Author | Jason Kam, Folius Ventures
Translation | Wu Shuo Blockchain
This article does not represent the views of Wu Shuo. Readers are strictly advised to comply with local laws and regulations and not participate in illegal financial activities.
Folius Ventures has released an analysis report on Friend Tech, pointing out that it currently refuses to engage with any VC except LianGuairadigm. Mining is the only way to obtain exposure to the company, and it is expected that FDV may reach around 1.5 billion US dollars in the end. A sustainable payment mechanism must be introduced, otherwise it will create a two-way death spiral. It is expected that with sufficient execution capability, there will be at least two waves of peak DAU impact, and the strong airdrop expectation will keep the heat until January-February 2024. There is a significant risk that KEY may be defined as a security and the tokens may not be issued in the end. The following is the edited content by Wu Shuo, with some deletions.
Read the original article:
https://docsend.com/view/cn6axjcaxcy2kx3m
Review of Friend.Tech’s Development
Within a month, standing on the shoulders of predecessors, solving industry pain points, and taking advantage of speculation to achieve a cold start, and relying on rapid iteration and bundling with LianGuairadigm to solidify development expectations.
● Perfect product integration: The choice of PWA fits well with lightweight social products, giving old technologies new scenarios and bypassing the App Store, which is not friendly to Web3. In addition, the integration of Web2-like login methods reduces the threshold, binding Twitter accounts to gain initial traffic, and the joint curve design makes liquidity entry and exit convenient. The Base/OP Stack makes good choices on social/small amounts of minimum security and ultra-low cost, as well as the maturity of offshore US dollars (USDC), which allows Friend.Tech to smoothly promote and convert under the limited Web3 infrastructure, successfully achieving the business model of “CT drainage, FT monetization”.
● Addressing pain points to a certain extent: Whether it is X, Discord, WeChat, or Telegram in the Web3 community, there is no good scenario similar to the knowledge planet/obtaining/expert consulting network that enables cognitive payment, allowing high-value individuals to monetize attention and knowledge in a one-way, low-noise, and comfortable manner. Friend.Tech has to some extent filled this market gap, making it possible for individuals with the highest cognition and earning ability in the industry to be paid directly.
● Overcoming the cold start with speculation and early KOL strategy: In the vacuum period of the industry narrative, Friend.Tech initially obtained a large amount of traffic by directly giving cash to Twitter KOLs and sharing 5% of the user’s purchase of Keys with the host. Users’ expectations of KOL appreciation and the wealth effect after the pullback have realized the project’s first wave of cold start. The airdrop expectation and the potential to break out of the circle also attracted a group of loyal users who continue to create content, keeping the project’s DAU active.
● LianGuairadigm Core Level Rocket Empowerment: After the first wave of dividends declined, the news that LianGuairadigm, as the top institution in the industry, led the investment has laid a strong foundation for the project’s development. The expectation of future airdrops and the significant increase in valuation represent a substantial increase in user deposit intentions and amounts; the strong background of the investment company means that many minor issues and legal issues are likely to be resolved, significantly reducing the risk of running away, and also greatly boosting user usage and deposit intentions.
● Fast Iteration on the Right Track: Friend.Tech, as a product, is below par in the Chinese/Asia-Pacific Web2 circle. Fortunately, it continues to iterate on the right track in terms of empowering homeowners to monetize, allowing users to make money and enjoy a smooth experience, and is very pragmatic in implementation. From the perspective of refreshing speed, reply function, cross-chain + deposit function, global comparison/ranking page, image function, etc., the team’s 996 capability is expected to continuously improve and protect the product, ultimately reaching the passing line of Web2.
Friend.Tech’s Point System and Airdrop Expectations
Holding Key and participating in discussions has become a disguised form of Pool2 mining, and it is also the only way to obtain its exposure, currently with a high potential return rate.
The current popularity of Friend.Tech is largely due to its token issuance expectations – for heavy participants, the cognitive framework is that every 1 point may be converted into a token airdrop worth 1-5 US dollars, or mining with an APR of 200-500% or even more based on the participation amount:
● Friend.Tech will distribute 100 million points within 25 weeks. The general consensus is that points represent token airdrops and are strongly correlated with the total amount of Key invested, holding time, and in-app activity (clicking, duration, commenting, etc.).
● As shown in the following table, if the final Friend.Tech FDV is 1.5 billion, with 10% allocated to airdrops, and the average TVL within 25 weeks is 80 million, and the proportion of airdrops to participants is equivalent to the participation TVL, the final annualized airdrop rate is approximately 360%.
● Purchasing Key, maintaining activity, and the friction threshold of the product have hindered large capital from entering. However, we believe that with the improvement of industry awareness, product iteration, the improvement of supporting financial facilities, and the entry of Silicon Valley, Asia-Pacific, and traffic-oriented individuals, TVL and KEY prices may rise significantly.
● It is worth mentioning that Friend.Tech currently refuses to communicate with any VC except LianGuairadigm. Therefore, we believe that this is an opportunity for retail investors and secondary funds, and mining may also be the only way to obtain exposure to the company.
About PMF (Product-Market Fit)
For ordinary professionals, rapid reputation monetization represents short-term earnings of $1,000 to $10,000. Insights in private chats are currently abundant.
● Subscription price = selling price * 0.9 – buying price * 1.1. In other words, when the price rises by 22%, users can subscribe for free. According to the conversion formula, if the Keys holder increases by 1 unit after buying, this user can “freeload”.
● The final pricing should fall within the cost of multiple consultations by a single user ~= 20% of the price (one in and one out). Based on the current Ethereum price and the pricing of industry consultations by hedge funds for 1 hour (500-1000 USD), the number of top-paid consultants should be around 150-215 or the price per Key should be around 1.4-3.0 Ethereum. Interestingly, this number of Keys, under the assumption that a single user can hold multiple Keys, is roughly equivalent to Dunbar’s number, which is the maximum number of individuals that a person can easily maintain relationships with. Therefore, we believe that the design of this equation (S^2 / 16000 * 1) is intentional, and the price range of 1.5-3.0 Ethereum per Key is what we consider to be a normal price for industry experts after the hype subsides.
● The recognition of reputation and professionalism by the masses will quickly push the price to a reasonable range. The thrill of discovering and profiting early is addictive. And the high profit sharing can make influencers quickly feel the joy of income, thereby further helping to promote the platform and accelerate network effects. An influencer at the 50/100/150 Key level can earn at least around 200/1700/5600 USD through royalties. And if they can hold 3 Keys at a low price in the early stage, they can earn an additional 750/3000/6750 USD from selling the 50/100/150 Key level. For most professionals, the temptation of quickly earning 1000-10,000 USD is enough for them to participate and promote daily.
● Users may tend to hold Keys because they want to freeload and maintain their status symbols. Additionally, we believe that the opportunity to attract the attention of top industry professionals is extremely rare, and the cost of reaching the top in terms of power and recognition is currently very low. For those in need, there is no upper limit to the price they are willing to pay for attention and feedback, which opens up the ceiling for Keys. However, there may be a problem with continuously generating cash flow for influencers in the later stage that needs to be addressed.
Issue of initial explosive income and subsequent income
Friend.Tech must introduce a continuous payment mechanism, as the decline in the price of KEY+tokens in the subsequent cycle and user churn may cause a death spiral.
Continuing from the previous page, we believe that Friend.Tech will inevitably face the problem of overpricing by homeowners in the later stage, saturation of Key holders eager to sell, and insufficient cash flow due to potential users’ lack of purchasing power. After homeowners realize one-time cash flow through royalties and selling Keys in the early stage, they are bound to face a lack of momentum. We believe that for Web2 traffic cores and mid-to-high-end professionals, Friend.Tech must open up a continuous pay-per-use model for both external and internal users.
● We believe that the design of the project needs to be accompanied by differentiated pricing for holders with and without a Key, a referral link and profit-sharing mechanism for Key holders, as well as appropriate free disclosure based on unlock time or other methods in order to achieve effective and continuous monetization for homeowners.
● Without being able to achieve this, we believe that in the downward cycle after user saturation, the user churn rate will increase significantly as KEY and tokens are sold, further affecting the price of KEY and tokens, forming a bi-directional death spiral.
DAU Peak
We predict that with sufficient execution capability, there may still be at least two waves of DAU peaks for Friend.Tech in the future. After that, it is necessary for the product to generate sufficient network effects and quality.
Potential participants in the future:
● Silicon Valley VC + Silicon Valley entrepreneurs: through the radiation of LianGuairadigm and current Web3 professionals
● Numerous VCs, founders, opinion leaders, speculators, and technology professionals in the Asia-Pacific region: through radiation from west to east + wealth effect
● Non-Web3 professionals from various industries, especially the high-net-worth individuals in specific segments: through continuous business expansion of the company itself and payment of GTM expenses. It is crucial to attract opinion leaders with cash and tokens.
● Web3 native liquidity funds directly allocate funds to obtain airdrop opportunities: we believe that when general liquidity funds can easily purchase KEY similar to ETFs and directly enjoy potential airdrops, large amounts of capital will flow in.
● The wealth effect that comes with new users and TVL will increase the valuation of tokens while attracting more existing users’ funds. We believe that the strong expectation of airdrops will keep the product hot until January-February 2024.
Necessary feature additions:
● Free preview: increase potential users’ willingness to purchase and increase discoverability
● Richer multimedia experience, especially videos and live streaming
● Global page: discover excellent content locally and help influencers attract traffic, advertising opportunities can be considered but not necessary
● Recommendation rewards: adding profit-sharing can help influencers monetize faster and better
● Additional encrypted or paid content in groups: help influencers continue to monetize
● Product details – can learn from WeChat and Telegram, such as voting, reactions to posts, pinning content, etc.
● Stronger transaction scenarios, such as sending KEY, directly guiding whitelist or token/NFT purchases, etc.
● Significantly lower user entry and withdrawal thresholds
● Greatly improve product fluency
● Deeply consider the bonding curves and introduce multiple curves, while considering continuous incentives for active and holding users after the token is issued
● Consider designs similar to LP Pool to lower the threshold for users to buy Key
There is still room for improvement in the joint curve
The team has made good choices in simplicity, and we look forward to LianGuairadigm deepening its transformation.
Currently, the Friend.Tech product is pure and single in form: a simple and understandable joint curve that is suitable for high-value KOLs who bring real money. However, there are limitations – when the user profile is expanded, not every user is suitable for this type, and even KOLs need to make stratifications on their own users. We believe that giving users the right to choose a few options (such as 3-4 curve forms) and implementing them in a simple way, Friend.Tech can reach a larger TAM:
● KEY with monetization and constant price: Constant price instead of x^2, most (such as 90%) of the revenue goes to the homeowner. This way, key holders can expand to thousands of people, similar to onlyfans, and generalize more quickly through the utility of the key.
● KEY with strong knowledge payment form and S-curve pricing: The price converges after marginal users (similar to S-curve) rather than x^2, which can stabilize the acquisition cost of the majority of users in the later stage, and also accommodate early speculative users, making it more suitable for expert talents.
● KEY with event-driven and multiple S-curve pricing: Similar to the above, but after the user quantity breaks through different bottlenecks, there is room for further growth. It is suitable for star-like homeowners and can be driven by referral links to promote users spontaneously, thereby breaking through the platform period.
Fortunately, LianGuairadigm’s expertise in mechanism design and mathematics can greatly help the Friend.Tech team.
Maximizing Points
If maximizing Points is used as the logic for configuring KEY, it may be most appropriate for homeowners who hold high traffic, high stickiness, high net worth, and have long-term deep cultivation of the product.
The airdrop is expected to give KEY value beyond knowledge consulting and identity recognition. Assuming that the final token airdrop result is strongly related to Points, the configuration principle should be to maximize the weekly Points obtained. Although the team can fine-tune the equation every week, we dare to predict that the conversion method is probably as follows:
App activity (self-owned + others) * Integrated asset price of KEY (self-owned + others) * Duration of holding KEY
In view of this, before this formula is adjusted, the approximate guidelines for maximizing weekly points may be as follows:
● The product should be opened frequently and make voices in the self-owned and others’ communities. Key homeowners should be active users.
● Priority should be given to homeowners with abundant bullets, and their ETH is highly likely to be converted into KEY, thereby increasing the weight; at the same time, users with high total asset prices should also be given priority.
● It is worth noting that it is not easy to buy highly active KOLs at low prices at the first time; therefore, for users with abundant bullets and their own traffic, one of the best ways to boost parameters may be to buy a sufficient amount of KEY in the first time.
● Given that holding time should be one of the weights, plus a fee of about 20% for each transaction, the best strategy may be to buy early and hold for the long term for users who are willing to deeply cultivate the product, rather than frequently buying and selling. Therefore, it is advisable to carefully select homeowners who are obviously unable to be cut off or deeply involved, rather than purely following the trend, which may be a better option.
● Therefore, in terms of configuration, a homeowner with high traffic, high stickiness, high net worth, and a reason and willingness to develop their own brand within the product should be the best choice for long-term holding to maximize Points. Interestingly, these users should have also received quite good Points in the past four weeks, so perhaps this can also be used as a screening criterion.
Risks
As a social vertical product with strong financial attributes, Friend.Tech has many risks in its development path:
● The project can completely not issue tokens in the end, or the airdrop intensity can be unprecedentedly small: therefore, for participants, it is very important to participate earlier and strictly control the loss of crossing multiple cycles in terms of ETH base.
● Unable to break through the circle and collapse early: currently, the product has a high coverage of Web3, but if it cannot break through the circle, all assets will have the risk of depreciation.
● Excessive commission intensity: the intensity of the 10% commission for buying and selling is high, and it may cause strong dissatisfaction when the product development slows down and the base increases.
● The great risk of KEY itself being defined as a security in terms of regulation: this risk cannot be eliminated and must rely on LianGuairadigm’s own legal team and the company’s clever design.
● Great execution risk of the product: in the process of company growth, due to the strong correlation with financial attributes, every step of function updates and continuous rapid iteration/problem solving is accompanied by a great risk of collapse. The team needs to handle everything very prudently. In addition, the level of the product itself is still below the Web2 benchmark, and the user experience is poor. If it cannot be improved, there may be problems in retention after the expected elimination.
● Inevitable financial cycles brought by fluctuating DAU and price: KEY itself will have strong volatility and periodicity with changes in airdrop expectations, user entry speed, and price itself. Among them, there is a risk of significant permanent loss, and the team must manage expectations and iterate steadily in this cycle.
● Long-term retention risk: Friend.Tech may become a niche product that cannot support the expected high FDV for the general public due to the high price of KEY after the tide recedes. The failures of Clubhouse and many other niche social products are a lesson to be learned.
● Risks of private keys and Web3 asset security: risks of being hacked are inherent in wallet based on custody mechanism and smart contracts, and must be considered.
● Team anonymity risk: The team has no actual responsibility towards users. Of course, this risk is somewhat reduced with the involvement of LianGuairadigm, but the reputation risk associated with a semi-anonymous founding team still exists.
● Content risk: It is obvious that this kind of content platform carries a high risk of violating the laws of any country. As the platform grows, it will inevitably face many challenges in terms of review and regulation. The team needs to have great patience and preparation to face all of this.
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