Friendtech & Ponzinomics

@0xtaetaehoho wrote a great article about how baselayer protocols could use ponzinomics as a go-to-market strategy, today we’ll be looking at this from the lens of FriendTech.

TL;DR

• Attention matters most in a narrative-driven landscape and helps source those who will build on top of the protocol.

• Need a superior product, community or novel ponzi that can buy time.

• Emit a secondary token unrelated to a core token, free user acquisition w no dilution if you execute community transition well.

• Controlled ponzinomics > bootstrap attention > then challenge to convert users of the drug

It’s fair to say Friendtech has used controlled ponzinomics to bootstrap attention. Its ponzinomics began with the design of its bonding curve, which helped to fuel speculation and trading of keys in the hope of profit, before establishing a familiar meta in (3,3)ing.

Whilst most decentralized networks have traditionally struggled with user acquisition, for instance, it took Lens just over 6 months to acquire 200k users, FT achieved this just after a month and has surpassed >$300m in volume. Let’s take a deeper look into its ponzinomics to analyse just how FT has bootstrapped its initial growth.

Bonding Curve

This is how the FT bonding curve works (s/o @saliencexbt) for the graphic:

The aggressive nature of the bonding curve helps to fuel short-term speculation as it favours early adopters who seek to purchase keys to maximise their profit motive. The steepness of the curve bootstraps a ponzinomics flywheel, initially, well-known CT influencers join where high fees are a feature of the steep bonding curve > this lead to botting and insta buying of keys on launch > which created more volume and fees > that could be reinvested in other influencers > and ultimately a desire to keep their own share prices high. Consequently, people feel obligated to provide value back to their shareholders to maintain the revenue trading their shares brings in.

However, whilst such a design initially favoured the larger accounts, over recent weeks we’re seeing an increasing inverse correlation between the number of followers and a share price as followers determine less your level of social clout, but rather the value you can provide in your room.

3,3

In anticipation of an airdrop a familiar meta emerged of (3,3)ing. A quick throwback to the amazing ponzi days of Olympus (3,3) is a game theoretic strategy where the optimum outcome for both participants was to stake their OHM, reducing supply and increasing the value of the token. Applying this to FT, the strategy is to purchase a friend’s key, increasing the value of both yours and theirs’ key whilst earning the trading fee too. Rinse and repeat as far as your capital goes and your keys become a lot more lucrative.

This isn’t a foolproof strategy though as 3,3 sent $OHM into a death spiral as once one person sold, it quickly became a race to the bottom. If people only use FT for the airdrop, the steepness of the bonding curve could quickly create a similar mass sell-off event. However, as FT finds greater PMF as adds new product features, combined with Paradigm’s expertise in mechanism design, I don’t believe the sell-off to be as sharp as some expect.

Speculation

So how has the speculative nature of the bonding curve and (3,3) to farm maximum airdrop points helped FT to solve its cold start problem? The cold start problem refers to the question, how do you get started from nothing? With the end of shitcoin summer, FT appeared perfectly to capture mindshare from degens who got tired of endless 2.0 shitcoins and rugs and gave people the opportunity to trade their friends instead. With frens getting a 5% share of profits from each trade of their key, this helped to solve the first wave of the cold start problem.

To bootstrap its second phase, FT cleverly announced Paradigm’s backing, with the first cohort of users acquired, the recent memories of Blur’s airdrop combined with a literal ‘airdrop’ tab has shifted go-to-market more toward user retention. 100 million points are being distributed over the next 6 months which promises to serve a ‘special purpose’ which has most assuming they will be redeemed for FT tokens come Q1 next year. Moreover, with rumours of referral links coming and the extended campaign duration, especially at a time with apathy towards Twitter and its inability to counter bots, reduced search functions and algorithm frustrations will help to curate consistent usage of FT, helping to encourage retention and create long-term users.

Is speculation a feature or a bug of FT’s go-to-market strategy?

Speculation is a great way to bootstrap new users in a social network as it offers financial incentives to get attention from users who will stay after discovering value from its product:

1. Bootstrapping user engagement and initial liquidity

   • Financial incentives can create a surge of initial users curious about earning potential.

2. Monetising social capital

   • FT allowed CT influencers to quickly monetise their reputation and Twitter followers, it was no surprise to see initially those on the leaderboard predominantly had the largest amount of followers.

3. Encourage content creation

   • Fees earned can encourage influencers to continue to provide quality content to their followers. The inverse can be said as well, in web2 people would pay 5+ figures for access to SMEs whilst in FT the same can be done at a much lower cost.

4. Managed market economics

   • As the initial monetisation of social capital wore off, inactive accounts lost value whilst those such as @Dpatt_ made 50+ eth in a few days rose very quickly as people valued his ability to vastly outperform in a competitive market.

5. User investment in platform success

   • Financially incentivised people help to promote the platform, bringing in new users and furthering its growth.

Speculation as a bug

Using speculation as a bootstrapping tools also leads to tradeoffs:

1. Transience

   • Speculative dynamics can encourage users to chase short-term profits rather than engaging with the platform in a genuine and sustainable way. This might lead to rapid churn as users join, profit, and leave.

   • Though one could argue speculation as a bootstrapping mechanism is neither a feature, nor a bug but a paradigm shift in how relationships are formed. Whilst speculation can encourage short-term flipping, personally, as I’ve used FT more and more the less I have used it for speculation and settled on an equilibrium whereby after spending time in rooms I don’t perceive to have value, I’ve slowly settled more into holding keys as I believe in the creator and hold because I think they’ll do well and I can provide to them my value to grow my own network.

2. Quality Dilution:

   • If the primary motivation is financial, the quality of content might take a backseat. Users might post content more frequently with the sole aim of boosting their speculative value, leading to a flood of low-quality content.

3. Risk of bubble behavior:

   • Like any speculative market, there's a risk of bubble behaviour where values inflate rapidly only to crash when the market corrects. Such volatility can harm the platform's reputation and user trust.

   • For some, buying a person’s NFT or “keys” to show you like/support them isn’t itself engaging enough to hold interest.

4. Exclusion of the Long Tail:

   • Not everyone can or will benefit from the speculative aspect. While top creators or early adopters might earn significantly, the vast majority (the "long tail") might find it challenging to earn or see value, leading to feelings of exclusion or disillusionment.

5. Hot-start problem

   • It changes the problem FT faces by shifting the dynamic from a cold-start problem to a hot-start one which is a reduction in the window of time a startup has to find PMF after it takes off.

Whilst FT has found PMF for alpha and speculation how sustainable is this, and what problems could it run into going forward?

Conflicting monetization scheme and business model

FT’s current business model is to take a 50% cut of the marketplace fees paid by key buyers whilst the remaining amount goes to key owners. The high marketplace fees incentivise key owners to engage with their rooms to drive more purchases and revenue. Their business model encourages user turnover and many believe FT will need to seek additional revenue streams as we have yet to see their revenue in a low-volume FT environment.

Are incentives misaligned?

This is a dual-sided argument; on one hand creator economies are built on the exchange of value between creators and fans who offer their support, engagement and money in exchange for value from the creator. I’ve seen the argument made that on FT, creators only benefit from the trading of their shares and purchase of these is the only way they can provide value.

Personally, I disagree and as a creator, I benefit and enjoy interacting and sharing my knowledge with followers. I can also jump into other rooms and provide value to a fellow creator which can act as a word-of-mouth marketing/networking tool. Ultimately, putting a price on creators helps to find a market equilibrium of like-minded individuals who wish to share and engage in discussions around common interests.

Lack of sustainable dopamine generation

Using FT has definitely provided me with a healthy dose of dopamine since I’ve begun using it - the constant refreshing of chats, and checking portfolio value has kept me hooked and coming back for more. However, with speculation bootstrapping its initial attention, how can FT continue to feed these engagement loops in a more sustainable way?

Improvements to be made

1. Account types and tiers

   • For instance, introduce a tiered membership with a tiers ranging from free previews that can increase purchase intent and discovery

   • A monthly subscription model for basic content access.

2. Monetisation model

   • Referral rewards that add profit-sharing will allow influencers to monetize more quickly and effectively.

   • Modifications to the bonding curve that could where creators could choose from different options such as

     • Fixed priced keys

     • S-curve priced keys which stablises the cost for late-stage users whilst still catering to speculative ponzinomics.

3. Discoverability

   • Improve discoverability that will help to drive quality content and traffic.

   • This could be combined with in-app analytics to further incentivise trading volume too.

4. Social features

   • Joint rooms

   • Creators could collaborate on joint insights or analyses

   • Feedback Mechanisms

     • Feedback system of social validation where keyholders can rate the value of insights provided

5. Multimedia experience - especially videos and live broadcasts.

6. Advanced financial utility

   • Other transaction scenarios like sending or gifting keys

   • Introduce features such as sharing trading fees with shareholders, @blknoiz06 suggested to allow ppl to stake $FT token to reduce fees on trading keys + get portion of protocol fees let ppl lock individual creator keys for varying amounts of time to get share of creator fees.

Conclusion

To conclude, FT has excellently captured the mindshare of most of CT since its launch in August through carefully controlled ponzinomics, characterised by its bonding curve. Putting a price on creators has created meaningful, bidirectional relationships with a sticky cohort of users. Whilst the initial onboarding phase has been incredibly successful, it is almost certain its mechanism design will change to help wean users off the drug of controlled ponzinomics with a greater shift toward retention, as well as acquisition of users outside the immediate crypto landscape.