Foresight Ventures: An Analysis of Friend.tech - SocialFi Revolution or a Risky Bet?

Written by: Alice, Foresight Ventures

There is no doubt that Friend.tech has become the hottest topic. Opening news alerts and Twitter, the praises from KOL investors seem to overflow the screen.

There is nothing new under the sun; Twitter fan tokens are not an innovation. Previous projects like Bitcloud backed by a16z, and community projects like Only1 and Monaco, seem to have not avoided the fate of fading away.

What makes the newcomer Friend.tech different? Can it bring new opportunities to the long-silent Web3 Social?

1. Stealcam

The Friend.tech team is anonymous. According to public information, it was originally an image-sharing application called Stealcam.

Stealcam is an image social sharing application where the images posted on the platform are not freely accessible but require a "steal" (pay a certain fee) to obtain the right to reveal the image. The right to reveal is not held indefinitely; you can only view the image's content if you are the most recent person to reveal it. The founding team is anonymous OG Racer (Twitter handle @0xRacerAlt) and shrimp (@shrimppepe).

a. Economic Model

Each image can be stolen an unlimited number of times, with each steal increasing the price by 10% on top of the previous steal price plus 0.001 ETH.

The revenue generated from each steal will fully refund the purchase cost of the previous stealer, while the price difference generated between two steals will be distributed among the creator, the previous stealer, and the protocol, with the creator and the previous stealer receiving 45% and 10%, respectively.

b. User Data

In just two weeks, without relying on airdrop expectations or issuing tokens, the protocol accumulated a trading volume of over 313 ETH (approximately 500,000 USD) through organic growth. As of now, Stealcam has generated nearly 100,000 USD in revenue. It has attracted a large number of artists, KOLs, and VC partners, such as Fred Wilson (co-founder of USV) ranked 14 on the leaderboard, Li Jin (co-founder of crypto fund Variant Fund) ranked 25, Jess (co-founder of Variant) ranked 79, and wallet Rainbow ranked 16.

(Stealcam Leaderboard - 2023.3.29)

Based on the success of this product MVP, the team decided to upgrade the product, rebranding it as Friend.tech and securing seed round investment from Paradigm.

2. Friend.tech

Friend.tech is a decentralized social platform that allows users to purchase shares of any Twitter user on Friend.tech through a strong integration with Twitter via the Base chain's Ethereum, becoming shareholders and gaining the right to directly communicate with them, as well as profiting from buying and selling shares.

a. Economic Model

Currently, there is no clear economic model. The official website is quite simple and has not published a white paper or roadmap. What is known is that an increase in the number of shareholders for each token leads to a rise in the token price, and transactions incur an additional 10% transaction fee, with 5% going to the protocol and 5% to the creator.

Unlike the linear growth model of Stealcam, Friend.tech appears to have modified the model parameters, making the price related to the number of shareholders in a quadratic relationship, resulting in rapid price increases (according to calculations from Twitter user @functi0nZer0, not yet officially confirmed):

The number of shares held by an individual and the price of the next share are determined by a quadratic relationship. The formula for calculating the price of the next share is S^2 / 16000 * 1 ETH, where S represents the current number of shareholders.

It is worth noting that in version 1.0 of Stealcam, if the next player purchases the right to reveal an image from you, your purchase cost will be fully refunded, and you will earn the price difference. In version 2.0 of Friend.tech, adding a shareholder only benefits the KOL and increases the price per share. As a trader, your paper profits increase, but to realize those profits, you need to pay a 10% transaction fee and choose the right timing to sell.

For users, the increased trading friction leads to a preference for locking up assets; on the other hand, the project team has created a more cohesive community with this mechanism (no longer just one-off transactions), helping early participants and KOLs achieve high returns and creating a perfect wealth-building myth.

To summarize, the benefits for the three participants in Friend.tech are as follows:

1. Protocol: Earn 5% fee revenue from each transaction.
2. KOL: Earn from the spread of buying and selling prices, regardless of whether the protocol is in an upward or downward phase; transaction fees are paid by the buying and selling parties initiating each transaction, ensuring KOLs and the protocol profit without loss.
3. Users: Become shareholders. Each time a new shareholder is added, the token price rises rapidly (attracting traffic through the wealth-building effect, thereby pushing up the token price). Since each transaction incurs a 10% transaction fee, short-term trading cannot yield significant profits, indirectly encouraging users to lock up their assets. This pricing model has a very noticeable speed of both increase and decrease, with users bearing all the risks.

b. Data Situation

Friend.tech is thriving, with protocol fees reaching 1.12 million USD in 24 hours, surpassing Tron and Uniswap, ranking third, only behind Ethereum and Lido. The number of active addresses in 24 hours reached 20k.

3. Author's Perspective

1. Friend.tech's marketing strategy combines the strengths of various approaches, focusing on short-term, high-frequency PR. Whether in content methods, timing, or community selection, it can be considered a classic case. Strategies include: early creation of mystery, KOL cold-starting, invite code scarcity marketing, and VC endorsement followed by promotion.
2. The user growth strategy is also excellent, providing sufficient incentives and future expectations for KOLs and users, achieving rapid viral growth through community power.
3. The Base community generally lacks risk awareness. The Friend official website does not disclose any project information beyond the product. The overwhelming marketing focus is clearly on user growth, trading volume, and comparisons with leading communities, while there are few articles analyzing its tokenomics. This seems to avoid heavy topics and may intentionally provoke public FOMO.
4. Overall, it is a very Ponzi-like model, but it also possesses a strong wealth-building effect and community foundation. If a community culture and unique discourse system can be established before a collapse, it may sustain itself. Conversely, if everyone buys shares with a trading mindset, a significant sell-off may occur after a critical price threshold or a token crash, leading to a price avalanche.
5. A points system has been introduced to enhance user activity, stimulating retail investors to further invest and increase their holdings of tokens. However, from the perspective of viral efficiency, although the Twitter user base is large, interacting with the Base chain and capital flows remains a high barrier, which will likely need optimization in the future.
6. From the financing perspective, it has completed seed round fundraising from Paradigm, and we can track the subsequent developments. The team could use this funding to distribute airdrops, allowing shareholders to gain additional benefits rather than merely speculating on buying and selling shares.

4. Future Outlook: Creating a Growth Flywheel with Creator Economy + Tokenomics

It is still too early to judge the success or failure of this project, but Friend.tech's success in community marketing has validated that Social + Fi is an excellent customer acquisition strategy. Properly distributing benefits and providing incentives for KOLs and retail investors to promote the community is undoubtedly the fastest and most native growth method.

In a broader context, within the social track products, the combination of tokens and creator economy is feasible, especially by providing token incentives to core creators to leverage fan groups for cold starts. This approach's PMF (Product-Market-Fit) is beginning to take shape (at least ensuring the project achieves good results in the initial cold start). Based on this idea, future directions for exploration may include:

1. 1. Web3 Only Fans: Users can unlock chats and encrypted images after payment, with fan tokens serving as an entry barrier and DID. Similar to PopPlanet. This model is suitable for most mid-tier and even amateur KOLs, with a large base.
2. Content Co-creation: Communities built around well-known IPs/NFT communities/creator groups, where creators attract more fans to participate, produce co-created works, and consume content to earn token rewards. Examples include Storyverse and Story Protocol.
3. Fan Investment Economy: On-chain boy and girl groups, on-chain esports, etc. Relying on the influence of idols to attract fans to purchase Web3 support products, while the artists themselves can receive higher revenue shares. This model has a high dependency on single IPs and requires a high level of recognition.