In-depth Analysis of Friend.Tech Social Platform: Evaluation of Token Economic Model and Outlook

Summary

Friend.Tech, as a representative application in the SocialFi field, rapidly gained popularity after its launch in August 2023. The platform allows KOLs to tokenize and trade their social influence, and while it has garnered significant attention, its token economic model and business strategy are also facing severe challenges.

This report conducts an in-depth analysis of the token economic model of Friend.Tech through on-chain data analysis, finding:

1. The Token price shows a power-law increase trend, bringing considerable profits to KOLs, but also limiting the scale of 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 sharp decline in the trading volume of high-priced tokens, with an average daily trading frequency of only 7 times on the first day, and thereafter maintaining at 1 time or below. The sustainability of profits under the current model is unclear.

3. Clear arbitrage opportunities attracted a large number of speculators and trading bots, contributing to 90.6% of the total trading volume. However, only 18.6% of speculators achieved positive returns, with half of them being obtained by 10.8% of pure speculators without linked social accounts.

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 costs of high-priced tokens and low profitability may hinder user participation, leading to a drop in trading volume. If the project team wants to maintain activity, they may need to continuously attract new users, but this ability is in question. A simple improvement plan is to charge lower fees for high-priced Keys, maintaining trading volume while ensuring profitability.

2. The potential for the development of social functions may exist. The arbitrage space for tokens could promote user-driven publicity. The connections among users are closer than on other platforms, making them more inclined towards reciprocal behavior, which is a good demonstration for the SocialFi model. However, the user experience needs improvement, and the commercial model is easily replicable, which may affect its prospects.

This report aims to provide a reference for the future development path of the Web3 industry.

1. Introduction to FRIEND.TECH

A new attempt at the SocialFi model

SocialFi, as a popular concept in the Web3 field following DeFi and GameFi, combines decentralized finance with social media, providing users with new ways to directly obtain economic value from social interactions and content creation.

Developer Racer launched the Friend.Tech platform on August 10, 2023, allowing users to trade their eligibility for one-on-one private chats with others using cryptocurrency. This application, which directly links social influence with economic value, is highly attractive to users who are enthusiastic about discussing cryptocurrency, creating opportunities for ordinary users to communicate directly with KOLs and providing KOLs with a new way to monetize their influence.

Friend.Tech operating mechanism

1. Users bind their Twitter(X) account, each account corresponds to a set of Keys, with no limit on the number.

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 one-on-one private chat qualifications.

4. Users can purchase multiple Keys( including their own ), and can also sell the Keys they already hold to the platform.

Friend.Tech operates on the Base chain ( Ethereum Layer 2 network ), with Keys' holding information stored in smart contracts, and transactions paid using ETH. Accounts need to be linked with Twitter ( X ) to obtain a blockchain address, but due to the openness of the smart contracts, addresses can also be generated and interacted with the contract without going through the APP interface.

II. Overview of Token Economic Model

rigid pricing mechanism

Keys adopts a fixed price formula based on the current total holdings, rather than the traditional order book or AMM pricing methods.

• When purchasing, the user pays the contract: 0.01 × (n+1)^2 / 16384 ETH
• Platform refund upon sale: 0.01 × n^2 / 16384 ETH

In actual transactions, users need to pay an additional 10% fee (, 5% to the creator and 5% to the project party ) when purchasing; when selling, they only receive 90% (, 5% to the creator and 5% to the project party ). Even when selling at the same price, users will incur a loss of 20% in fees.

Although the market price of Keys increases exponentially with the amount held, the transaction fee means that a 10.6% increase in holdings is required to break even. For example, purchasing the 200th Keys requires waiting for subsequent users to buy 22 total payments of 68 ETH in ( to break even.

![Friend.tech Token model Depth analysis and prospects discussion])https://img-cdn.gateio.im/webp-social/moments-17ddbc425b2eb44767d8811db641ca51.webp(

) Model Advantage and Disadvantage Analysis

Advantages:

1. Avoid early cold start and price volatility issues
2. Increase the promotional enthusiasm of Keys holders
3. Create opportunities for early identification of potential KOL investors.
4. KOL can receive substantial rewards
5. Limit the possibility of Keys being infinitely speculated.

Potential issues:

1. Encourage buying low and selling high, attracting a large number of speculative users and bots.
2. The number of key holders is limited.
3. The platform activity may decline rapidly.
4. It is difficult to rely on existing users for continuous profit.

3. On-Chain Data Empirical Analysis

3.1 Test First Month Performance

Friend.Tech became popular quickly after its launch. On August 11, it recorded a creation volume 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 a transaction count reaching 525,000, and the project team’s daily income exceeded 500 ETH.

As of September 19, the total number of users is 206,706, the number of Keys created is 203,953, the number of Keys held is 258,859, the total number of transactions is 3,049,066, and the total transaction amount is 139,530.09 ETH.

![Friend.tech Token model Depth analysis and prospects discussion]###https://img-cdn.gateio.im/webp-social/moments-c0ed4f2f821f4abb868677ca9885414a.webp(

) 3.2 User Types and Behavior Analysis

90.2% of users' earnings are within the range of ±0.1 ETH, 52.6% of users achieved positive earnings, but only 2.17% of earnings exceeded 0.1 ETH. The top 100 users with the highest earnings account for 47.9% of total earnings.

Users can be divided into three categories:

1. Light participants: low trading frequency, limited returns
2. Cryptocurrency KOL: Mainly profits through protocol sharing.
3. Speculators: Actively trade popular Keys to profit from price differences.

![Friend.tech Token model Depth analysis and prospect discussion]###https://img-cdn.gateio.im/webp-social/moments-539f94ab4a2f509d9a5c412cb190929c.webp(

) 3.3 Speculator Behavior and Returns

Speculators ### contributed 88.4% of the total trading volume with only 18.6% achieving positive returns. Among them, 10.8% of unlinked social media accounts accounted for 60.9% of the total returns of "smart money".

About 186 suspected bot users completed 27,648 "sniping" transactions, with a transaction amount of 463.21 ETH, achieving a total profit of 2553.84 ETH. ( accounts for 28.3% of the total user profit ).

( 3.4 KOL behavior and earnings

86.5% of users have protocol income, 4,718 users earn more than 0.1 ETH, accounting for 93.2% of total protocol income, with an average of 1.37 ETH. The daily income of the top three KOLs is approximately 6,000-8,000 USD.

99.94% of account Keys holdings are below 100, with a price not exceeding 0.6 ETH. The upper limit of top KOL Keys holdings is about 250, with a price below 4 ETH.

18.9% of users hold their own Keys, 29.3% achieve positive returns ) with an average of 0.28 ETH ###. 68.1% of KOLs purchase additional Keys for themselves, with 535 individuals profiting from holding their own Keys ( with an average of 0.14 ETH ).

( 3.5 platform persistence issue

The rise in Keys prices has led to a stagnation in trading, with the average daily trading frequency dropping rapidly from 7 times on the day of creation to below 1 time. New Keys still contribute nearly half of the daily trading volume, but if there is a shortage of new KOL resources, the platform's trading volume may be difficult to maintain.

The trading volume of top KOL Keys is showing a downward trend, which may affect the project's sustainability.

![Friend.tech Token model Depth analysis and prospects discussion])https://img-cdn.gateio.im/webp-social/moments-e26adf2889571ba299be00507a1940d0.webp###

( 3.6 User Social Network Analysis

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

![Friend.tech Token model Depth analysis and prospect discussion])https://img-cdn.gateio.im/webp-social/moments-ffde9b4da3523a2ade70acfa4b377102.webp###

4. Summary and Outlook

( 4.1 Application Defects

• The core social features are simple and lack highlights for user retention.
• There are issues such as fraud, network failures, and message delays.
• Unable to restrict users from directly interacting with the contract bypassing the front end.
• Binding relationships can be obtained from the public API, raising privacy concerns.
• The barrier to replicating the business model is low, facing homogenization competition.

) 4.2 Web3 Driven Social Network Outlook

Friend.Tech attracted 260,000 users in January, showcasing impressive results, but the sustainability of its economic model is in question. The price of Keys remains relatively stable, but the decline in trading volume may lead to difficulties in profitability for the platform and its creators.

Web3 projects face the challenge of converting speculative users into genuine service users. If speculative users gain the maximum economic benefits while contributing the lowest user stickiness, the rationality of the Token subsidy strategy is worth pondering.

![Friend.tech Token model Depth analysis and prospects discussion]###https://img-cdn.gateio.im/webp-social/moments-16b07dd6082a402691eca6d94fe0009b.webp###