Web3 Social Era Begins

Currently, the market has entered a prolonged bear market, and the hype around areas like blockchain gaming and NFTs has also diminished. The Ponzi economic models of past projects quickly collapsed due to the lack of sustained growth, which has imposed certain limitations on the growth of Web3 users.

On one hand, the development of Web3 requires continuous exploration of new application scenarios and innovative approaches to attract new users. On the other hand, the social sector has already demonstrated its tremendous potential in the traditional internet domain. From social platforms like Facebook, Instagram, and TikTok, to mature WEB3 social DAPPs like CyberConnect, Debank, and Lens Protocol, the entire social ecosystem is growing stronger. Most of the Web3 social projects we see today are replicas of existing successful social network products, with the addition of encryption functionality. This trend indicates the immense development potential of the social sector in Web3. As the ecosystem continues to grow and innovate, social interaction is poised to become the next explosive area for Web3 user growth.

Friend.tech officially launched on August 10, 2023. After quietly developing for a week, it began to experience an explosive growth in user base starting from August 18th.

Introduction to Friend.tech

Friend.tech is a SocialFi application built on the Layer 2 network Base. Its core concept is to transform the user’s influence on Twitter into tradable tokens, allowing users to earn income through social influence. ETH is the main currency the application uses to purchase other users’ KEY. Users are required to deposit 0.01 ETH in advance before using the app. KEY functions similarly to paid subscriptions in traditional internet products, and purchasing them allows users to obtain a friend slot with the purchased user, enabling access to the creator’s content and direct interaction.

When users enter the application, they can see the currently most popular users on the homepage. They can also search for users they are interested in by using the explore button and purchase their KEY. The initial price of each user’s KEY is determined based on Twitter data, and there is no limit to the supply of KEYs. It connects the price of the user’s KEY to the market supply and demand relationship, which means that the more popular the user, the higher the price of their KEY. This creates a dynamic market ecosystem.

Product Features of Friend.tech

The core feature of Friend.tech is that users can purchase a KEY from KOLs and then communicate with them and gain the benefits bestowed by the KOLs. Currently, the functionality is relatively limited, only allowing users to have friends and join group chats, without the ability to send or receive pictures, videos, and so on. On the homepage, users can see the most popular users at the moment, and they can also manually search for users they want to follow and purchase their KEYs. By holding someone’s KEY, users can enter the chat room of that user, and if the KEY is sold, they will be automatically removed.

Pricing Curve of Friend.tech

Besides holding KEY to interact with KOL, one of the features of Friend.tech is allowing users to trade KEY. Since each KOL’s KEY does not have an automated market maker, there is no upper limit on the supply of their KEY. Therefore, the pricing of KEY is calculated using the following bonding curve formula:

y = x^2 / 16000

Among them:

• y represents the price calculated in ETH.
• x represents the total supply of KEY at the current moment.

The curve of the price changing with the KEY is as follows:

Source：https://onedrive.live.com/view.aspx?resid=C078415A103A3F40!1094&ithint=file%2cxlsx&authkey=!ANE0-sqb5hAftiI

On Friend.tech, all transactions are subject to a 10% transaction fee, with 5% going to the purchasing party (KOL) and 5% to the platform as revenue.

Considering the pricing curve and the fee mechanism, we can draw the following conclusions:

1. Friend.tech employs a parabolic pricing curve, which means that initially the price of KEY is relatively low, but as more users purchase KEY, the price quickly rises. This strong price fluctuation can trigger FOMO sentiment, attracting more users to participate.
2. The price on Friend.tech is highly sensitive and undergoes drastic fluctuations with changes in buying and selling activities. This attracts speculators who aim to profit from price volatility. Similarly, due to the same pricing mechanism, selling can lead to a rapid price drop, resulting in losses.
3. The way KOLs earn income on Friend.tech is aligned with the platform’s interests. Therefore, KOLs may be more concerned about the trading volume on the platform rather than the empowerment of their own KEY.
4. Friend.tech’s pumping mechanism impacts users’ speculative behavior. Even for short-term buying and selling, users must pay a 10% transaction fee, which affects their speculative strategies.

What Drove Friend.tech’s Frenzy

Airdrop Expectations

In traditional token economies, fan tokens are mainly traded because users love the creators they represent. The price of fan tokens is not the main attraction for users. However, Friend.tech has introduced a brand new user invitation mechanism and fan token economics, completely different from the existing token economy model.

Friend.tech has announced the distribution of 100 million points over a period of six months, which is widely believed to be related to token airdrops. This mechanism, combined with the user invitation system, enhances the motivation for users to actively invite new users to join the platform. At the same time, it also encourages users to purchase KEY from different KOLs to earn transaction fees and data. This strategy is similar to the airdrop strategy of projects like Blur, attracting users to use the product through long-term point incentives and expected token airdrops.

Early Benefits of BASE Chain Launch

Friend.tech is built on the BASE, which currently has the greatest potential for new user influx in L2, and provides a very comfortable trading experience on BASE. Additionally, Friend.tech benefits from being backed by Coinbase, a listed exchange. By choosing to launch and issue on BASE, Friend.tech cleverly captures the market’s hotspots and takes advantage of timing dividends.

Top VC Endorsement

For the Friend.tech project, receiving the favor of Paradigm, a top investment fund in the cryptocurrency industry, is undoubtedly a huge advantage. Even before the project was fully developed and when there was a lack of detailed project whitepaper, the market still had confidence in the project. This trust and investment are largely due to Paradigm’s support and endorsement.

Furthermore, from the point mechanism of the Friend.tech project, it can be seen that it adopts a similar incentive design to the Blur project, which may have been influenced by Paradigm. This design aims to encourage users to actively participate in the platform and provide a long-term incentive, aligning with Paradigm’s overall strategic direction for the project.

User Base

Friend.tech’s ingeniously designed incentive rules have fundamentally eliminated low-quality user accounts. Its early users and current promoters are all opinion leaders in a certain field, and these KOLs have a large and sticky fan base. In the field of social products, projects that are highly anticipated in the market, such as Deso and Lens, often face the problem, that is, it is easy for a single user to have multiple accounts. This phenomenon inevitably accelerates the bubble-forming process of the product.

Friend.tech’s Data Performance

Since its launch on August 10th, Friend.tech has sparked widespread discussions and interest in the Chinese community. Firstly, it adopts an invitation mechanism as its marketing strategy, giving users priority access to Friend.tech’s Alpha version before others through invitation rules. Additionally, early participants in the project will also benefit from lower KEY prices as they join in the initial stages. Friend.tech generated extensive discussions among Twitter’s KOL community upon its initial launch, and its hunger marketing tactics have further fueled this trend. When everyone is talking about Friend.tech’s invitation codes, it becomes the best advertising tool in itself.

User Data

According to Dune data, Friend.tech has currently accumulated about 10.284 million transactions, with about 347,000 buyers and about 185,000 sellers.

Source：https://dune.com/cryptokoryo/friendtech

Source：https://dune.com/cryptokoryo/friendtech

Source：https://dune.com/cryptokoryo/friendtech

From the number of transactions, it is more evident that on-chain transactions have become more active after August 18th.

Source：https://dune.com/cryptokoryo/friendtech

Trading Volume

As shown in the following figure, the buyer/seller transaction data is as follows: the buyer’s trading volume reached 136,186.5 ETH, worth approximately 223 million USD, and the seller’s trading volume was 108,706 ETH, worth approximately 178 million USD.

Source：https://dune.com/cryptokoryo/friendtech

Source：https://dune.com/cryptokoryo/friendtech

From the transaction data of the subject, there are currently about 343,000 transactions.

Source：https://dune.com/cryptokoryo/friendtech

What are the potential risks of participating in Friend.tech?

High slippage, 20% slippage for both short-term and long-term trades

As more people hold KEY, the price that the next person entering has to pay to buy Keys increases. However, the number of holders also increases or decreases with buying or selling. This means that in the case of insufficient subsequent purchases, from the moment of buying KEY, a loss of 10% has already occurred without considering selling taxes.

Bots exploit low-priced range in Friend.tech

There is a problem in the Friend.tech community where members generally expect KOLs (Key Opinion Leaders) with more traffic and influence to have higher KEY token value. This expectation has created opportunities for some bots, which analyze data to purchase KEY tokens in advance and then sell them after reaching a certain profit level. Even though some users take measures such as activating privacy mode on Twitter to prevent bots from analyzing their data, there are still bots conducting MEV (Maximal Extractable Value) attacks through on-chain secondary transactions.

This situation has raised the entry barrier for regular users to access the Friend.tech platform, as they have to compete with bots in trading.

The pricing model shows exponential growth

The pricing of Friend.tech’s user KEY follows a specific curve: Price (in ETH) = (KEY token amount^2) / 16,000. This curve is designed so that early buyers have almost no cost, but as the number of purchased KEY tokens exceeds 20, the price difference between users increases dramatically.

The impact of this pricing curve is that when multiple KEY tokens are purchased, the price can multiply in the short term. Additionally, the high multiplier price attracts more users to participate. However, once the growth of new users reaches its peak, early users start selling for profit, causing the price to sharply decline and triggering panic selling, ultimately leading the market into a death spiral. Late buyers not only have to bear a 20% friction cost but also face a decline in KEY token prices, inevitably resulting in losses.

This series of impacts has led to serious liquidity issues. Once the price falls, market liquidity decreases significantly. Based on typical user behavior in the cryptocurrency industry, social interactions also decrease. Previously active communities may further shrink. This can lead to stagnation or a regression to an inactive state for once thriving communities. Currently, this issue is gradually being exposed.

Conclusion

Friend.tech is a hot yet continuously controversial social trading protocol. From its token pricing model, it’s evident that the mechanism design inclines towards inducing a Fear of Missing Out (FOMO) among potential investors. Due to promising airdrop expectations coupled with occasional sharp profit effects, this project is bound to exhibit impressive user data in the short term. Currently, the momentum around Friend.tech is consistently rising with a rapid increase in active addresses and on-chain locked asset values.

Returning to the product itself, a critical query emerges: can the value offered by Key Opinion Leaders (KOLs) retain a significant user base? There’s a concern that users primarily driven by profits might significantly drop if the prices fall. If the platform fails to establish a genuine connection between fans and KOLs, the future trajectory of Friend.tech becomes somewhat unpredictable.

In general, Friend.tech is relatively conservative regarding product mechanisms but exhibits bold innovation in token economics, user acquisition strategies, and market marketing. In the short term, Friend.tech may emulate the user growth path of the Blur project. However, given the distinctive nature of social products, a close observation is required to ascertain the long-term social attributes. It will take time to validate the effectiveness of its innovative strategies.