SocialFi: Can Blockchain Fix What’s Broken in Social Media?

Whenever Sarah posted her vacation photos on Instagram, she did not think too much about it. A beach sunset, a restaurant meal they were just a few more photos for the 2.8 billion people who scroll through the app daily. What she definitely didn’t know was how much money Meta made from her seemingly innocent posts or how much information about her data brokers now have tucked into her digital profile.

Social media companies make a lot of money from users, but regular people don’t see much of that. This has opened the door for a new idea called SocialFi, which aims to change that. SocialFi is blockchain technology’s latest attempt to reimagine social networking, promising users ownership of their data and a cut of the profits. Whether it actually works is another story entirely, but understanding why it exists means confronting some uncomfortable truths about the platforms we use every day.

With more than three billion people scrolling, posting, and engaging on its platforms every month, Meta Platforms captures massive financial value. Yet the users who generate that content see almost no direct financial reward. At the same time, Meta pulled in about $164.5 billion in revenue in 2024, a roughly 22% increase from the year before. This imbalance does not quite sound right.

When the Curtain Pulled Back

March 2018 marked a turning point in how people thought about social media and privacy, even if most did not change their behavior. The Cambridge Analytica scandal revealed that data from 87 million Facebook users had been harvested without consent and weaponized for political advertising during the 2016 U.S. presidential election, where Donald Trump was elected president.

The mechanics were disturbingly simple. A Facebook personality quiz created by researcher Aleksandr Kogan was downloaded by about 300,000 users. But Facebook didn’t just collect data from those users—it also pulled in information from all their friends without notifying anyone. The quiz ended up exposing data from around 87 million people who had no idea their personal information would later be used by Cambridge Analytica to target voters.

After this incident came to light in 2018, Facebook’s stock lost $134 billion in value. The Federal Trade Commission eventually fined the company $5 billion, which sounds enormous until you realize Facebook generates that much revenue in about three months. More telling was what Facebook users didn’t do—despite weeks of headlines and public outrage, most people just kept using the platform.

This incident shows why data brokering has become such a massive industry, worth somewhere between $200 billion and $400 billion globally. Over 4,000 companies exist primarily to collect and sell personal information. Acxiom, one of the largest, operates 23,000 servers processing data on 500 million people, maintaining up to 3,000 data points per person. It sells not just names and emails, but also shopping patterns, medical history, financial situations, location data, and browsing habits. And all of it gets packaged up and sold without the users’ consent.

The market keeps expanding, with projections suggesting that it will reach $616.5 billion by 2030. Any email address is worth roughly $89 to a brand over time. In the first half of 2019 alone, there were 3,800 reported data breaches worldwide that exposed 4.1 billion records.

The Blockchain Alternative Takes Shape

What is a solution to this pestering problem? SocialFi, short for social finance. The concept marries social networking with blockchain technology and cryptocurrency incentives, attempting to restructure social media’s power dynamics. 

Under SocialFi’s umbrella, instead of your data sitting on Meta’s servers, it gets distributed across a blockchain network where you hold the cryptographic keys. This means no single company can access, sell, or manipulate your information without explicit permission. The financial model flips too. Rather than Meta pocketing every advertising dollar, SocialFi platforms distribute cryptocurrency tokens to users who create content and engage with posts. Some platforms even let you tokenize your social influence, essentially creating personal stocks that followers can invest in.

The technology includes blockchain networks for decentralized infrastructure, NFTs to prove content ownership, and DAOs that replace corporate boards with democratic governance where token holders vote on platform decisions.

Several projects have tried making this vision real. Lens Protocol built an open-source framework where your followers and content move with you across different applications instead of being locked inside one ecosystem. DeSo constructed an entire blockchain designed for social applications, claiming capacity to serve a billion users. CyberConnect focused on user-controlled digital identity, while Theta Network went after video streaming as a decentralized YouTube where users earn rewards for sharing bandwidth.

Problems with SocialFi

Ironically, most SocialFi’s projects have crashed spectacularly. 

Friend.tech became the poster child for SocialFi’s problems. The platform exploded in popularity after its August 2023 launch, peaking in early September before rapidly declining. Its native token, FRIEND, collapsed shortly after debuting in May 2024, and by September 2024—barely a year after launch—the developers had effectively abandoned the project by transferring smart contract control to a burn address. On-chain data revealed the team had extracted $52.4 million in fees, leaving many users with near-worthless tokens trading at pennies. At its height, Friend.tech boasted over 77,000 daily active users, a figure that plummeted below 10,000 amid the fallout and eventually to under 100. Critics aptly described it as a casino disguised as a social product.

The pattern repeats across the sector. Hooked Protocol on BNB Chain peaked at approximately 464,000 connected wallets in November 2022 amid hype for its token launch, then crashed to around 43,500 one month later—a 90% decline. A DappRadar study found that 92% of SocialFi users abandon these platforms within a month.

Why the Dream Keeps Dying

The failures stem from several fundamental issues. Firstly, the user experience remains not so good, or rather technical, as compared to established platforms like Instagram. Many new users face problems in setting up their crypto wallet, get confused with the jargon, and find the transaction fees high. Compare this to Instagram or TikTok, where a user can just download an app and start scrolling within seconds. Meta spends $35 billion annually perfecting its platforms’ addictive simplicity.

Technical limitations compound the problem. Blockchains struggle with the massive throughput required for social media at scale. When millions want to post and interact simultaneously, decentralized networks often slow to a crawl. Different platforms run on incompatible blockchains, creating fragmented communities instead of unified networks.

But the most critical failure is philosophical. Most SocialFi projects prioritize financial mechanics over genuine social utility. They built speculation-driven systems where users showed up to gamble on token prices rather than connect with other humans. This creates an economy that only works as long as new people keep joining. But once that stops—as it always does—the whole thing falls apart.

There’s also the network effect problem. Social networks only become valuable when enough people use them. Why would anyone switch from Instagram’s 2 billion users to a SocialFi platform with 50,000? The early adopters tend to be crypto enthusiasts rather than regular people just trying to keep up with friends and family.

What Is the Future Then? 

Despite many failures, some industry experts remain optimistic about SocialFi’s long-term potential. Industry veterans say that some current platforms are significantly more user-friendly than attempts from a few years ago. Some predict that within 2-3 years, the difference between Web3 social platforms and existing alternatives will become nearly invisible to average users.

Other industry experts are not so optimistic. According to them, for that optimism to prove right, infrastructure must handle massive traffic without sacrificing decentralization. User interfaces need to become so simple that people do not need to understand the jargon of blockchain technology for it to work for them. Moreover, different SocialFi platforms need robust interoperability so users can move between them seamlessly while maintaining their identity and social connections.

Most importantly, successful platforms must solve real social needs first, with blockchain serving as an enabling technology rather than the main attraction. Financial incentives should enhance social interaction, not replace it. People use social media to stay connected with friends, share experiences, and express themselves. Any platform that forgets those fundamental human motivations in favor of tokenomics is doomed to fail.

The broader question is whether decentralization matters enough to overcome the massive advantages incumbents possess. Facebook, Instagram, TikTok, and YouTube work remarkably well for most people most of the time. Yes, they harvest users’ data and make billions from their content, but they are also free, easy to use, and connect you with everyone you know.

The growing awareness of data exploitation and privacy violations is creating demand for alternatives in some strata of society. SocialFi offers a vision where users control their information, earn fair compensation, and participate in platform governance. Whether that vision materializes depends on building systems that balance decentralization’s benefits with user experiences that match or exceed centralized alternatives.

Until then, billions of people remain on platforms that profit from their data while giving them nothing in return. Which is exactly why SocialFi’s promise resonates, even if the execution keeps falling frustratingly short. Sarah will probably keep posting her vacation photos to Instagram. But maybe, eventually, she will have another option that does not treat her digital life as raw material to be mined and sold.