Written by Katie Chiou

Earlier this year, my colleague Benji Funk wrote a piece called “Crypto-Powered Information Games” detailing the design space for coordinating, aggregating, and rewarding quality information across decentralized networks. Benji’s post begins with the following thesis: “Humans have an inherent desire to create, search for, and speculate on information.”

Since then, Benji and I have spent a lot of time talking to teams building at the intersection of financialized information games and social platforms—this category is currently referred to as “Social Finance - SocialFi.” SocialFi teams vary widely across mediums (text, image, video, audio) and audiences (pro crypto traders, artists, content creators, fans, and influencers), but the overall strategy is to create a fun social network based on high-skill financial information games or to financialize platforms that were initially primarily social.

The central goals of information games are to gain critical insights, improve individual or collective decision-making, and to accrue capital. Social networks and newer forms of SocialFi tend to magnify the relationship between information and capital accumulation. To understand the holistic value of information, however, it is crucial to consider all forms of capital, not just financial capital.

In this post, I will explore the interplay between social capital and financial capital in different types of social platforms, as well as where crypto may be a useful tool in these different contexts. By completing this exercise, we can better identify what goals/features matter for different goals and user personas and then build better-aligned platforms for those objectives.

The Relationship between Social and Financial Capital

Economic theory tends to focus on financial and transactional exchange, thereby classifying other forms of exchange, like cultural and social exchange, as non-economic and insignificant. However, this narrow view ignores the interplay between different types of capital and power, creating a false distinction between profit-maximizing economic activities and seemingly frivolous cultural activities.

One of the most desirable types of information, in fact, is social information. Social information gives us crucial cues as to what is considered morally right or wrong and how to behave in certain situations—fundamentally how to “belong” in specific groups and societies. Having accurate and relevant social information allows humans to earn capital, both social and financial. Synonymous with the concept of social capital is the term “status.” To quote Eugene Wei quoting Jane Austen, "It is a truth universally acknowledged, that a person in possession of little fortune, must be in want of more social capital."

Status/social capital refers to the resources available to an individual through their relationships within a network. These relationships form in a variety of ways including familial ties, institutional recognition, and other types of acknowledgment or respect based on some situational rubric.

Whereas financial capital can be utilized for immediate exchange, social capital is accrued through the establishment and maintenance of relationships over some period of time. These two forms of capital are not necessarily mutually exclusive. Converting financial capital into social capital might look like using financial means to invest into social relationships to improve status, transforming economic debt into social gratitude, or purchasing goods and symbols to gain social recognition or respect. This form of capital conversion is often faster, but less stable as there is a risk of ingratitude or failure to reciprocate in social exchanges or the risk of the gestures being perceived as inauthentic or reeking of ulterior motives. Conversion of social capital into financial capital is often more concealed so as to not disturb the ongoing maintenance of longstanding relationships or perception of meritocracy, but its investment can yield financial benefits through economic opportunities. For the sake of simplicity, we’ll refer to this dynamic as financial capital being more liquid, while social capital is generally more illiquid.

Designing a Modern Social Platform

In its early days, Instagram was largely used for friends to share moments with each other. Throughout the 2010s, the term “Instagram influencer” came into being as users moved beyond sharing photos with first and second-degree connections to promoting products and content for upwards of 7-figure sponsorship deals with brands. The influencer marketing economy (including platforms beyond Instagram) is now valued around $20B+. Instagram has dived headfirst into commerce, launching Instagram Shopping in 2020 (though it has retracted some of its more explicit shopping features such as live shopping). Instagram’s evolution over the past decade is a prime example of seamlessly converting social capital into more liquid financial capital.

The shift of social platforms more broadly has been one from “networking” to “media.” Platforms are increasingly designed to be consumed at-scale (broadcast media, think TikTok), rather than to foster interpersonal connection (P2P networking, think WhatsApp).

Between these two ends exists a wide, fluid spectrum. As a general rule of thumb, more broadcast-oriented platforms rely much more upon discovery mechanisms and speculative symbols of status and reputation (likes, follows) with the ultimate goal of discovering and scaling a community/audience. In P2P-oriented platforms, target users tend to already be in pre-existing social/network groups and the goal is to deepen relationships within these groups rather than to necessarily scale them to an infinite degree.

When we look at existing social platforms, we can identify two central dynamics by which to categorize the types of status games they play. There are platforms that lean into liquid, financial games, and there are platforms that lean into more illiquid, social status games. Similarly, platforms can make these games and status mechanics explicitly core to the experience of the platform or more implicit and subconscious in the background. With these lenses, two high-level axes emerge:

• Social capital <-> Financial capital

• Implicit capital <-> Explicit capital

We can use these axes and subsequent quadrants to broadly categorize social platforms and their ideal users. Again, these axes/quadrants do not mean mutual exclusivity but there are natural tradeoffs to consider when building social platforms according to specific goals—breadth vs depth, scale vs intimacy, instant exit liquidity vs long-term retention, etc.

SOCIAL/IMPLICIT - FRIENDS

In 2019, Venkatesh Rao coined the term “cozyweb” to refer to places people can hang out online away from the hubbub of the public internet.

“Unlike the main public internet, which runs on the (human) protocol of ‘users’ clicking on links on public pages/apps maintained by ‘publishers,’ the cozyweb works on the (human) protocol of everybody cutting-and-pasting bits of text, images, URLs, and screenshots across live streams. Much of this content is poorly addressable, poorly searchable, and very vulnerable to bitrot.”

In their purest forms, cozyweb platforms look like email, text message, and related messaging apps used primarily between friends where information remains relatively secluded. Similarly, private online groups like Discord servers and Slack workspaces have some semblance of openness and discoverability (less cozy) but are still highly gated.

As a step further, there are social media platforms such as BeReal or Snapchat that give new utility/entertainment to existing social groups. However, these apps have little-to-no focus on growing your social network, status, or user discovery; they’re focused on giving you tools to engage your existing communities.

Lastly, and perhaps the hardest type of platform to replicate in this category, are platforms on which users have public presence and discovery mechanisms exist, but “status” has little utility. Examples of these platforms include Letterboxd, Are.na, and Spotify to some extent. Each of these platforms has their own unique combination of features that limits the proliferation of status games.

For example, Spotify has very few social features—no direct messages, limited UGC/post capabilities; engaging with a friend with Spotify is relatively high friction (sending links off-platform).

Letterboxd is based on user-generated content (film reviews), but a user’s status level changes very little of the experience on the platform. Having more friends or likes on your reviews does not necessarily amplify your content in any particularly desirable way or unlock any power features or utility in the way that, say, Yelp power users (also based on user reviews) may receive invitations to review new restaurants. That being said, there’s little reason why this couldn’t become a dynamic for Letterboxd users as well in the future.

In the case of Are.na, the team has always been a major proponent of “cozyweb” spaces, creating a highly aligned user base and culture that generally discourages status games. Instead, social features on Are.na encourage fundamentally unscalable IRL community meetups rather than highly scalable digital audiences.

To summarize, cozy platforms tend to limit scalable status games through a few key features or lack thereof: limited UGC or P2P social features, highly aligned user culture, and/or lack of algorithmic discovery or amplification. Instead, these platforms focus on providing experiences that can help deepen existing relationships and connections with people already in your social network including direct messages, coordination tools for IRL community, and focus around niche interests.

SOCIAL/EXPLICIT - INFLUENCERS

Whether a platform makes social status games explicit or implicit is as much a decision made by its user culture as it is a function of actual platform buildout and design. For example, because of the widespread acceptance of Twitter KOLs and Instagram influencers, it’s natural that any new platform similar in UI to Twitter or Instagram will replicate similar results, hence making the goal of accruing social capital almost inherently explicit for these types of platforms.

As a baseline, a fundamental core question to ask when evaluating the positioning of a social platform is whether the goal of the platform is to aggregate attention and build audiences (one-to-many) or to promote smaller, high-touch networks and relationships (one-to-one). However, in many cases, aggregating as much attention as possible at scale can be an effective way to then filter or organize suitable candidates for a smaller, intimate social group. More structural features that support social capital games include easily legible/quantitative metrics such as follower/following/likes. Prominent discovery features on a platform also usually point to more explicit social status games, as users typically want to be featured prominently in the discovery feed/algorithm to increase their audience and reach. It’s worth noting that quantitative status markers (following, followers) on social platforms fundamentally improve content recommendations and user discovery, so these features often go hand-in-hand.

A prime example of an influencer platform is TikTok, where the goal is for short-form content to reach the most people as possible (go viral) and to accrue likes and followers, but more intimate 1:1 communication is extremely uncommon (though TikTok does have DMs). A more recent example that illustrates this dynamic is the privatizing of “likes” on Twitter, meaning it’s now impossible to view any user’s likes or the likes on any given post. Though a small feature change, the change dramatically transforms the social dynamics on the platform where social graphs/networks become less legible, instead shifting to more quantitative measures. By obfuscating certain social details, the goal becomes less so to discover relevant people in your social network, and more so to pump numbers and reach. An interesting side consideration: How much more data can Twitter collect from users now given that likes are private/users may like posts more freely and often now? The opposite may also be true––users may like posts less often because likes are private.

A nuanced factor related to influencer platforms is that, as mentioned earlier, social capital generally relies upon one’s ability to build strong relationships over time. However, if said relationship-building is perceived as inauthentic or in explicit search of capital (“clout-chasing”), such activity can actually overall reduce one’s social status as people can be less open and willing to engage in relationship-building that is perceived as not genuine.

A platform that thrives on influencers and social status games must maintain a small number of influencers, such that 1) there is a level of perceived desirability or rarity in each influencer and 2) there are remaining users that can serve as an authentically engaged audience and that can aspire to higher influencer status. The obvious questions then become how do users sort themselves into these tiers and what platform features best facilitate this organization?

FINANCIAL/IMPLICIT - PROFESSIONAL

It is generally known that social capital can be converted into financial capital, but there are also explicitly professional social platforms. These platforms typically focus on career-building, whereas more traditional social platforms rely on parasocial attachment for later capital conversion (i.e., an Instagram influencer building a social audience, and then later launching merchandise). These professionalized platforms often take the form of “patron” platforms, subscription businesses for gated content/insights, or professional networking platforms for hiring and finding new roles.

In a simple example, the goal of LinkedIn is to find professional roles that lead to earning financial capital. This goal is rather explicit and socially accepted. Professional platforms can become more nuanced, however. Take Zora, where in its base form, artists post work to be minted/purchased for a fee so that the creator may earn income. While the exchange of selling goods for a fee is rather direct, Zora is becoming an increasingly more social-oriented platform rather than traditionally professional.

The line between “influencer” and “professional creator” continues to blur where influencer is a much more common professional career, and professional creators must increasingly build audiences on social platforms to be successful. For example, while a vast majority of Substack newsletters are unpaid/written by hobbyist writers, there are many professional writers who rely on Substack as a principal source of income. Many of these writers start a Substack newsletter after already accumulating professional audiences, but also use social platforms—Twitter in particular—as a key distribution channel to develop more social relationships with their audiences. As a side note, Twitter throttles Substack links, making it more difficult for Substack writers to build audiences and distribution on Twitter.

I’ve written about this dynamic for music artists, in particular. For example, from my post on the music industry “where does music go from here”:

“With the death of the capital-a Album, you optimistically have about 200 seconds to capture a listener’s attention with your music. In an era in which artists are discovered on “social” platforms, the focal points become the individuals themselves. Music artists who capitalize on this feature can experience major boosts in popularity. [...] Another way to frame this shift is that art and media have become much more identity-centric.”

A core question to ask when considering/designing these dynamics on a given platform is: “How directly is a user seeking financial capital on this platform (by selling goods and services, earning income, etc.), as opposed to social capital (building an engaged audience through more personal, social content)?” The former results in more immediate financial gain, though perhaps is more difficult to build social engagement from, while the latter often is a slower process as you have to socially engage an audience and develop an authentic relationship with them before monetizing the relationship.

FINANCIAL/EXPLICIT - EARNERS

The last quadrant of our framework includes platforms that place financial games at the center. These platforms are often pay-to-play and/or rely on some sort of speculative price action or prospect of earning money to rally users. Casino games or traditional betting/prediction market platforms are classic examples of “earner” platforms.

Earner platforms are particularly effective at quickly aggregating users and attention, as financial capital is much more liquid and therefore much more exciting and active. These platforms gain momentum quickly and generate content rather self-sufficiently, as prices fluctuate in real-time and user actions are usually rather straightforward (buy, trade, sell). These platforms are usually well-suited for short-form, viral content that complements live price action. Similarly, the ROI from engaging on these platforms is much more immediate and clear than attempting to painstakingly build reputation on a new social platform. It’s also worth noting that in these platforms, users rotate in and out much more frequently than a social platform, where the goal is generally to deepen engagement with a specific community of users.

There has been recent exploration in overlaying these financial games explicitly on top of more elusive social dynamics. These platforms seek to place a dollar amount on usually more illiquid individual social status or on the strength of a community. While these platforms are still social to varying extents, the prospect of earning is at the forefront. Earnings can be for individual gain or for the goal of investing these funds back into the social group/community, depending on the dynamics of the platform itself.

The extent to which and methods by which financial layers are made explicit in these platforms varies widely. For example, Patreon is a subscription platform by which users pledge a subscription in order to receive premium content, but primary content usually exists on a separate platform—therefore making the financial layer largely the sole function of the platform, but not necessarily financializing core social content that may exist elsewhere. In the case of Twitch, financial tips during streams have become extremely common, though a majority of Twitch streams are still free.

A few high-level questions to ask to determine the level of financial games on a platform are:

1. Is creating financial markets a core function of the platform?

2. Do money/price actions affect the UX of the platform in real-time? (Unlonely, Twitch)

3. Are there prices/price charts prominent in the UI? (Friend.tech, pump.fun)

4. Is financial gating a core functionality of the platform? (Patreon, PartyDAO, Friend.tech)

“CRYPTO SOLVES THIS” OR SOMETHING

As attention and social experiences move online and content and culture move at the speed of light, managing the information we have about ourselves and each other becomes nearly impossible. The cultural cues we use, financial and social capital, and the relationship between them become even more difficult to decipher and manage. Crypto infrastructure helps us manage, contextualize, and connect indicators of social and financial capital in a hyperspeed, hybrid online/offline world.

In the case of financial capital, the role of crypto is perhaps more straightforward.

Real-time price discovery

The ability to permissionlessly and programmatically create new markets allows us to discover the price and underlying sentiment/demand for practically anything under the sun in the blink of an eye. In this way, blockchain rails allow us to most explicitly and purely express and act upon the will of groups of users (both people and bots) by programmatically generating quantitative information in real-time.

Capital and social coordination and deployment

Quantitative signals generate important social signals in two ways: they create binary, legible outcomes (number go up, number go down) that allow us to measure sentiment and direct latent social energy through extrinsic rewards and incentives (perks, streaks, and rewards). The value unlocked from gaining and leveraging real-time social information in this way is extremely powerful, allowing decentralized networks of people to aggregate and deploy capital in new, innovative ways that were previously impossible.

In the case of social capital, I’ve expressed before that social reputation is incredibly broken in a few different ways. The user journey across online and offline is incredibly fragmented, as online platforms mine and hoard social information and data, and as users move back and forth between IRL and URL. Platforms then channel this information into centralized algorithms that they can use to silo users into personalized feeds that amplify whatever content the platform so chooses, meaning creators must play by the platform’s rules in order to participate and culture submits to power-law like distribution. Kyle Chayka shares an anecdote about an artist, Hallie, in his book Filterworld that illustrates this point:

“Hallie also realized that the Instagram feed rewarded specific qualities. She had always combined visual art and writing, but posts with clear written messages got the most engagement. [...] It was a meme-like assembly-line process perfectly suited for Instagram: the bright colors and simple text added a little spice to her followers’ feeds along with simple moral messages. Followers came to rely on her account for those pieces alone. [...] The pressure that Hallie felt to make the rest of her artwork similarly bright, clear and simple is much like the pressure that a musician feels to frontload the hook of a song so it succeeds on TikTok or a writer feels to have a take so hot it lights up the Twitter feed.”

Small algorithms and local curation

Algorithmic feeds have granted users significant power through advanced discovery mechanisms, yet these same feeds have transformed into a new type of monolithic platform, centralizing curation around scalable metrics and uniform cultural tastes. Blockchain rails offer tools for rethinking curation, promoting structures where individuals are encouraged to co-create and curate their own digital community spaces, moving away from centralizing platform mechanics that lean towards large scale and uniformity. Tools like token-curated registries and markets could allow each user to actively build a community and elevate their own "digitally local" curators, instead of passively consuming a single mega-feed tailored for broad appeal—consider Facebook group pages, Subreddits, NTS channels, Discord servers, and similar platforms.

Holistic and verifiable user identity

We identified a few key challenges in user identity already, namely that identity is fragmented both IRL/URL and cross-platforms. Leveraging blockchains means leveraging open data, where users can move freely between platforms and bring their data with them. Not only does crypto enable open data sharing, but it also enables trustless verifiability as people can attest to information as correct/incorrect, true/false, relying on the wisdom of the crowd, rather than on platforms with ulterior motives. This becomes increasingly important as more content becomes generative and as social platforms move to become more decentralized.  Identity primitives must exist to help us better identify, incentivize, and match people across social platforms much more efficiently and effectively.

A key way we generate information and its subsequent verifiability is through social information games that allow users to attest to qualities and behaviors that others can similarly react and respond to. With open data sharing and open data verifiability of these information games, we are then able to build robust, decentralized reputation that is able to draw verifiable information holistically across platforms, improving both its quantity and quality.

While many SocialFi platforms to date focus on speculative financial games, there is an incredibly vast design space for platforms that create status games across both financial and social capital. A key to building a powerful, engaging social platform is to identify a target user persona and their unique preferences for financial or social status games. Appealing to different types of users and leveraging different tools necessitates certain tradeoffs in all cases, but is an important exercise for builders.

Across both axes of financial capital and social capital, blockchain rails offer exciting new opportunities for the next generation of social applications. Real-time, decentralized markets allow everyday users to discover, speculate, and trade with strangers anywhere in the world on major global events like elections or play ephemeral social games with friends like betting on the winner of a hotdog eating contest. Communities can rally around cultural objects and launch life-changing crowdfunds to support creators and projects in less than a day. Decentralized algorithms and curation give networks the ability to create subcultures at the most granular levels, discovering and engaging the most relevant people in the digital underground, away from monolithic broadcast feeds.

The delineation between the four types of social platforms is not to declare a hierarchy between them, but to illustrate that building for different audiences with different goals necessarily comes with different tradeoffs. Rather than attempting to build for all quadrants all at once, it’s helpful to identify which features work best for which audiences and goals.

I hope this framework is helpful, and we cannot wait to see what you build.

Thank you to Yash Bora, Jihad Esmail, baz, jtgi, Brian Kim, Lyron Co Ting Keh, Holyn Kanake and Archetype colleagues Benjamin Funk, Tyler Gehringer, Ash Egan, Danny Sursock, and Dmitriy Berenzon for thoughtful review and feedback on drafts of this post.

Disclaimer:

This post is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment or legal matters. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by Archetype. This post reflects the current opinions of the authors and is not made on behalf of Archetype or its affiliates and does not necessarily reflect the opinions of Archetype, its affiliates or individuals associated with Archetype. The opinions reflected herein are subject to change without being updated.