SocialFis future opportunities and challenges

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No.: Lianyuan Security Knowledge No.010

With the continuous advancement of blockchain technology, the fields of decentralized finance (DeFi) and decentralized social (SocialFi) have gained widespread attention. SocialFi represents the future development direction of social networks. The decentralized structure gives users more rights and freedoms and eliminates many drawbacks in traditional social networks. Although it currently faces some technical and operational challenges, with the continuous advancement of technology and the improvement of user literacy, SocialFi is expected to become a mainstream social network model and change the way we interact with the Internet. The ChainSource Security Team has explored and sorted out the basic settings and security protections of SocialFi, hoping to contribute to building a fairer and more transparent digital society.

Basic concepts and classification

SocialFi combines the concepts of social and finance, and its feature is that users own their own information and assets, allowing users to profit from publishing content, which is not possible in traditional social networks. In addition, SocialFi usually operates in the form of a decentralized autonomous organization (DAO), and users can participate in operational decisions and governance. Compared with traditional social networks that are centrally managed by companies, decentralized social networks give users more autonomy. In short, SocialFi is a decentralized social network that uses blockchain technology and focuses on obtaining economic rewards.

Decentralized social networks can be roughly divided into two categories: those based on distributed ledger technology and those based on blockchain technology. Decentralized social networks using blockchain technology have the characteristics of preventing data tampering, enabling communication in a more secure environment, and monetizing content by issuing tokens.

SocialFi projects can be roughly divided into the following three categories based on their technical approach:

1. Single Web3 type application: Developed based on blockchain technology, similar to traditional social networks such as X, Facebook, Instagram, etc., users can directly get rewards by liking and sharing content. Examples: Tomo, Damus, Mirror, ALIS, TwitFi.

2. Protocol: The underlying technology of the SocialFi ecosystem, providing developers with the tools and elements needed to build new SocialFi applications. Examples: Nostr, Lens Protocol, CyberConnect, RELATION.

3. Applications that add Web3 elements to existing services: Leverage blockchain technology to add economic efficiency to existing Web2 services and create new value. Users can continue their traditional activities while enjoying the new reward system. Example: Friend.tech.

Extension

Social Token

A notable feature of SocialFi is that it is more focused on economic activities than other decentralized SNS. The platform-specific tokens are called social tokens to visualize individual contributions to projects and communities. Users can earn cryptocurrencies by publishing excellent content, interacting with other users, participating in community projects and activities, and contributing to the platform. Social tokens can be divided into community social tokens and personal social tokens. Social tokens earned by users can be exchanged for other cryptocurrencies or special rights within the community, and in some cases used as voting rights for community management policies.

Problems faced by traditional SNS and the background of SocialFi

SocialFi has attracted attention because of its significant differences from traditional social networks. Traditional social networks have data ownership belonging to developers, published content is monitored and censored, and the monetization system is unfair, while decentralized social networks give users data ownership, promote free and transparent communication, and provide a fair monetization system.

Privacy and freedom of expression are core discussion points for Web2 and Web3 services. Traditional Web2 services require users to provide personal information, which may be leaked or improperly used, infringing on personal privacy. SocialFi is expected to solve these problems and provide a more secure and autonomous user experience.

The difference between SocialFi and DeSoc (decentralized society)

DeSoc (decentralized society) is a concept that uses blockchain technology to achieve personal trust and community decision-making on the Internet. Vitalik Buterin proposed SBT (Soul Bound Token) as an element to form personal trust and identity in his paper Decentralized Society: Finding the Soul of Web3. Unlike SocialFi, which focuses on economic benefits, DeSoc emphasizes social connections and trust building.

Challenges facing SocialFi

Although SocialFi has many advantages, it also faces challenges, mainly because users need to have a high level of literacy. Due to the use of blockchain technology, once the private key is lost, users will face the risk of asset loss. In addition, due to Socials special interactive design, security challenges have become more prominent, including smart contract vulnerabilities, the security of decentralized identity authentication, data privacy and security, phishing attacks and social engineering.

Case Study: Challenges and Lessons from Friend.Tech

Friend.Tech is a typical case of SocialFi. It achieved remarkable success in the early stages of its development and attracted a large number of users and funds. However, due to deficiencies in product design, operation strategy and security mechanism, it led to user loss and trust crisis. Specifically,

1. Initial success and high expectations: Friend.Tech achieved significant user growth and transaction volume in the early days of its launch, but as the number of users increased, many technical and operational problems were exposed. It encountered technical bottlenecks when processing large amounts of user data and transactions, resulting in a poor user experience.

2. Product design flaws: Over-reliance on a single functional model and poor user experience caused the platform to lose activity and appeal after user growth stagnated.

3. Operational strategy errors: Public relations and operational errors in dealing with competitors and launching new features led to a loss of user trust.

4. Inadequate security mechanism: Although some security measures have been taken, the imperfection of the overall security mechanism leads to accidental exposure of user data during interaction.

Measures to protect SocialFi

1. Smart Contract Audit: Regular and rigorous smart contract audits are conducted.

2. Multi-factor authentication: Implement multi-factor authentication (MFA) mechanisms.

3. Data encryption: Use advanced encryption technology to protect user data.

4. User education: Improve users safety awareness and prevention capabilities.

5. Bug bounty program: Establish a bug bounty program to encourage the discovery and reporting of security vulnerabilities in the system.

Conclusion

In general, SocialFi, as an innovative application of blockchain technology, shows broad development prospects. However, its security directly affects user trust and the stable operation of the platform. By combining best practices in fields such as DeFi, such as smart contract auditing, multi-factor authentication, data encryption, user education, and bug bounty programs, the SocialFi platform can effectively respond to security challenges and protect user privacy and assets. Only on the basis of security can SocialFi truly realize the vision of decentralized social networking and promote the progress of the digital society.

Lianyuan Technology is a company focused on blockchain security. Our core work includes blockchain security research, on-chain data analysis, and asset and contract vulnerability rescue. We have successfully recovered many stolen digital assets for individuals and institutions. At the same time, we are committed to providing project security analysis reports, on-chain traceability, and technical consulting/support services to industry organizations.

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