The Great Debate: Is Friend.tech Social Product Speculation a Feature or a Bug?

Is speculation a feature or a bug for social products?

The Crypto VC Variant team recently debated whether speculation is a viable strategy for building new consumer social networks.

This is particularly timely at this time, as August saw the launch and rapid growth of Friend.tech. The model of the application is that users buy each other's "Keys", which are priced by a bonding curve, and points can be airdropped every week to attract users to participate, which not only satisfies users' desire for financial benefits, but also provides access Creator group chat opportunities. This isn’t the first consumer crypto app to use speculation to attract new user interest; Blur, BitClout, Brave, and LooksRare have all employed some form of speculative interest to lead users or boost liquidity. Additionally, many other types of crypto networks and marketplaces also utilize token rewards to overcome the cold start problem in order to attract early adopters.

The following is an internal Slack discussion by the Variant team.

Li Jin (co-founder):

It’s really interesting to me that crypto Twitter is so divided over the speculative nature of Friend.tech. It feels like a divide between two different camps.

Jack Gorman (Data Scientist):

Here’s what the data shows: the top 500 addresses account for approximately 43% of the total transaction volume, indicating that a few large players are driving Friend.tech revenue. In terms of active days buying, selling and transacting user keys, 68% of addresses trade keys in only one day (although it is still early, they may come back in the future). Additionally, the usage of Friend.tech (browsing the app rather than just trading keys) is much better.

One potential concern is that Friend.tech relies too much on a pattern that other apps have fallen into, whereby large players may keep trading and accumulating rewards, but most users will leave trading if they are not profitable. The way out of this dilemma is to provide apps with additional features that users are willing to spend, rather than just focusing on monetization.

Mason Nystrom (Investing Partner):

In social applications, speculation should be a feature, not the core product. The product should be the content. When there are speculative aspects to a social product, the speculative activities should focus on complementing the social experience. The path to monetization through social capital varies from network to network. Some of these tie payments directly to social capital: YouTube and TikTok pay people directly as subscribers, views and traffic grow. Other social networks such as Twitter and Instagram provide creators with a means of distribution and leave monetization up to the creators themselves. Likewise, different types of speculative assets (such as social tokens vs. NFTs) will impact the types of content and social experiences provided by SocialFi applications.

Caleb Shough（CFO/COO）：

Controlled speculation is positive for idol and parasocial and solicitation social networks. The former lowers the creation threshold for all creators because it can more directly transfer value to creators. The latter because a free and open market may be the best way to assess the value of a person's attention, which may be more likely to elicit the desired attention than current social systems (such as LinkedIn).

But for dense social networks, where people communicate primarily bilaterally with their close or adjacent social groups, speculation can hinder growth. In these types of networks, money creates noise. It devalues social relationships, ultimately making them fleeting and shallow, unless it's tightly bound by social norms (like club dues).

Jesse Walden (co-founder):

I like the difference between these two types of networks:

idolatry and invitational (or professional), whose profit incentives provide more opportunities to build and guide more efficient markets for value creation;

Interest-based and relationship-based, their profit incentives will weaken higher social/experiential motivations.

Mason：

Yes, that distinction resonates, and I think it has implications for how you add speculation or monetization to the network as well.

Idolatry and invitational networks: directly opportunistic and profitable (e.g. monetizing access to relationships within the network and speculating on content). Interest and relationship network: indirect speculation, profit aesthetics (such as speculation on social handles).

To：

Speculation is a feature introduced to guide liquidity; but it is a drawback for guiding new relationships or social networks (as Caleb points out, two-way relationship social networks as opposed to idolatry networks). When it comes to financial incentives, it distorts the motivation of the participants, often overwhelming any intrinsic motivation. When applied to social networks, participants attracted for their speculative nature and relationships formed due to their speculative nature can be distorted compared to relationships formed without financial incentives.

This distortion effect is less important for any network that relies on liquidity (such as DIMO, Helium, DeFi, NFT markets, etc.) because all liquidity increases the utility of the network. However, new social networks bootstrapped through speculation may face fundamental risks of non-persistent relationships, lower-quality content, and ephemeral connections.

I could also argue the opposite of what I just wrote: maybe new social networks with speculative qualities are simply different from pre-existing social networks, and that's not a bad thing, just different. Relationships triggered by speculation are different from the intrinsic relationships seen on traditional social networks. Instead, their key feature is the financial motivation of Friend.tech holders: it is a transactional, utilitarian relationship. I bought this guy's key because I trusted them and thought it would do a good job, closely tied to the concept of patronage+.

Dan Roberts：

I agree with Li to a large extent, if the main attraction of users is based on the promise of financial gain, then it is difficult not to have ephemerality in all aspects: shallow posts, users who fly by - once they can deliver, they will not be able to deliver. Will stay again.

I'm a content creator, so the ultimate question for me is the quality of content on social platforms - and of course, is it fun to use? Financial incentives can get people in the door, but if there isn't enough content on the app to act on, it won't be enough to make them stay. Buying someone's NFT or "key" to show you like/support them is not enough to interest me in itself.

Jesse：

Perhaps a better distinction is between games and social networks. A social product driven by speculation might be more like a game/casino/gambling than a social network.

Tina Dai (Investment Partner):

Speculation is a problem if it is integrated into the lifecycle of a project too early. It changes the problem startups face from a cold start problem to a hot start problem, but in the end there are still big problems to solve. The problem with hot start is that speculation limits the time window for a project to find PMF (Product Market Fit, which refers to the best fit between product and market) after it starts.

In a situation where projects have found some version of PMF and built something useful and interesting, users will naturally retain after discovering real utility, speculation may become a growth tool, providing attention-seeking users outside With incentives, these users will continue to stay after discovering the usefulness of the product.

Medha Kothari (Investment Partner):

In my opinion, speculation is a great way to launch new users in social networks, but there are trade-offs to consider.

In social media, speculation is beneficial for:

• Capturing the value created by celebrity fan and creator fan relationships. Users with existing influence (whether on other social networks or in the real world) benefit disproportionately relative to long-tail users.
• Encourages top earners to engage in content creation; it forces these users to continue publishing high-quality content, providing value to speculators.
• Free market decisions about content value; speculation acts as a filter for "good" content.
• Create a clear community of super fans, which also acts as a funnel for content distribution.

Doesn't work so well for:

• Maintain meaningful two-way relationships
• Captures the value created in real life where one person "cares" about another person (and whatever that person puts out) for non-financial reasons
• Encourage long-tail users to create content (because they won’t make money/be speculated on)

Derek Walkush (Investment Partner):

When the level of noise from speculators and bots in a social network is high enough to erode the quality of the network, a balance definitely needs to be struck. Who wants to use a social app where more than 80% of the activity could be considered wash trading? (Using the NFT market analogy here.) In social networks, the end-user impact is likely to be worse because NFT transaction volume is not as "obtrusive" as social feeds.

The counter-argument is that these applications are not actually social at all, but transaction protocols for social assets. In fact, you may see this with NFTs in applications like Context, but these assets are inherently social, making it easier for the social product layer to grow organically.

To：

What do you mean by assets being social in nature, compared to NFTs?

Derek：

Good question, it's certainly a vague one, so I'd love to hear feedback on my reasoning: social tokens are clearly tied to state, and NFTs might be viewed from that perspective, but also from financial assets, art , cultural symbol and other aspects.

To：

I think you mean that social tokens have historically had little intrinsic value, while NFTs have some other intrinsic value (as art, PFP, membership tokens, etc.).

In other words, the speculation of social tokens is to guide the investment graph, not the traditional social relationship graph.