Analysis and Outlook of the Token Economic Model of the Friend.Tech Social Platform

Friend.Tech, as a representative application in the SocialFi field, quickly became popular after its launch in August 2023. The platform allows opinion leaders (KOL) to tokenize and trade their social influence, but its token economic model and business strategy also face challenges.

This report is based on on-chain data analysis and delves into the Token economic model of Friend.Tech, with the main findings as follows:

1. The Token price shows a power-law increase, bringing considerable profits to KOLs, but also limiting the size of fan communities. 99.94% of account Token holdings are in the range of 0-100, with prices generally below 4 ETH.

2. The rigid pricing mechanism has led to a rapid decline in trading volume of high-priced Tokens. The average daily trading frequency reached only 7 times on the first day and has since maintained at 1 time or less. The sustainability of this model's revenue prospects is unclear.

3. Clear arbitrage opportunities attract a large number of speculators and bots, contributing to 90.6% of the total trading volume. Only 18.6% of speculators made a profit, half of which was earned by 10.8% pure speculators.

After a comprehensive analysis, we comment on the issues and prospects of Friend.Tech as follows:

1. The sustainability of the economic model is relatively low. The high holding cost of high-priced tokens and low profitability can lead to a decline in trading volume. Project teams need to continuously attract new customers to maintain activity, but their ability remains to be seen. It is recommended to charge a low percentage fee on high-priced Keys, which can ensure trading volume while maintaining profitability.

2. The social features have development potential. The arbitrage space of the Token can promote spontaneous user promotion. Users are closely connected and are more inclined towards reciprocal behavior, which is a good demonstration for the SocialFi model. However, the user experience and business model still need improvement.

Introduction to Friend.Tech

Friend.Tech is a blockchain social platform that allows users to trade qualifications for one-on-one private chats with others using cryptocurrency. The gameplay is as follows:

1. Users bind their Twitter accounts, with each account corresponding to a set of Keys( or Shares), with no limit on the quantity.

2. The initial number of Keys is 0, and 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 and can also sell the Keys they already hold to the platform.

Friend.Tech runs on the Base chain, with key holding information stored in smart contracts, and transactions are paid using ETH.

Token Economic Model Analysis

Friend.Tech adopts a fixed price formula based on the current total Token holdings:

• When purchasing, you need to deposit into the contract: price = (supply + amount)^2 / 16000 - (supply)^2 / 16000
• When selling, the platform returns: price = (supply)^2 / 16000 - (supply - amount)^2 / 16000

A 10% transaction fee is required, with 5% going to the creator and 5% to the project party.

The advantages of this model include:

1. Avoid issues of low orders and price fluctuations during early cold starts.
2. The increase in buy-sell price differences boosts holders' enthusiasm for promotion.
3. Create opportunities for investors to identify potential KOLs early.
4. KOL can receive substantial rewards.
5. The possibility of Keys being infinitely inflated is relatively small.

But there are also potential issues:

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

On-Chain Data Analysis

project performance

Friend.Tech's performance in the first month after launch is impressive:

• Total number of users 206,706
• Keys created: 203,953
• Keys holding amount 258,859
• 3,049,066 transactions
• Transaction Amount 139,530.09 ETH

The highest daily trading volume exceeded 10,000 ETH, with a total of 525,000 transactions, and the project's daily revenue exceeded 500 ETH.

User Type Analysis

Platform users can be divided into three categories:

1. Light Participants: Low trading frequency, limited profits.
2. Cryptocurrency KOL: Profit through revenue sharing.
3. Speculators: Actively trade popular Keys for profit.

90.2% of users have earnings within the ±0.1 ETH range, 52.6% achieve positive earnings, but only 2.17% exceed 0.1 ETH. The top 100 users with the highest earnings account for 47.9% of the total earnings.

Speculator Behavior Analysis

• Speculators (21.7% users ) contributed 78.9% of the trading volume and 88.4% of the trading amount.
• Only 18.6% of speculators have positive returns, and 10.8% have not linked their social accounts.
• About 186 suspected robot users completed 27,648 "sniping" trades, achieving a profit of 2553.84 ETH.

KOL behavior analysis

• 86.5% of users have protocol income, 4,718 with more than 0.1 ETH.
• The top 3 KOLs have a daily income of approximately 6,000-8,000 USD.
• 99.94% of account Keys holdings are below 100, with a price below 0.6 ETH.
• The holding limit for top KOL Keys is approximately 250, with a price below 4 ETH.
• 18.9% of users hold Keys, 29.3% achieve positive returns, average 0.28 ETH.

platform durability analysis

• The increase in Keys price has led to a stagnation in trading, with the average daily trading volume rapidly declining from 7 times on the day of creation.
• Nearly half of the daily trading volume is still contributed by new Keys.
• The trading volume of the top KOL Keys is showing a downward trend.

Social Network Analysis

• 79.2% of users are connected in the same community.
• On average, each user has 3-4 friends.
• The probability that a friend's friend is also a friend of oneself is 41.3%.
• 13.5% of social relationships are reciprocal.

Summary and Outlook

Friend.Tech is facing the following challenges:

1. The core social features are simple and lack highlights for user retention.
2. There are issues such as fraud, network failures, etc.
3. It is impossible to restrict users from interacting directly with the contract bypassing the front end.
4. Insufficient user privacy protection.
5. The business model is easily replicated.

For Web3-driven social networks:

1. Long-term development requires attracting users who are not affected by Token speculation.
2. The switching costs for social network users are high.
3. Token incentives are a direct and effective way to acquire customers.
4. How to convert speculative users into real users is a challenge.

The current economic model of Friend.Tech lacks sustainability and needs to improve its Token appreciation and user acquisition strategy. Web3 projects should consider how to balance Token subsidies with user stickiness to promote widespread adoption.