Folius Ventures: Exploring the Logic Behind the Surge of Friend.Tech and Its Future Evolution Trends

Original Title: "At the Intersection of Social and Crypto Chaos, Friend.Tech Sounds a Call to Arms"

Author: Jason Kam, Partner and Investment Manager at Folius Ventures

A Review of Friend.Tech's Development Journey

In just one month, standing on the shoulders of predecessors, addressing industry sharing pain points, and coinciding with a timely speculative effect for cold start, while relying on rapid iteration and bundling with Paradigm to solidify development expectations.

• Product Stitching Just Right: The choice of PWA fits the lightweight social product, giving old technology a new scenario, which is crucial to bypass the unfriendly App Store for Web3. Additionally, integrating a Web2-like login method lowers the barrier to entry, binding Twitter accounts to gain initial traffic, and the combined curve design facilitates easy liquidity in and out. The Base/OP Stack strikes a good balance between minimum security for social/small amounts and ultra-low costs, along with the maturity of USDC as offshore dollars, stitching together to allow Friend.Tech to promote and convert smoothly under the limited infrastructure of Web3, successfully achieving the business model of "CT traffic generation, FT monetization."

• Addressing Pain Points to Some Extent: In the Web3 circles, whether it's X, Discord, WeChat, or TG, there is no good platform similar to Knowledge Planet / Get / Expert Consultation Network that allows for cognitive payment, enabling high-value individuals to monetize their attention and knowledge in a low-noise, comfortable manner. Friend.Tech fills this market gap to some extent, making it possible for payments to reach the most knowledgeable and profitable individuals in the industry.

• Speculative Effect and Early KOL Strategy Overcoming Cold Start: During a narrative vacuum in the industry, Friend.Tech initially gained significant traffic by directly providing cash to Twitter KOLs + offering a 5% profit share to users purchasing Keys. Users' expectations of KOL appreciation and the wealth effect after price increases realized the project's first wave of cold start. The project's airdrop expectations and potential to break out also attracted a loyal group of content creators, maintaining the project's DAU activity.

• Paradigm's Core Secondary Rocket Empowerment: After the first wave of benefits declined, Paradigm, as the leading institution in the industry, leading the investment provided a strong foundation for project development. Future expectations of token airdrops have been solidified, and valuation expectations have significantly increased, indicating that users' willingness to invest and the amount will also rise substantially; the strong background of the investment company means that many small product issues and legal problems are likely to be resolved, significantly reducing the risk of running away and greatly boosting users' willingness to use and invest.

• Rapid Iteration on the Right Path: As a product, Friend.Tech is not up to par when horizontally benchmarking within the Web2 circles in China/APAC. Fortunately, it continues to iterate correctly on the core aspects of strong monetization for homeowners and providing users with a smooth experience, while being very pragmatic in implementation. From refresh speed, reply functions, cross-chain + deposit functions, global comparison/ranking interfaces, image functions, and so on, the team's 996 capabilities are expected to continuously safeguard the product's improvement, ultimately reaching a passing level for Web2.

Friend.Tech's Points System and Airdrop Expectations Turn Holding Keys and Speaking into a De Facto Pool2 Mining

Friend.Tech's points system and airdrop expectations turn holding Keys and speaking into a de facto Pool2 mining, and it is also the only way to gain exposure, with currently high potential returns.

The current popularity of Friend.Tech largely stems from its token issuance expectations— for heavy participants, their cognitive framework is that each 1 point may convert to a token airdrop worth 1-5 USD, or a mining rate of 200-500% APR or even more based on participation amounts:

• Friend.Tech will distribute 100 million points over 25 weeks. The general consensus is that points represent token airdrops, closely related to the total amount invested in Keys, holding duration, and in-app activity (clicks, duration, speaking, etc.).

• As shown in the table below, if the final FDV of Friend.Tech's token is 1.5Bn, with 10% allocated for airdrops, and the average TVL over 25 weeks is 80mm, then if the airdrop ratio for participants is proportional to the TVL, the annualized airdrop yield would be approximately ~360%.

• Purchasing KEYS, maintaining activity, and product friction barriers have hindered large capital entry. However, we believe that with improved industry cognition, product iteration, enhanced financial facilities, and the entry of Silicon Valley + APAC + traffic-oriented individuals, the TVL and KEY prices may rise significantly.

• It is worth mentioning that Friend.Tech currently refuses to engage with any VCs other than Paradigm. Therefore, we believe this presents an opportunity for retail investors and secondary funds, while mining may be the only way to gain exposure to the company.

Regarding PMF: For general professionals, rapid reputation monetization represents short-term earnings of 1,000 - 10,000 USD. Subscription price = selling price * 0.9 - buying price * 1.1. In other words, when the price rises by 22%, the user essentially subscribes for free. According to the conversion formula, if Keys holders increase their holdings by 10% after repurchasing, this user can "get it for free."

• The final pricing should fall around the cost of multiple consultations for a single user ~= 20% of the price (one entry and exit). Based on the current Ethereum price and the typical pricing for industry consulting (500-1000 USD) for hedge funds, the number of KEYS for top paid consultants should be around 150 - 215, or a single Key price of about 1.4 - 3.0 ETH. Interestingly, this number of Keys, under the premise that a single user can hold multiple KEYS, is approximately equal to Dunbar's number of 150, which is the number of individuals a single person can easily maintain in a small circle. Therefore, we believe the design of this (S^2 / 16000 * 1) equation is intentional, and the single-person price of 1.5-3.0 ETH is what we consider the normal price for general industry experts after the tide recedes.

• The public's recognition of reputation + professionalism will quickly push prices to reasonable levels. The thrill of early discovery and profit keeps people engaged. Meanwhile, high profit-sharing can quickly give influencers the sensation of income, further helping to promote the platform and accelerate network effects. An influencer at the 50/100/150 Key nodes can earn at least about 200 / 1700 / 5600 USD purely through royalties. If early on, they can hold 3 KEYS at a low price, then selling at the 50/100/150 KEY nodes can earn an additional 750 / 3000 / 6750 USD. For the vast majority of professionals, the temptation to quickly earn 1,000-10,000 USD is enough to encourage daily participation and promotion.

• Users may tend to hold Keys due to the desire to get something for free and maintain a status symbol. Additionally, we believe that opportunities to gain the attention of top industry figures are extremely rare; currently, the cost of reaching the attention of those at the top of power and cognition is very low. For those in need, the price they are willing to pay for attention and feedback can be unlimited, opening up the ceiling for Keys. However, continuously providing cash flow for influencers in the later stages may become a problem that needs to be addressed.

Early Revenue Explosion and Subsequent Revenue Issues -- Friend.Tech Must Introduce a Continuous Payment Mechanism

In subsequent cycles, the decline in KEY + token prices <-> user abandonment may trigger a death spiral.

We believe Friend.Tech will inevitably face issues of overpricing for homeowners, saturation of Key holdings leading to reluctance to sell, and potential users lacking the funds to purchase, resulting in a continuous cash flow shortage. After homeowners initially monetize through royalties and selling Keys, they will inevitably face the core issue of insufficient follow-up momentum. We believe that for core Web2 traffic and mid-to-high-end professionals, Friend.Tech must open a continuous pay-per-use model for both external and internal users:

• We believe the design needs to incorporate differentiated pricing for those with Keys and those without, referral link/profit-sharing mechanisms for Key holders, and appropriate free disclosures based on unlocking times or other methods to achieve effective continuous monetization for homeowners.

• Without successfully achieving this, we believe that in the downward cycle after user saturation, the user churn rate will significantly increase as KEYS and tokens are sold off, further impacting KEY and token prices, forming a dual death spiral.

Under Sufficient Execution Capability, Friend.Tech May Still Experience at Least Two More DAU Peaks

We anticipate that under sufficient execution capability, Friend.Tech may still experience at least two more DAU peaks. After that, the product must create sufficient network effects and quality.

Potential Subsequent Participants:

• Silicon Valley VCs + Silicon Valley Entrepreneur Crowd: Through Paradigm and current Web3 personnel radiation.

• Numerous VCs, founders, opinion leaders, coin speculators, and tech individuals in the APAC region: Through wealth effect radiation from West to East.

• Non-Web3 individuals from various industries, especially high-net-worth niches: Through the company's continuous business expansion and payment of GTM costs. Attracting opinion leaders with cash and tokens is extremely important.

• Direct allocation of Web3 native liquidity funds to gain airdrop opportunities: We believe that when general liquidity funds can purchase KEYS like ETFs with one click and directly enjoy potential airdrops, large amounts of capital will flood in.

• The wealth effect that continuously accompanies newcomers + TVL will increase token valuations while attracting more existing users' funds. We believe strong airdrop expectations will keep the product's popularity alive until January-February 2024.

Necessary Function Additions:

• Free Preview: Increase potential users' willingness to purchase + enhance discovery opportunities.

• Richer Multimedia Experience: Especially video and live streaming.

• Global Page: Local discovery of excellent content and helping influencers drive traffic; advertising opportunities can be considered but are not necessary.

• Referral Rewards: Coupled with profit-sharing to allow influencers to monetize faster and better.

• Additional encrypted or paid content in groups: Helping influencers continue to monetize.

• Product Details -- Can be copied from WeChat + Telegram, such as voting, thread reactions, pinned content, etc.

• Stronger trading scenarios, such as sending KEYS, directly guiding white orders or token/NFT purchases, etc.

• Greatly reduce barriers for users to join and deposit/withdraw funds.

• Significantly enhance product fluidity.

• Deeply consider combined curves and introduce multiple curves, while also thinking about ongoing incentives for active + holding users after token issuance.

Combined Curves Still Have Room for Improvement -- The Team Has Made Good Trade-offs in Simplicity

Combined curves still have room for improvement -- the team has made good trade-offs in simplicity. We look forward to Paradigm making deeper modifications.

Currently, the product form of Friend.Tech is pure and singular: the simple combined curve is easy to understand, suitable for high-value KOLs who bring real revenue; but it also has its limitations -- as the user profile expands, not every user fits this type, and even KOLs need to stratify their own users. We believe that giving users the right to choose among several options (such as 3-4 types of curve shapes) and achieving this through a simple method can greatly expand the TAM that Friend.Tech can reach:

• Monetization-style, Constant Price KEYS: Constant price rather than x^2, with most (e.g., 90%) rather than 5% of revenue going to homeowners. This way, key holders can expand to thousands of users, similar to OnlyFans, adjusting through the utility of keys, allowing for faster generalization.

• Strong Knowledge Payment Style, S-curve Price KEYS: Prices converge after marginal users (similar to S-curve) rather than x^2, which can stabilize the acquisition costs for the vast majority of users in the later stages, while also accommodating early speculative users, making it more suitable for expert talents.

• Event-driven, Multi S-curve Price KEYS: Similar to the above, but with room for price increases after users break through different bottlenecks, suitable for celebrity homeowners, which can drive users to promote spontaneously through referral links, thus breaking through platform pricing.

Fortunately, Paradigm's expertise in mechanism design and mathematics can greatly assist the Friend.Tech team.

Long-term Holders of High Traffic, High Stickiness, High Net Worth, and Long-term Deep Product Development May Maximize Points Acquisition

If maximizing Points is the logic for configuring KEYS, then long-term holders of high traffic, high stickiness, high net worth, and those who are willing to develop their brand within the product may be the most suitable.

Airdrop expectations give KEYS value beyond knowledge consulting and identity recognition. If we assume that the final token airdrop results are strongly correlated with Points accumulation, the goal of configuration should be to maximize weekly Points acquisition. Although the team can fine-tune the equation weekly, we dare to predict that its conversion method is likely as follows:

In-app activity (self + others) * KEY comprehensive asset price (self + others) * KEY holding duration.

Given this, before this formula is adjusted, the general strategy for maximizing weekly points may be as follows:

• The product should be frequently opened and have both self and others voicing in the crowd. At the same time, KEY holders should be active users.

• Priority should be given to homeowners with ample back-end resources, as their ETH is likely to be converted into KEYS, thus increasing weight; high asset price users should also be prioritized.

• It is worth noting that purchasing highly active KOLs at low prices initially is not easy; therefore, for users with ample resources who also bring their own traffic, making large purchases of KEYS early on may be one of the best strategies to boost parameters.

• Considering that holding duration should be one of the weights, along with an entry and exit cost of about 20%, the best strategy may be to buy early and hold long-term for users who are most willing to develop the product, rather than frequently buying and selling; thus, carefully selecting homeowners who are clearly unable to be cut off or are deeply involved, rather than purely following trends, may be a better strategy.

• Therefore, from a configuration perspective, a homeowner with high traffic, high stickiness, high net worth, and a reason and willingness to develop their brand within the product should be the best choice for long-term holding to maximize Points. Interestingly, such users should have also gained quite a good amount of Points in the past four weeks, which may also serve as a filtering criterion.

Folius Consumer Product Web3 Integration Three Elements Are Well Reflected in Friend.Tech

Folius consumer product Web3 integration three elements: offshore fiat channels, low cash cost incentive customer acquisition, and reliance on external liquidity and economic depth taxation are all well reflected in Friend.Tech.

We believe that in terms of product form, Friend.Tech possesses some characteristics we appreciate when observing Web3 consumer products, in other words, this type of product can fully utilize the characteristics of the Web3 value network to help its success:

Offshore Fiat Channels: Support across borders (e.g., Russians buying the KEY of the Argentine president, or Africans consulting Mexicans) and specific industries' attention/knowledge/content payments (e.g., most high-risk and highly controversial industries) are unlikely to use traditional financial fiat payment channels, but can be easily and seamlessly achieved through USDC on ETH / BASE. The last mile of fiat entry and exit remains a friction point, but the industry is continuously improving.

Low Cash Cost Incentive Customer Acquisition to Achieve Scale Effects: Through built-in speculation + wealth effects and airdrop wealth expectations, Friend.Tech can rapidly acquire highly loyal users at almost no cost for a period of time. The token itself has the potential for cash flow multiples, which is an order of magnitude higher than general cash acquisition. Of course, if the team cannot solidify itself before these benefits disappear, the users brought in by its Web3 enhancement will likely leave quickly; however, for a social product that urgently needs to achieve scale effects and is closely related to attention/knowledge monetization, this does not seem like a bad choice.

Reliance on External Liquidity and Economic Depth Taxation: The Key itself, in addition to the financial leverage brought by airdrop expectations, also carries a one-time payment multiplier. In other words, the current KEYS are a composite of Friend.Tech's quasi-equity and the cash flow value multiplier of homeowners. Based on this, the 5% commission income intensity far exceeds that of general Web2 companies. Additionally, we can fully foresee the taxation and pay-per-use tipping taxation after the product becomes highly financialized. Furthermore, after the company scales, the ability to direct traffic to other projects, or even act as a traffic entry point, is also something to look forward to.

Risks

As a social niche product with strong financial attributes, Friend.Tech's development path is fraught with risks:

• The project may ultimately not issue tokens, or the airdrop may be unprecedentedly small: Therefore, for participants, it is crucial to participate early and strictly control losses across several cycles in ETH terms.

• Inability to break out may lead to premature collapse: Currently, the product has a high coverage of Web3; if it cannot break out, all assets are at risk of devaluation.

• High commission intensity: A 10% buy and sell commission intensity is very high, which may lead to strong dissatisfaction as product development slows and the base increases.

• The significant risk of KEY itself being defined as a security in regulatory aspects: This risk cannot be eliminated and must rely on Paradigm's legal team and the company's clever design.

• Significant product execution risk: During the company's growth, due to the strong correlation with financial attributes, every functional update and continuous rapid iteration/removal of issues carries a significant risk of collapse. The team needs to handle everything very robustly. Additionally, the product's level remains below the Web2 baseline, with poor user experience. If improvements cannot be made, there will be issues with retention after expectations diminish.

• Inevitable financial cycles brought about by DAU fluctuations and price volatility: KEYS themselves will have strong volatility and cyclicality due to airdrop expectations, user entry speed changes, and price changes. This carries a significant risk of permanent loss, and the team must manage expectations and iterate robustly during these cycles.

• Long-term retention risk: After the tide recedes, Friend.Tech may become a niche product due to the high price of KEYS for the general public, unable to support an expected high FDV. The failures of Clubhouse and many niche social products serve as cautionary tales.

• Private key and Web3 asset security risks: The custodial mechanism and smart contract wallets inherently carry hacking risks that must be considered.

• Team anonymity risk: The team has no actual responsibility to users. Of course, this has been somewhat mitigated by Paradigm's involvement, but the reputational risks associated with a semi-anonymous founding team still exist.

• Content risk: It is evident that such content platforms carry a high risk of violating any country's laws. As the platform grows, it will inevitably face many challenges in review and regulation. The team needs to have great patience and preparation to face all of this.