In-depth Analysis of Friend.Tech Social Platform: Discussion on Token Economic Model and Future Prospects

Abstract

Friend.Tech, as a representative application in the SocialFi field, rose to prominence in August 2023. The platform allows opinion leaders to tokenize and trade their social influence, gaining widespread attention. This report, based on on-chain data analysis, delves into the token economic model of Friend.Tech:

1. The Token price has increased exponentially, bringing considerable profits to KOLs, but it has also limited the size of their fan communities. 99.94% of accounts hold Token amounts between 0-100, with prices generally below 4 ETH.

2. The rigid pricing mechanism has led to a rapid decline in the trading volume of high-priced Tokens. The daily average trading only reached 7 times on the first day, and subsequently maintained at 1 time or below. The current economic model's continuous revenue prospects remain unclear.

3. The clear arbitrage space attracts a large number of speculators and trading bots, contributing 90.6% of the total trading volume. Only 18.6% of speculators achieve positive returns, with half of this being earned by 10.8% pure speculators.

After comprehensive analysis, we believe:

1. The sustainability of the Friend.Tech economic model is relatively low. After the price of the Token increases, higher holding costs and lower profit potential may hinder user participation, leading to a decline in trading volume. It is recommended to charge a low percentage fee on high-priced Keys to maintain profitability and trading volume.

2. Friend.Tech may have development potential in social functions. The arbitrage space of tokens can promote user-initiated promotion, with users closely connected and inclined towards reciprocal behavior, which is a good demonstration for the SocialFi model. However, the user experience and easily replicable business model may affect its prospects.

1. What is FRIEND.TECH?

The latest work of the pioneer in the SocialFi model

SocialFi, as a popular concept in Web3, combines decentralized finance with social media, allowing users to directly obtain economic value from social interactions.

Developer Racer launched the blockchain social platform Friend.Tech on August 10, 2023, allowing users to trade the qualification for one-on-one private chats with others using cryptocurrency. This application directly links social influence with economic value, making it very attractive to users discussing cryptocurrency, and provides ordinary users the opportunity to communicate directly with KOLs while enabling KOLs to monetize their influence.

Friend.Tech will link the value of influence with economic value.

Friend.Tech gameplay:

1. Users bind their Twitter accounts, with each account corresponding to a set of Keys, with no limit on the number.

2. The initial number of Keys is 0, users can receive the first Key for free to activate the function.

3. Users can purchase others' Keys to become holders and gain eligibility for one-on-one private chats.

4. Users can purchase multiple Keys from different users ( including themselves ), and can also sell the Keys they hold to the platform.

Friend.Tech runs on the Base chain, and the list and quantity of Keys holders are stored in a smart contract. Transactions are paid using ETH. Accounts must be linked to Twitter to obtain a blockchain address, but it is also possible to interact directly with the smart contract without entering the APP.

2. Token Economic Concepts and Analysis

rigid economic model

Keys are priced based on a fixed price formula that is based on the current total holdings:

• Payment upon purchase: 0.00001 * (n + 1)^2 ETH
• Return when sold: 0.00001 * (n - 1)^2 ETH

Users need to pay an additional 10% handling fee (, 5% to the creator and 5% to the project party ) when purchasing; when selling, they can only receive 90%, with another 5% going to the creator and 5% to the project party.

The market price of Keys increases exponentially with the amount held, but the transaction fees mean that the amount of Keys held needs to increase by 10.6% to break even. To break even on purchasing the 200th Key, one must wait for subsequent users to pay 68 ETH.

The advantages and disadvantages of a rigid economic model

Advantages:

1. Avoid early cold start and price fluctuation issues
2. Encourage early identification of potential KOLs
3. KOL can receive generous rewards
4. Keys are difficult to inflate indefinitely.

Potential issues:

1. Attract a large number of speculative users and bots
2. The number of Keys holders is limited.
3. The platform activity decay cycle is short
4. It is difficult to rely on existing users for continuous profit.

3. On-chain Data Verification

3.1 Test First Month Project Performance

Friend.Tech achieved tremendous success shortly after its launch. On August 11, it recorded the creation of 17,556 Keys, 136,000 daily transactions, and over 4,000 ETH in transaction volume. On August 21, the daily transaction volume exceeded 10,000 ETH, with 525,000 transactions, and the project team earned over 500 ETH in a single day. As of September 19, the total number of users reached 206,706, with 203,953 Keys created, 258,859 held, 3,049,066 transactions, and a transaction volume of 139,530.09 ETH.

3.2 Three main user types

1. Light Participants: Most users, low trading frequency, limited profits.
2. Cryptocurrency KOL: Build community value, mainly profit through protocol sharing.
3. Profit-seeking speculators: Actively trade popular Keys arbitrage, some use robots.

52.6% of users achieved positive returns, but only 2.17% had returns exceeding 0.1 ETH. The top 100 users accounted for 47.9% of total returns.

3.3 Behavior and Returns of Speculators

Speculators ( account for 21.7% of users ), contributing 78.9% of trading volume and 88.4% of transaction amount. Only 18.6% of speculators are considered "smart money", with 10.8% not linked to social accounts. Approximately 186 suspected bots completed 27,648 "sniping" trades, accounting for 28.3% of total profits among all users.

3.4 KOL behavior and earnings

86.5% of users have protocol income, with 4,718 earning over 0.1 ETH. The top 3 KOLs have a daily income of approximately 6,000-8,000 USD. 99.94% of accounts have a Keys holding of less than 100, with a price below 0.6 ETH. The top KOLs have a Keys holding limit of about 250, with a price below 4 ETH.

18.9% of users hold their own Keys, 29.3% achieve positive returns, averaging 0.28 ETH. 68.1% of KOLs additionally purchase their own Keys, with 535 individuals arbitraging through their own Keys, averaging returns of 0.14 ETH.

3.5 The lack of platform persistence

The increase in Keys prices has led to a stagnation in trading, with the daily average number of transactions dropping rapidly from 7 times on the day of creation to below 1 time. Nearly half of the daily trading volume is still contributed by new Keys, and the platform is facing challenges in acquiring new KOL resources. The trading volume of top KOL Keys is showing a downward trend, which may impact the project's sustainability.

3.6 Social Network Among Users

79.2% of users are connected within the same community, with an average of 3-4 friends per user. The probability of a friend of a friend also being a friend is 41.3%, higher than existing social platforms. 13.5% of social relationships are reciprocal.

4. Summary and Outlook

4.1 About Application Defects

• The core social features are simple, and the retention appeal is insufficient.
• Issues such as fraud, network failures, etc. affect usage
• Unable to restrict direct interaction with the contract bypassing the front end.
• The relationship between the address and the Twitter account can be publicly accessed, which poses privacy issues.
• The threshold for replicating the business model is low, facing homogeneous competition.

4.2 About Web3 Driven Social Networks

The advantage of Web3 lies in the direct customer acquisition method through Token incentives. Friend.Tech attracted 260,000 users in January, achieving remarkable results, but its economic model lacks sustainability. The effect of Token appreciation on attracting new users has its limits, and attention must be paid to how to convert speculative users into real users. Web3 practitioners need to consider the rationality of Token subsidy strategies to promote large-scale adoption.