The technical foundation, application pitfalls, and future evolution of decentralized social networking

Author: Shaun, Yakihonne; Evan, Waterdrip Capital

The concept of decentralized social protocols (hereinafter referred to as SocialFi) is no longer new, but the products in this space are continuously undergoing tangible iterations.

At the beginning of the year, Kaito made "attention" quantifiable and tradable for the first time, incentivizing the acquisition of C-end users to serve Web3 project operations; recently, the popular application FOMO in the European and American crypto circles has allowed users to intuitively observe the correlation between smart money on-chain behavior and their social accounts through binding real transaction behaviors with social relationships, thus triggering strong resonance and creating a "FOMO" effect.

However, behind the continuous emergence of innovative gameplay at the application layer, the true determinants of the industry's upper limits still lie in three dimensions of decentralized social protocols' underlying product structure: identity systems, data storage, and search recommendation mechanisms. In this context, this article will analyze the technical evolution and structural traps of decentralized social protocols by dissecting the product structure of SocialFi; and predict the future development trends of SocialFi.

Technical Maturity: Three Core Dimensions of Decentralized Social Protocols

Whether it is Web2's centralized social networks or Web3's decentralized social protocols, their underlying structures are built around three dimensions, namely:

1. Identity System (Account / ID)
2. Data Storage (Storage)
3. Search and Discovery Mechanism (Search & Recommendation)

These three dimensions determine the degree of decentralization of a protocol and its long-term evolutionary direction. Currently, the industry has made significant breakthroughs in identity systems and data storage, but remains in the early stages regarding search and recommendation mechanisms, which is also a key variable determining the future explosive potential of social protocols.

1. Identity System (Account / ID)

Different protocols adopt different technical paths for their identity systems:

• Nostr uses a cryptographic structure with local storage, not relying on any client or server, achieving a completely decentralized account system. Although the early experience was not user-friendly, it has been improved through methods like username binding.
• Farcaster employs on-chain DID (decentralized identity) while relying on specific hubs for data storage.
• The account system of Mastodon / ActivityPub relies on domain names, binding to specific servers; once a server goes down, the corresponding account will also become invalid.

From these designs, it can be seen that the account systems of different protocols reflect varying degrees of decentralization in aspects such as "independence from clients/servers" and "support for cross-client login."

2. Data Storage (Storage)

Web2's data storage completely relies on centralized servers, while decentralized social protocols typically use distributed nodes or relay networks.

• Farcaster achieves efficient storage through a limited number (about a hundred) of Data Hubs, distinguishing between on-chain and off-chain data.
• Mastodon relies on independent servers; although open, it lacks cross-server data interoperability.
• Nostr allows anyone to deploy a relay, enabling data to be synchronized across relays, and even if some relays go offline, content can still be discovered.

Key analytical indicators include: data storage location, discoverability after node downtime, and data tampering verification mechanisms.

Currently, Nostr effectively alleviates the loading and redundancy issues of distributed storage through an online/offline model, and YakiHonne is also the first client to launch an offline publishing model, allowing users to publish content and automatically synchronize even in weak network environments.

3. Search and Recommendation (Search & Recommendation)

Search and recommendation algorithms are the most challenging and critical issues.

• Early Nostr had a poor search experience due to being entirely based on a public key system; however, it has now been optimized through username mapping.
• Bluesky (AT Protocol) employs a partially centralized algorithm for recommendations to improve the experience.
• Nostr is currently attempting to build a decentralized search and recommendation mechanism from the relay layer.

Thus, the algorithm layer remains the biggest challenge for decentralized social at this stage, but once solved, it will mark the entire field entering a period of large-scale explosion.

Overall, current decentralized social protocols have solved about 2.5 problems across the three core dimensions: the identity system is fully decentralized and gradually becoming user-friendly; the distributed storage mechanism is mature and effectively addresses loading and search experiences; the recommendation algorithm is still in the exploratory stage and is the next key breakthrough; for instance, Kaito's Yaps mechanism uses AI algorithms to quantify and reward users for posting quality crypto-related content on social platforms, measuring users' "attention" and influence in the crypto community rather than just simple likes or exposure. From a technological evolution perspective, this will be the critical point determining whether decentralized social networks can achieve large-scale adoption.

Traps Encountered During the Emergence of SocialFi Application Products

Since the concept of SocialFi was born, a large number of products have emerged in the industry, including representative projects like Lens Protocol, Farcaster, and Friend Tech. However, most applications inevitably fall into some structural traps during their development, making it difficult to maintain user stickiness after the initial enthusiasm wanes. This also explains why many SocialFi projects often appear briefly and fail to sustain long-term growth.

Function Replication Trap: Many SocialFi projects directly copy Web2 social modules, such as short posts, long articles, videos, and communities. This does not create sufficient migration motivation and fails to form differentiated content value.

Lack of Niche Strong Users Trap: The success of early social protocols often depends on having a group of strong niche users. Taking Nostr as an example: although it is a niche protocol, it has a strong cultural driving force from the Bitcoin community; the activity level of just the Yaki client exceeds that of Farcaster's Warpcast. Therefore, SocialFi products lacking a cultural foundation or clear scenarios typically have short lifecycles.

Misuse of Token Incentives Trap: Many projects mistakenly believe that "token incentives" can replace product logic. For example, some early popular Web3 social applications only produced short-term effects—due to the lack of a specific user ecosystem and sustained scenarios, they quickly disappeared. Similarly, when projects stack DID, Passport, various Web2 functions, and then add token issuance and payment modules, they appear "comprehensive," but actually fall into a complex and unsustainable trap. Because any single module is a very deep vertical application.

Application Forms Will Continue to Be Restructured: We are currently in a transitional phase of "protocol maturity → application restructuring." Future social application forms cannot simply extend Web2 but will generate entirely new interaction structures. Five years from now, the forms of applications will be completely different from what they are now.

Once the core issues at the underlying protocol layer are thoroughly resolved, upper-layer applications will certainly emerge in new forms, rather than being a simple extension of existing social models.

Resource and Narrative Driven Trap: Social protocols have their specific strategic/political positions within the entire industry; whether the constructed social protocol has specific power support is also very important. Although Nostr and Bluesky have not issued tokens, they both have strong resources or factions backing them. Resources and narratives are often thresholds that SocialFi finds difficult to overcome.

Possible Future Directions: The Next Evolution of SocialFi

Most social tokens cannot form long-term value, primarily due to the lack of real transaction logic and user retention motivation. Compared to traditional SocialFi incentive models, there are two more promising future directions:

Social Users Based on Payment Needs (Social Client as a Payment Gateway)

Social clients inherently possess identity binding, relationship chains, and message flow structures, making them very suitable as entry points for cross-border payments, small settlements, and content monetization.

Social Users Based on Transaction Needs (Social Client as a DeFi Gateway)

Social networks are inherently related to asset behavior. When social relationship chains are integrated with on-chain asset flows, it may form a new generation of "social-driven on-chain financial behavior entry." The explosion of Fomo (the linkage between social behavior and transaction behavior) is actually an early manifestation of direction 2.

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