Opinion: SocialFi emerges as the solution to advertising challenges faced by social media platforms

Disclaimer: The author’s opinions expressed in this article are their own and do not reflect the views and opinions of the editorial team at crypto.news.

It has been two decades since the launch of MySpace, the pioneering social networking platform that introduced us to features like Top 8, MySpace Tom, and profile page music. As we reflect on MySpace and the subsequent emergence of Facebook, Twitter, Instagram, TikTok, and many others, it’s important to remember the initial purpose behind this technology.

Social media has given content creators the opportunity to become viral sensations, while everyday users can easily access that content with a simple click. But is there a cost associated with these platforms? So far, most of us have not experienced any negative consequences. However, can these platforms sustain the continuous dissemination and access to content? Is the clash between Elon Musk and Bob Iger just the beginning of a longer battle between content providers and advertisers? If so, social media platforms need to chart a new course that serves the needs of creators and users without interruption.

Enter SocialFi—the convergence of social media and decentralized finance—a promising alternative that combines accessibility, monetization, digital ownership, and scalability, all while protecting influencers and creators under a more sustainable revenue model.

TikTok recently tapped into the concept of the “third place,” a term coined by sociologist Ray Oldenburg, which refers to social environments outside of our homes and workplaces. Traditional third places have become financially out of reach for many due to inflation and increased living costs. Additionally, the enforced isolation of COVID-19 has reshaped our social interactions, leading platforms like TikTok and Instagram to emerge as accessible “third places” for the average person.

We have witnessed numerous examples of how social media can generate significant wealth and transform careers, for better or worse, due to its volatility and unpredictability. Vine, a short-form video hosting platform, catapulted figures like King Bach and Jay Versace to fame, but its demise in 2017 also marked the end of prominence for some of its stars. The rise and fall of various platforms have been closely observed, particularly as influencers express concerns over unfair compensation relative to their contributions.

During the early days of social media, content could be freely posted, leading to economic benefits and subsequent opportunities. However, the entry of advertisers a few years later disrupted and ended the content creator model.

To compensate for the lack of revenue from free subscriptions, social networks increasingly relied on revenue generated by advertisers and sponsored content. Recent developments, including TikTok dissolving its creator fund, Bob Iger pulling ads from X (previously Twitter), a noticeable drop in YouTube ad revenue, and Meta’s announcement to cease paying for Reel content, have led to a decline in creators’ revenue streams.

Nevertheless, content creators remain highly sought-after career choices for younger generations, with many children between the ages of 7 and 11 aspiring to become YouTubers, influencers, or gamers. If that is the case, we must ensure that we create and maintain a sustainable, accessible, and lucrative rewards system.

Fortunately, we already have all the necessary tools. Decentralized social media platforms are disrupting traditional compensation models by incorporating the advantages of web3 technology into the industry. Payments are made directly to creators using cryptocurrency or other digital assets, eliminating the need for intermediaries like Facebook or TikTok. Decentralized platforms allow creators to set their own terms for compensation, and smart contracts automatically distribute payments, ensuring fair shares without intermediaries taking a cut. The transparency of blockchain technology enables creators to track their generated revenue, addressing issues of misreported earnings by platforms. By cutting out intermediaries, decentralized models empower creators with verifiable ownership over their financial success.

Advertisers and marketers using traditional social platforms face challenges such as data privacy issues, data overflow, and closed ecosystems. However, the increased transparency and data availability of blockchain technology allow for shared analytics across entire ecosystems, freeing marketers from the limitations of company data centers. Smart contracts in SocialFi bring transparency and fairness to revenue distribution, addressing the potential issue of misreported earnings by platforms.

For advertisers, SocialFi offers enhanced data analytics across the entire blockchain ecosystem, enabling more targeted and efficient advertising strategies. Despite the availability of more data to share with advertisers, SocialFi’s technology provides users with smart contracts to manage the sharing of their personal information. This transparency ensures that advertising budgets are utilized effectively and directly benefit creators.

The decentralized nature of SocialFi also fosters stronger community engagement and participatory governance, aligning platform development with user interests. Overall, SocialFi promises a more equitable digital ecosystem where creators have more control, advertisers have more precise insights, and users enjoy a richer and more engaged community experience.

What can we expect from SocialFi? The promise is that more revenue from advertisers will go to creators, and the payment dispersion is inherently transparent. While advertising will always be subject to politics, the benefit of SocialFi is that advertisers can verify where their money is going, providing them with peace of mind.

The potential of decentralized social media is immense, with more control for creators, improved compensation models, and stronger digital communities. However, adoption remains slow. To fully harness the power of decentralized platforms, we need intuitive user experiences that seamlessly onboard new users. Education is also crucial, as clear explanations of the technology and its benefits are vital for driving understanding and excitement.

As we enter the next crypto bull run, it is crucial for investors and venture capitalists to pay more attention to the social media space. The companies that can provide ease of use while effectively communicating the core value of decentralization will lead the way. The opportunities are enormous if we take action today. By prioritizing simplicity and mainstream needs, decentralized platforms can transform not just social media but the entire creator economy.

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Rick Porter is the co-founder, CEO, and CTO of DSCVR. With a deep technical background in AI/ML, big data, and crypto projects, he has led initiatives at Google, Boston Consulting Group Digital Ventures, NAX Group, and Accenture. Rick has also been involved in building social products at Myspace and has served as CEO and CTO of various startups. He holds a bachelor’s degree in computer science from the University of Maryland.