The 5 mistakes SocialFi apps make: insights from our Twitter panel

Our latest expert panel in Twitter Spaces was dedicated to SocialFi. We invited executives from Script Network, Towne Square, and Torum to share their thoughts on user retention, competition with Web2 apps, and the difficult road to adoption.

About the panel

After the huge success of friend.tech, SocialFi is in the spotlight again. This term covers Web3 apps ranging from decentralized versions of Twitter to platforms for community management and apps with strong DeFi elements. Usually there is some tokenized incentive, thus the “Fi” part – as in a combination of social and DeFi.

Apart from Pontem’s Chief Growth Officer Alejo Pinto, the panel featured:

• Akeem Ojuko, co-founder and CEO at Script Network, a video delivery and streaming platform with its own storage protocol. Script has 5 live channels and over 160,000 users;
• JC Zhang, founder and CEO of Towne Square, a “social everything” app natively built on Aptos that can integrate widgets from any other dApp. The app received 40,000 whitelist applications for its beta version.
• Jayson Tan, co-founder and CMO at Torum, a SocialFi platform that already serves 230,000 Web3 enthusiasts.

Web3 merges financial and social interactions

For starters, Alejo asked the guests how Web3 can really benefit social media. For Alejo himself, the main advantage is that blockchain makes social networks interconnected, eliminating “silos” – isolated business entities.

Torum’s Jayson Tan put it even better: “Web3 can transform social interactions into financial activities” – which is what happens in SocialFi. In Web2, social networks like X and YouTube are completely separate from financial apps, but in Web3, you don’t need to choose: you can be playing a game and earning money at the same time. Akeem Ojuko from Script Network added that Web3 enables a new way for people to consume content and connect to each other.

Is there demand for SocialFi apps, though? Numbers do say so. Friend.tech reached $300 million in ETH inflows and over $20 million in TVL. In the Aptos  ecosystem, Towne Square received 40,000 beta access applications in just one month.

Nevertheless, any SocialFi project that hopes to reach wide adoption has some serious work to do in terms of product positioning, user onboarding, retention, incentive strategy, UI, etc.

Mistake 1: no “wedge feature” and a poor product-market fit

Any SocialFi app needs a unique selling proposition (USP) – a wedge feature, as JC Zhang calls it – something that creates value for the users and differentiates the app from its competitors, including Web2 apps.

Without a wedge feature, projects risk losing a lot of users very quickly, no matter how much they invest in user acquisition. A good example is Threads, Meta’s Twitter copycat. After onboarding 10 million users in a few hours and 100 million in just 5 days, it saw its traffic drop 80% a month later.

Why? JC Zhang said that Threads didn’t offer anything particularly valuable compared to X. It did innovate on the technical level in that it leveraged Instagram’s social graph – a genius move, in the words of Jayson Tan, since most social apps build their own social graphs. But that wasn’t a wedge feature as far as end users were concerned.

SocialFi projects should try to come up with a wedge feature as soon as possible – and research the target audience to make sure that this feature will ensure a good product-market fit. As JC Zhang put it, “Don’t compete – find a niche market and a product-market fit outside of what Web2 social apps do.”

This principle applies to DeFi, too. For example, Pontem will soon add Ethereum and EVM support to Pontem Wallet – the first Aptos wallet to do so. We know that the product-market fit is there because many of our users have requested this functionality.

Mistake 2: too much onboarding and too little retention

Having a wedge feature isn’t a guarantee of success, however. You need a proper retention strategy – both short-term and long-term. It should kick in directly after the initial user acquisition stage.

Here, too, Threads provides an example: it invested a log of money in onboarding but failed with retention. By contrast, friend.tech has so far managed to avoid a dump and even saw its TVL grow two months after launch, without any real paid advertising.

For Web3 apps, the problem of retention is exacerbated by the fact that a decline in interest can hurt the users or token holders financially. As JC Zhang said, “SocialFi apps have to race against time, because a dump can happen suddenly. In this case, if the inner circle, the early supporters, bleed, the app will die. But with quality tokenomics, you can mitigate the inner circle’s losses and retain the core audience.”

The solution would be to focus on tokenomics as the key element of the retention strategy. At the same time, as we’ll see soon, too much focus on tokenized incentives can hurt a startup.

Mistake 3: replicating other apps’ interactions

SocialFi projects that can’t come up with a wedge feature often try to instead replicate what big and successful products are doing – build a “decentralized Twitter”, for example. This won’t work, as Jayson Tan explained:

“You can’t replicate success by replicating interactions. While it is possible to scale an app by replicating, this won’t create authentic engagement or achieve a proper product-market fit. Such a network can grow big, but it won’t be strong”.

The solution is to focus on the needs of Web3 users and look for ways to interact and consume content that suit their peculiar interests. SocialFi will have to co-exist with X, YouTube, etc. – and it makes no sense trying to replace existing apps with decentralized versions.

Mistake 4: releasing apps with clunky UI/UX

In every Twitter panel, Pontem’s Alejo Pinto stresses the importance of good user experience, especially when it comes to onboarding.

“It will be hard to onboard Web2 users as long as the process has friction point, such as having to create a blockchain wallet and sign something with your private key. It’s hard to say where the responsibility lies here, though – with SocialFI devs or big foundations that don’t do enough to promote and finance frictionless UX.”

To this, Akeem Ojuko from Script Network added:

“SocialFi apps shouldn’t position themselves as alternatives to Twitter, Instagram and so forth, because that will only force people to make comparisons – which won’t be in favor of the SocialFi app. Instead of focusing on its benefits, people will focus on the missing features, much lower user numbers, and so on.

You need to build a seamless SocialFi experience that won’t even feel like SocialFi or anything Web3. The end game is to have regular Web2 users like your mom join SocialFi, to go beyond those 200-300 thousand users who are on Crypto Twitter.”

The solution would be to try and replicate the onboarding experience of Web2 – including offering signup with Gmail and Facebook. Users should be able to access SocialFi apps without a crypto wallet. Ojuko stressed:

“If it takes more than 15 seconds to sign up, you’ll lose a big chunk of potential users. You can’t force people to learn new stuff at the onboarding stage. Instead, you need them to become “sticky” – a habitual user – before you require them to use crypto tools like MetaMask.”

JC Zhang from Towne Square stressed the importance of mobile:

“All dApp and wallet infrastructure needs to be mobile ready. Don’t make users hop between mobile and desktop views. For example, Aptos is now building its own deep-linking tech for this purpose.”

Mistake 5: distracting  from socializing and to rewards

Jayson Tan spoke about the “misalignment between financial incentives and social interaction” as one of the biggest problems of SocialFi. Users often join SocialFi projects for the sake of their token incentives, but that draws their interest away from communication.

Tan added:

“It took Web2 apps ten years to go from text-based to image-based and then video-based interactions. In Web3, we have to come up with something else, a brand-new value proposition – and we have to do it quickly. Unless SocialFi can offer users and creators a new way to interact, there will be no reason for them to migrate from Web2.”

Alejo Pinto is a bit more hopeful:

“Incentives themselves aren’t the problem. Traditional tech uses them, too: for example, Uber used to give out free rides in the beginning. The question is: does the product provide a useful function, something of real value? If a SocialFi app isn’t attractive enough in itself, users will leave after receiving the reward. But as long as you offer value, you can also offer rewards and have loyal, engaged users.”

Explaining the success of friend.tech

You can’t possibly have a discussion on SocialFi without talking about friend.tech. It has generated over $13 million in protocol fees, and for a while all of Crypto Twitter was talking about it. What did friend.tech get right that other SocialFi projects didn’t?

1) USP: friend.tech provided a new way to monetize Twitter influence. It used Twitter’s social graph, but what really matters is that people could now speculate on the clout of the biggest crypto personalities.

2) User retention: the app has survived two months without dumping. Even though the interest seemed to drop at some point, people are still trading shares (keys), and the “inner circle” is still in the green. One reason is that friend.tech focuses on complementing Twitter instead of competing with it.

3) UX/UI: the app doesn’t require you to connect with MetaMask – though you do have to deposit ETH from a blockchain wallet, you can become a user without being a crypto native.

Tips for SocialFi apps – a summary

At the end of the panel, Alejo Pinto summarized three important pieces of advice for SocialFi projects:

1. Leverage existing social graphs wherever possible.
2. Integrate Web2 sign-up methods like Gmail, Facebook etc.
3. Consider crypto as the thing that can tie everything together – but not as a prerequisite for using the app.

Listen to the full recording of our SocialFi panel on our X (Twitter) page. Make sure to follow Pontem on Telegram, Twitter, and Discord for updates on the next panel!