Overview of Decentralized Social Networks
Earlier this year, Twitter axed third-party apps without warning. A few weeks later, it removed free API access — its cheapest package now costs $42k per month.
Most users are attuned to this reality by now. Our most important social media apps, from Facebook and TikTok to WeChat and Grab, are centralized silos. While typically docile, these platforms occasionally flex their powers in ways that highlight the capricious nature of centralized authorities, such as censoring and banning users over vague content policies or arbitrarily boosting certain users over others.
These platforms are crucial in our everyday lives. So understandably, users are frustrated by the status quo but left with few alternatives. Therefore, it is no wonder that amid the broad Web3 movement, decentralized social media is a focus vertical. And as the crypto industry seemingly runs on Twitter, building a “decentralized Twitter” can be particularly attractive to Web3 founders, who are acutely aware of Twitter’s pain points.
This report explores decentralized social (DeSoc) protocols. We examine various DeSoc designs and spotlight interesting projects. We also provide our analysis on the pros and cons of each protocol’s approach and outline our thoughts on the vertical overall.
The Value of Social Graphs
Since its founding, Twitter has had over 19 funding rounds that raised $4.4 billion in capital. It has lost nearly $1 billion cumulatively while it was public. All the while, the product itself has hardly changed over the last five years.
Yet, Twitter is still incredibly valuable. Depending on which billionaire you ask, its valuation is at least billions of dollars. If put up for auction today, there would undoubtedly be a plethora of buyers willing to bid at generous valuations to Twitter’s revenue.
The key to Twitter’s — and any social media platform’s — value lies primarily in its social graph. Features are commodities (see: Clubhouse spaces, Snapchat stories, TikTok/Douyin short-form videos). But unique and differentiated social graphs are immensely valuable. It’s what allows niche platforms to grow and maintain share amidst fierce competition (examples: Bilibili, GitHub, LinkedIn, Twitch). Conversely, weak social graphs demoralize users and are to death spirals (examples: Clubhouse, MySpace, Friendster, Vine, Renren, YY, Digg).
Incumbent platforms have long caught on to this and capture value by locking users in. Thus, most users are beholden to incumbent platforms with minimal viable options to exit.
Decentralized social networks hold the promise of returning value derived from social graphs back to users. The overarching thesis suggests that this approach removes rent-seeking behavior and fosters increased competition on products and features, ultimately creating value for users.
The Promise of Decentralized Social Networks
Censorship resistance and ownership.
One of the clearest benefits of building DeSoc protocols is the guarantee of open access. Decentralized social networks should allow two users to find and communicate with each other, even if all other users want to prevent it. These networks should also allow users to post content and find the content that they want.
This is not to say that centralized filters cannot be applied on top. We can look at Gmail’s relationship with decentralized email protocols (SMTP, POP3, IMAP) to imagine what a robust decentralized social network could resemble. Although Gmail is a centralized application, users can choose other clients or own their domain, giving them more control over their data, privacy, and communication preferences. The cost of substitution is trivial.
Most DeSoc protocols have a similar architecture. As a result, users truly own their social graph, giving them the freedom to exit from any one application built on top.
Composability → Innovation.
Open access to DeSoc protocols will likely lead to faster and more significant innovation among applications built on top of them. This aligns with the previous point — if users have minimal exit costs, applications must compete to provide the best user experience.
In fact, when Twitter’s APIs were relatively open access, it had a similar innovation cycle. Many Twitter inventions originated from outside developers. Twitterrific coined the Twitter bird and the term “tweet.” Tweetie, another third-party client, created the pull-to-refresh gesture. And widely used TweetDeck emerged first as a third-party platform for managing multiple accounts and tweeting content. Likewise, Facebook had an impactful innovation cycle when it was open access, allowing apps like Zynga, Buzzfeed, Pinterest, and others to leverage Facebook’s social graph and newsfeed for distribution.
But when user growth nears saturation, Web2 platforms tend to shift from cooperating to competing with their partners. Over time, entrepreneurs learn to not build on top of centralized platforms, limiting innovation.
In contrast, decentralized social networks assure users that access remains open and permissionless. With that guarantee, they are better positioned to attract bright founders over time and foster a robust, positive-sum ecosystem.
Native crypto primitives.
Crypto and DeSoc protocols are often (but not necessarily!) interlinked due to the emphasis on decentralization. For example, profiles in social graph protocols CyberConnect and Lens live on L1 blockchains, and Farcaster IDs are minted on Ethereum.
This connection to native digital ownership creates a design space largely overlooked by existing social media platforms. Crypto could be utilized as a simple financial primitive to transfer value across the network. For example, Nostr integrates the Lightning network for low-cost Bitcoin tipping.
Crypto primitives can also enhance interaction quality. Spam and bots plague all social media platforms. But because most crypto actions carry financial weight (even in the form of a negligible gas cost), the history of crypto addresses can act as an effective filtering mechanism. Some early experimentation includes building a higher-quality feed or gating a community based on an address’ NFT collection.
Challenges and Open Questions in DeSoc
Chicken-and-egg problem.
The most obvious challenge for any platform/network founder is sparking initial network effects. The value of a network increases as more people use it. By corollary, this suggests that new networks have minimal value. With little value for early users, attracting and retaining them is often the biggest hurdle. And even after gaining a niche community, expanding that into the mainstream is also incredibly challenging.
This is especially true today. Whereas Twitter gained wide adoption with little competition, current generations of social media platforms compete against incumbent platforms with formidable moats and lots of capital. And because users have already built up their social networks and status on existing platforms, rebuilding social capital on a completely new one can be a non-starter.
BitClout tried to solve this by scraping and importing existing social graphs from Twitter to its platform. At launch, BitClout had preloaded profiles of thousands of prominent Twitter users, including Elon Musk, Katy Perry, and Barack Obama. While the campaign served as an effective marketing tactic, the app’s lack of differentiation and lack of an organic community failed to keep users engaged, leading to rapid user attrition.
Nonetheless, as seen with the relatively recent rise of TikTok, the cold-start challenge is not insurmountable. Finding a real use case that delivers utility and differentiating experience to users will be key. Further, some DeSoc protocols may not aim for the largest market share and instead opt to be similar to where Linux stands as compared to Windows and Mac, focusing on serving a dedicated niche audience that values open-source, control, and/or privacy over widespread adoption.
Infrastructure and UX gaps
Most DeSoc protocols use public and private keys to give users ownership of their identities. Examples include: Nostr, Farcaster, Lens, and CyberConnect. But setting up a private key is generally more confusing, at least for now, than traditional log in methods.
And using a private key comes with challenges. What happens if users lose their private key? Some, like Farcaster, have recovery flows but they are complicated. Others, like Damus, have no recovery options. Without proper designs to mitigate private key compromises, users may need to rebuild their social graph entirely. Self-custody is a double-edged sword.
Other hurdles include on-chain actions requiring private key signing and transaction fees, which are significant UX downgrades compared to Web2 platforms. One can easily feel the difference between the ease of onboarding and using TikTok and the strain of doing the same for any one of the DeSoc apps we highlight below.
This will all be solved over time. MPC and smart contract wallets can help with setting up social recovery and abstracting gas costs. But for now, wallet, custody, and recovery are key hurdles in user adoption.
Monetization — an open question
Because virtually all incumbent social media platforms monetize through ad spend, generating revenue through other means still remains an open question.
DeSoc protocols are experimenting with mint fees (one-time payment for unique ID), subscription models (such as paying for unique usernames or permissioned relays) and take-rate models (taking a cut of money circulated on the platform). While these business models make sense on paper, there’s little evidence so far that they are practical on a large scale. Users like the price of free.
Other open questions:
- Wen token? Do DeSoc protocols require tokens for decentralized governance (like ENS, Uniswap) or can they stay decentralized without tokens (like Linux, Android)?
- Should developers of DeSoc protocols see equity-like/token upside of the protocol? If they do, would that create perverse incentives? If they don’t, how to sufficiently incentivize developers and give them the resources to build and scale a platform that can rival web2 incumbents?
- Relatedly, how should developers think about raising capital? Some attempt to maximize credibly neutrality by refusing external capital. Others argue that without a sizable warchest, they cannot sufficiently compete against Web2 incumbents.
Industry Map and Where We Are in the Adoption Cycle
Occasionally, a decentralized social app will suddenly see high user signups from external controversies or hype. The Mastodon social network grew by nearly 5x after Elon Musk fired thousands of staff, changed verification policies, and arbitrarily added/removed accounts. And just recently, Damus saw an influx of Chinese users seemingly out of nowhere, rocketing to the top 21 spot among all social apps in China.
But users tend to churn incredibly quickly and return to incumbent platforms. (To be fair to Damus, the app was ordered to be removed from the App Store by the Cyberspace Administration of China).
On the whole, DeSoc protocols and applications are still arguably in the innovator’s stage of the adoption curve.
On all metrics, DeSoc adoption is several orders of magnitude lower than incumbent platforms. Total active users on Mastodon and Damus — two relatively popular DeSoc platforms — are still only a mere fraction of Twitter’s MAU. No DeSoc network is a clear winner yet — teams are still experimenting with appropriate architecture to offer good UX while maintaining decentralization.
We highlight some of the more interesting projects below. We primarily focus on the protocol’s design at a high level, weigh its advantages and challenges and provide some commentary based on our analysis. We will not delve deeply into each protocol’s technical implementation within the scope of this report.
Mastodon — Enter the Fediverse
Mastodon emerged as the notable alternative to Twitter, particularly in wake of recent controversies surrounding Twitter.
Mastodon is built on a network of independently hosted servers called instances. Each instance is managed by its own administrator, who sets the rules and policies for its specific community. Administrators can ban, censor, or encourage content according to their preferences, although many of the servers we have visited strive for neutrality. Accordingly, Mastodon’s philosophy encourages users to choose the instance that best aligns with their values and preferences or host their own instance.
Mastodon uses ActivityPub, a standardized, open-source protocol for social networking. It is part of “fediverse”, or federated universe, a term for all platforms that can communicate with each other using the ActivityPub protocol.
Mastodon’s development is crowd funded via Patreon and OpenCollective. No VC is involved.
Pros:
- All the advantages that come with DeSoc platforms — open-sourced, ability to own and control data and social graph, and freedom to exit from one client to another.
- Use of ActivityPub, an open and decentralized protocol for social networking, which significantly improves interoperability and decentralization.
- Strong community focus: Many users appreciate the community-driven nature of Mastodon, where smaller instances foster a more intimate and supportive environment.
Challenges:
- Instances are mostly run by individuals or groups with fewer resources than Web2 incumbents. Most servers are managed by volunteers who bear the responsibility for running their own instances. This includes maintenance costs (e.g., licenses, hardware, electricity) and content moderation risks (e.g., unsavory/unwanted content, copyright infringement, extremist content, and more). Servers can be glitchy, and search features are underpowered compared to Web2 platforms. Inconsistent moderation across different servers can lead to frustrating experiences.
- Whereas Twitter is like a “boiling pot” of all types of diverse interests, topics, and languages, Mastodon’s server architecture tends to verticalize topics. This can fragment the user base, reduce use cases, and minimize serendipitous discovery.
- Difficult onboarding: Twitter can already seem intimidating for new users. Mastodon makes the onboarding process even more complex, with finding and following users across different servers proving more burdensome.
Other points:
- Does not directly incorporate features or technologies from crypto/blockchain. Any such integrations would be third-party developments built on top of Mastodon.
- Variable monetization: Some servers are entirely volunteer-run and ask for donations to maintain the server, while others run advertisements.
Resources:
Our Take
Mastodon’s philosophical and design goals are admirable. It gives users the option to create, curate, and choose their own social network experience. And because of its open-source and community-driven development, it will likely remain an essential part of decentralized social media for the long term.
However, several barriers will likely prevent it from reaching the mainstream. Its fragmentation of user base via segregating servers dampens its ability to achieve network effects and broader use cases. For example, although breaking news tends to spread first on Twitter, it is difficult to see that similarly happening on Mastodon. Additionally, the current user experience is lacking, which could explain the poor user retention after the influx of new users from the Twitter event.
Nevertheless, Mastodon serves as a strong alternative for users seeking a close-knit community with shared interests. And, down the road, developers may continue building on top of Mastodon and create third-party applications with seamless navigation and improved user experience.
Farcaster — Sufficiently Decentralized Protocol
Farcaster is a sufficiently decentralized social network built on top of Ethereum. Sufficient decentralization, a term coined by the Farcaster team, is achieved when two users can find each other and communicate, even if the rest of the network wants to prevent it.
Though Farcaster utilizes Ethereum for part of its tech stack, it does not host the entire social network on a blockchain. Instead, Farcaster IDs are registered on Ethereum, while its social graph and content are hosted across a network of nodes called Hubs. These Hubs ensure consistency across the network as they replicate all data and signed messages. The Farcaster protocol also prunes messages to keep Hubs lightweight, improving the protocol’s decentralization.
Farcaster promotes competition at the application and client layer. The team believes that superior apps should evolve from this architecture. Since user distribution occurs at the protocol layer, an app with a killer feature should theoretically be able to leverage the protocol’s underlying distribution to gain market share. This would be like if Clubhouse leveraged the social graphs of Twitter/Instagram users upon launch.
Farcaster is currently invite-only with ~11k total users registered. The Farcaster protocol is being developed by Merkle Manufactory, which raised $30 million in a round led by a16z last summer. Merkle Manufactory is concurrently building a mobile/desktop client on top of Farcaster called Warpcast.
Pros:
- With Merkle developing both the protocol and the first client application, it can test and ship new features at a pace similar to Web2 competitors. Warpcast has already seen significant improvements over the last few months, including the launch of a desktop client, QR log-in, mobile app through the app store, and more.
- Even in its early stage, Warpcast feels very familiar to Twitter users with a smooth onboarding experience.
- Thoughtful designs for trustworthy IDs and account recoveries
— ID: while the primary namespace is fully decentralized, a secondary namespace can be governed. So if you register on Farcaster, no one can take your unique ID (e.g., @918392) away from you, but if you falsely register the handle @jeffbezos, the secondary namespace can elect to take that away from you.
— Recovery: Built-inrecovery system in case a private key is lost/compromised, with a 7-day window to prevent hostile takeover of accounts.
- Because Farcaster ID’s live on Ethereum L1, there is more flexibility to integrate other crypto elements into clients. For instance, Warpcast incorporates NFT authentication and discoverability into its client.
Challenges:
- Merkle will have to prove its credible neutrality over time, as thus far both the protocol and the de facto client are being developed by a centralized team. VC backing may also hinder claims of credible neutrality.
- Relatedly, because Merkle has a first-mover advantage and is the first to know about new protocol developments, its default client may crowd out third-party clients.
- Growing pains from being at the early stage — such as a user impersonating Apple’s CEO by claiming the @timcook handle.
Other points:
- Monetization will likely be through paying a fee for unique Farcaster names (e.g. @elonmusk), although this is not live yet nor set in stone.
- GTM appears to be curating a western-oriented tech community, including those working in Web2, Web3, VC, etc.
Resources:
- Warpcast’s web page
- Launchcaster — a third party application that surfaces new Web3 projects
- Sufficient Decentralization for Social Networks
- List of applications in Farcaster’s ecosystem
Our Take
Farcaster’s more centralized structure at the moment enables it to better respond to user feedback, rapidly iterate, and achieve product-market fit. Its architecture is well-designed and should easily scale to accommodate millions of users. Additionally, Merkle’s VC backing offers both financial and networking resources to aid Farcaster’s growth.
We are optimistic about the team’s ability to grow its user base beyond the current user niche. The initial go-to-market strategy of targeting tech enthusiasts is clever, as these users are often early adopters of new platforms and more likely to contribute to open-source protocols. There’s already a vibrant developer community, with a myriad of applications leveraging Farcaster’s social graph. A dynamic similar to what Instagram and Vine did for the Twitter feed a decade ago could similarly play out in Farcaster’s ecosystem.
Our primary concern lies in how Farcaster progressively decentralizes over time. This will only be solved over time as the Farcaster team demonstrates that they can slowly let go of the reins, make it easier for developers to run Hubs, and allow third-party developers to compete with Warpcast on a level playing field.
Lens — Own Your Digital Roots
Built by Aave’s team, Lens Protocol is a smart contract-based social networking platform built on Polygon. Virtually all important social interactions are captured on-chain. Users’ profiles and followers are represented by NFTs. Mirroring and collecting (respectively analogous to retweeting and bookmarking) are also on-chain actions that create NFTs. Content itself is stored off-chain to save gas costs and only becomes NFTs when collected. The platform is designed for modularity, allowing developers to create new features through modules.
Similar to Farcaster, Lens aims to be a neutral base layer and encourages competition in the app/client layer.
Lens previously raised external capital from FTX Ventures last year.
Pros:
- Lens offers unique and innovative features powered by crypto. For instance, the Collect module allows creators to monetize their posts directly with followers. Artists can create “rare collects,” enabling followers to collect their artwork for a limited time. Followers can also mirror these posts and receive referral fees. Because all these actions happen on the blockchain, balances are immediately debited and credited with no intermediaries.
- Unlike Farcaster, Lens can “free-ride” on other nodes already validating the Polygon blockchain. Therefore, Lens is as decentralized and permissionless as the Polygon network itself.
- Modular architecture allows others to create new social primitives.
Challenges:
- Because many user actions are read/write operations on Polygon smart contracts, latency and throughput can be issues, particularly when the blockchain is experiencing high usage or network instability.
- Unclear GTM: current users seem to be a mix of crypto-natives, creators, developers, and frankly, airdrop farmers. Accordingly, the overlap of shared interests can be small, which may reduce user engagement. This is supported by a relatively low DAU/MAU ratio.
- Spam, primarily from sybil and airdrop farming, makes it difficult to parse signals from noise.
- Anecdotally, posts are less likely to gain traction unless one of the Lens team members mirrors/re-shares them.
Other points:
- Using third-party protocol XMTP to build a secure, encrypted channel for direct messages and Lit Protocol to create gated publications
Resources:
- Two popular clients: Lenster and Phaver
- Lens Protocol documentation
- List of apps built on Lens
Our Take
Lens is one of the most innovative and exciting DeSoc protocols. It offers features and tools not seen in Web2 or other Web3 platforms, showcasing what crypto-enabled social networks can unlock for creators and fans. Ideally, these features kickstart a strong flywheel where creators start using Lens for more direct relationships with their fans, attracting users to the platform, attracting more creators, and so on. We also like Lens’ modular architecture that creates a wide design space for new social primitives.
Admittedly, the platform still has room for improvement. Popular apps built on Lens lack refined UX, and we have some concerns about Lens’ scalability given its current architecture. But these all can be solved in time. We look forward to seeing what third-party developers build on top of Lens.
CyberConnect — Scalable and Context-Rich Social Graph
On the surface, CyberConnect appears quite similar to Lens Protocol. Both are decentralized social networks that leverage smart contracts on generalized blockchains. Like Lens, CyberConnect issues NFTs for profiles, followers, and content. Creators can monetize through NFTs or token-gate parts of their community. And similarly, both are built with a modular architecture, enabling developers to develop and re-use modules as they see fit.
But whereas Lens smart contracts only live on Polygon, CyberConnect uses a combination of blockchains and distributed networks, including Ethereum, Polygon, BNB Chain, IPFS, and Arweave. CyberConnect also caches and batches user actions before uploading them to decentralized storage like Arweave to improve scalability while maintaining data integrity and censorship resistance.
CyberConnect distinguishes itself through its initial and diverse use cases and social graph curation. The first use case of other protocols like Farcaster and Lens is often “decentralized Twitter.” Instead, CyberConnect offers a variety of other products and features:
- ccProfile: an on-chain identity standard for individuals/collectives incorporating on-chain actions.
- Link3: Akin to Linktree and Eventbrite, Link3 helps Web3 users find other profiles and discover/attend events, leveraging ccProfiles and CyberConnect’s social graph.
- W3ST (Web3 Status Token): a more generalized proof-of-attendance concept covering endorsements, roles, credentials, and participation.
- FanClub: a loyalty and community game that recognizes and rewards user contributions to companies and DAOs, similar to Galxe and Crew3.
- Posts: Publication tool similar to Mirror.xyz (decentralized Substack), storing content permanently on-chain and allowing fans to collect posts.
CyberConnect also has a thriving ecosystem of dApps building on top of the protocol, covering diverse use cases that go beyond Twitter features. Its recent hackathon, #Connected2023, particularly bolstered its ecosystem.
CyberConnect raised a $15 million Series A in May 2022, which was co-led by Animoca Brands and Sky9 Capital [Disclaimer: Amber Group also participated in CyberConnect’s Series A.].
Pros:
- Seamless user experience with minimal private key signing required.
- Multichain support and proprietary data indexer enhances scalability, flexibility, and social graph connections. According to our conversation with other developers, this also improves the developer experience.
- Arguably richer social graph incorporating individuals, collectives, events, and various on-chain interactions.
- Wide range of products familiar to Web2 users: Link3 <> LinkTree, Posts <> Substack, Events <> Eventbrite, Phaver <> Twitter, Huddle01 <> Zoom, and more.
- Modular architecture allows others to create new social primitives.
Challenges:
- CyberConnect uses a centralized relayer to improve scalability. This could be decentralized down the line, although no plans have been announced yet.
- Some of Cyberconnect’s first features (events, status tokens, FanClub) are lower engagement products.
- Similar to Lens, difficult to parse signals from noise due to spam activities driven mostly by sybils and airdrop farming.
Other points:
- The average CyberConnect social graph is qualitatively different from that of Farcaster’s or Lens’ due to initial GTM of Events and FanClubs, and other use cases beyond Twitter.
- By tapping into more use cases and not necessarily focusing only on the crypto-native communities, CyberConnect is also positioned to onboard more mass users to Web3.
- Strong B2B onboarding with numerous Web3 organizations boasting Link3 profiles.
- Generated 278E and 401BNB (~$603k) since this February from profile minting fees.
Resources:
- CyerConnect home page and ecosystem apps
- Link3, Posts, Event, and FanClub
- CyberConnect documentation
- Winning and highlighted projects from #Connected2023 hackathon
Our Take
CyberConnect stands out both in building out a drastically different social graph and in offering a wide range of applications commonly seen in Web2. Its initial GTM on curating crypto-native and crypto-adjacent communities has helped bolster immediate adoption. It could conceivably be a one-stop-shop for decentralized social media and content for the crypto industry, replacing Linktree, Medium, Eventbrite, and other Web2 tools that crypto users/companies use today.
But the efficacy of all the experimentations in different use cases is still to be seen. Likely, if decentralized social platforms are to gain strong adoption and high engagement, there needs to be a killer feature driving growth.
Nonetheless, CyberConnect’s team continues to deliver sleek and innovative products. We look forward to what the team and other developers will build on top of the protocol.
Conclusion
Decentralized social protocols and platforms face an uphill battle in their quest for mainstream adoption. Odds are stacked against founders. Behind every successful new social media app is thousands of other similar failed attempts.
Yet we remain hopeful. Decentralized social networks have the unique opportunity to introduce completely new social primitives and return the value of the social graph back to users.
Social media is on the brink of change. While we are still in early innings, the possibilities for reshaping how we connect, share, and engage with one another online are truly limitless, opening doors to a brighter, more inclusive, and empowering digital landscape.
Acknowledgments
Thank you to the following teams for their contribution to research on decentralized social networks: Mastodon, W3C, Lens Protocol, Farcaster, Nostr, CyberConnect, Bluesky.
Thank you to Yilan Huang and Abhi Raheja from CyberConnect and Jayme Hoffman from Allthing.xyz / Launchcaster.
Author
Steven Shi is an Investment Partner for Amber Group’s Eco Fund, the company’s early-stage crypto venture fund. He has over five years of experience in hedge funds, private equity, and investment banking firms.
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