Original title: Verticalization of the Web3 Social Stack
Original author: Mason Nystrom, Variant
Original translation: Lucy, BlockBeats
Editors Note: Mason Nystrom, Venture Partner at Variant, dives into the trends and different approaches to vertical integration in the SocialFi space. Mason provides a detailed comparison of the transaction-first and social-first approaches, and provides examples to support his points. The article highlights the importance of building applications with vertical integration designs in the evolving SocialFi ecosystem, and points out the challenges and opportunities therein.
As crypto social platforms and financial games gain popularity, the way they are built is also evolving. We can foresee a trend where more and more projects will pursue vertical development, striving to provide users with a more seamless and comprehensive experience, thereby creating new consumer behaviors and attention-based or social-based assets. Although not all Web3 social experiences are financial-related, the blockchain technology that supports crypto consumer applications enables new token-based incentive behaviors and digital native assets to be integrated into social experiences.
The current SocialFi stack consists of four core layers:
Discovery: Where users discover content to purchase
Execution: Where the sale or purchase of an asset is executed
Liquidity: Where assets reside and are pooled
Asset issuance: where assets are created
Today, this stack is fairly fragmented, with user discovery and social experience separated from execution (e.g. trading), liquidity, and asset issuance. But as the SocialFi space expands, apps will continue to verticalize attention and marketplaces to control the user’s social experience and liquidity of attention assets.
SocialFi application developers will need to own multiple layers of the SocialFi stack to ensure defensibility of the protocol. Focusing on asset trading (e.g. execution) and issuance are universal layers of the stack - token issuance is becoming easier and execution functionality can be added anywhere that attracts user attention. Owning the discovery or liquidity layers will become increasingly important as these are defensible layers of the SocialFi stack with strong network effects.
In the SocialFi space, most apps face two choices when it comes to verticalization:
Trading-first approach: Build an exchange or marketplace that lets users trade assets of interest (e.g. Robinhood memes), then grow from that foundation into a social/discovery platform.
Social/discovery-first approach: Build a social platform with discovery capabilities, then add financial elements and basic primitives on top of that, with consumers/followers being the key stakeholders of the platform.
Transaction priority
Any social network or discovery platform faces significant headwinds: launching new social graphs, inspiring new consumer behaviors, and keeping users engaged in a competitive attention market. Given these obstacles, an exchange-first approach may be easier to launch because user enthusiasm for speculation helps overcome these headwinds. However, this approach faces more competition because exchanges are easier to launch than social networks, and social networks retain more advantages once a certain user density is reached.
From a transaction-first approach, deep verticalization of the SocialFi stack has proven effective as transaction-first applications have built-in functionality focused on asset trading. For example, Friendtech has become one of the most vertically integrated SocialFi applications, holding control of the entire stack. The application serves as a focal point for key discovery and exclusive execution, and leverages a native financial primitive - the bonding curve - which issues assets with specific utility for the Friendtech application.
A new generation of SocialFi protocols are also vertically integrating into the SocialFi stack. For example, meme coin issuance and discovery platforms like Pump and Ape Store allow users to easily deploy a meme coin on a bonding curve. This allows users to purchase tokens directly from the bonding curve without having to wait for someone to inject liquidity into a DEX or liquidity pool. Although some meme coin execution and discovery enabled by Pump can be found on other platforms - such as DEX Screener and Twitter - protocols like Pump still provide a unique social discovery experience and execution platform for newly launched tokens.
Social First
Historically, the social-first SocialFi approach has seen success through the likes of Twitter, Farcaster, and Telegram, as well as through market terminals like DEX Screener and Coingecko. Many of these applications attempt to integrate down the stack, providing execution (e.g. trading) of tokens, but have yet to fully lean into providing a custom, proprietary trading experience.
The only exception is Telegram, which has successfully integrated a social finance experience. However, Telegram’s user experience is limited, and although degens choose it for convenience, there is room in the market for more Robinhood-like experiences that provide seamless trading UX, simple onboarding, and retail-friendly features such as zero-commission trading. In addition, new primitives like Farcaster frames and casts and Lens open actions further facilitate new types of financial transactions in these social-first networks.
Final Thoughts: Give Your Opinion
By thinking in unique ways about the impact of monetization and financialization of their applications, builders can create compelling social finance games and networks. A transaction-first approach is easier because it doesn’t necessarily rely on creating new consumer behaviors; people already want to trade attention. But a social-first approach, where one platform controls the eyes, has historically been more defensive than one that only controls order (e.g., transactions). The primary goal of a social-first or discovery-first approach is to iterate quickly, testing new consumer behaviors and social finance dynamics until users demonstrate explicit preferences that have the potential to grow into large social networks. I believe the most successful applications will have point-of-view, vertically integrated designs that create liquid markets for new types of assets or markets, or markets that facilitate new consumer behaviors.
