• SocialFi ecosystems potentially provide stronger incentive structures for both creators and communities alike
• Yet SocialFi projects need to be conscious of having clearly-established corporate governance
• Transparency, accountability, and fair internal regulations are needed for SocialFi communities to last through the winter

Often touted as the future of social connectivity and interaction, SocialFi has found an undeniable place, especially in the Web3.0 ecosystem. Bridging the current capabilities of social networks with blockchain technology and NFTs, decentralization, advanced engagement and greater content ownership have become the primary selling points of this novel realm of online interactivity between users. It is no wonder then, that celebrities and personalities such as Snoop Dogg and record producer Russell Simons have come on board to join the sensational hype in SocialFi in recent times.

Where content creators and social media platforms have long shared an adversarial relationship on Web2.0, SocialFi promises a mutually beneficial relationship between both entities by facilitating better engagements between influencers and their fans without the fear of excessive control and censorship by corporations owning such platforms.

To find out more about the benefits, risks, and future of SocialFi, Coinlive spoke with Carney Mak, who leads the investment and portfolio management activities related to fintech, cryptocurrency ventures capital portfolio.

Carney Mak, Head of Investment - Fintech at FXHB Asset Management

“Web2.0 platforms sell advertising/data tagged to popular content creators, it is highly dependent on Facebook and Google and content creators do not have the data rights,” Carney explains. “SocialFi is Web3’s answer to social media. Thanks to NFTs and blockchain, modern technologies can change the ways that content creators interact with their audience while actually owning the data and journey that they produce. This allowed the creation of new business models that do not rely on data exploitation.”

Indeed, the Web3.0 ethos is specifically the driving force behind the genesis of SocialFi – decentralisation and asset ownership. Such a model not only promotes more attractive monetisation models for content creators, it also promises better engagement between content creators and their fans.

Creators can, for instance, establish benchmarks that provide benefits to their most loyal and ardent followers, such as allowing the exchange of direct messages, or allowing premium access to premium content.

On this, Carney adds: “When you post something on Instagram or TikTok, it’s not wholly yours. In Web2, you’re the product and the platform is the seller.” SocialFi however allows you to own your content totally, SocialFi platforms benefit creators by giving them full control of their economy. Not only that, it actually reinvents the whole experience of how content creators can outreach to their fans. One example would be by providing further exclusive content or access via NFTs, allowing increasing interactions and deepening relationships.

“SocialFi allows content creators to deepen their engagement with their fans, bringing their fans closer to them. For instance, fans will be able to take ownership and have a sense of belonging when they buy into their favourite idols' NFTs than them holding onto a mere physical poster. It’s a two-way engagement whereby the creator can also constantly communicate to their audience (NFT holders) and cater to what they want by relating to their demands with the means of voting. That’s a whole new level of innovation that SocialFi can bring to the table.”

While admittedly still in a nascent phase of development, such engagement models not only encourage content creators to generate better and more premium content, it also provides an incentive structure for their followers to pursue should they desire a more exclusive and direct access to their favourite influencers through tiered access that followers can choose from.

Yet SocialFi platforms are far from perfect, as Carney highlights. “Decentralised social media is likely to exacerbate the existing problems faced by social media, such as hate speech and abuse”, Carney warns. “That’s why a lot of GameFi or SocialFi projects these days have a DAO system in place that controls the rules and governance behind the platform”.

DAO, or Decentralised Autonomous Organisation, serves as a corporate governance structure built by members of a SocialFi community. Indeed, it only makes sense for a decentralised social media platform to be governed by an equally decentralised regulation framework. A DAO vote by the community for instance, can be used to determine whether a post constitutes as hate speech, a widely subjective metric that DAO tackles by inviting the community to participate in such a determination on a working level.

“For new projects especially, having a proper corporate governance in place at start, is very important,” Carney advises. “Compliance and governance may not be something that new crypto-related startups focus too much on, but this will be a key mandate for blockchain businesses to rebuild global trust after the recent crypto frenzy.”

When considering the spirit of Web3.0 that celebrates decentralisation and liberation from authoritative regulation, it is no surprise that a ground-up regulation framework is far more palatable to these communities as opposed to a top-down one.

In spite of this, such an approach does bring with it questions on feasibility and equity. For instance, DAO assigns voting and regulating power to members of the community that hold on to the projects’ tokens. Just as the community remains wary of the risk of those holding greater validating power in Ethereum’s newly-proposed Proof-Of-Stake (POS) consensus protocol, power accumulation is also a concern for most DAO operations – where the majority of the power lies in such communities, also rests in the hands of the earliest adopters, or most privileged.

Coinlive’s Interview with Carney Mak

Even then, the ethics of DAO is just one of the several challenges faced by SocialFi, as Carney explains. “Retails are more fearful and skeptical in the current cryptocurrency market conditions, same goes to some of the venture capitalists (VCs) and HNW investors.”

Despite the surge in investments in web3.0 projects in recent times, the bear market has certainly not been kind to budding projects. As a survey by CoinDesk indicates, VC investments in crypto and SocialFi companies dropped 26% in the first half of the year, following the collapse of the TerraUSD stablecoin and liquidity concerns raised through crypto-prominent companies such as Celsius and hedge fund Three Arrows Capital.

“All projects out there should use this opportunity to strengthen use cases while constantly engaging their community. Even when economies are bad, people would still want to buy things that they like and align to.” Carney says. “It’s all about how you appraise your product to suit your consumers.”

Carney probably hits the nail on its head here. Non-Fungible Tokens (NFTs) play a cardinal role in the SocialFi ecosystems, most commonly serving as a unit of evaluation or even access pass. However not all of these NFT collections that were launched perform well. “NFT collections comprise of three main aspects,” Carney states. “The community, product, and the brand.”

Take the NFT lines of the likes of Hublot and artist Takashi Murakami for instance. Both possess reputable branding, but their lacklustre performance has often been attributed to poor marketing and product utility.

“Just because you are a well-known brand does not mean that you can ignore the product and assume that the community will buy into your NFTs. Why would a brand even launch NFTs in the first place? Brands need to have full clarity about what the role of the NFT is and how it will benefit the brand in the long run.”

Even with these considerations, Carney tells us that a 3-pronged approach is required to truly rebuild trust in cryptocurrency related projects.

Firstly, the entry to larger corporations into the realm is crucial. The signalling effect from big players such as DBS, JP Morgan and Goldman Sachs, even more recently, GoJek or Samsung, adopting a crypto exchange, goes a long way to instil benchmarks and standards for safety infrastructure and regulations that new cryptocurrency-related projects could emulate.

Greater accountability to VCs and investors is also necessary, “We will look into things such as corporate governance and risk management in greater details nowadays” Carney says sternly. “Transparency is becoming more important to rebuild trust in our industry."

Accountability to retail investors form the final prong in this period of reflection and reformation. Communication, engagement, and transparency to the everyday user is key to build up trust once again.

Coinlive’s Interview with Carney Mak

“Users and creators will only begin to realize the full potential of cryptocurrency projects once they have established the necessary credibility and trust."

Closing off the interview, Carney offers a few light-hearted comments to warm up the hearth for a potentially brighter future: “You can't stop this technological advancement (Blockchain), you can only contain it. It will be everywhere and the world will have to re-adjust and adapt to this phenomenon.,” he says with a glowing smile.

“No one likes a prolong crypto bear market, but I love the part where people who are looking at this space now are really paying attention to the ‘why’ and real use cases instead of just the price.”

This is an Op-ed article. The opinions expressed in this article are the author’s own. Readers should take the utmost precaution before making decisions in the crypto market. Coinlive is not responsible or liable for any content, accuracy or quality within the article or for any damage or loss to be caused by and in connection to it.