradually taken shape. The future has arrived; it just hasn't become popular yet. And at the moment it becomes popular, people will realize the overwhelming tide.