Podcast Notes | Conversation with Variant Fund Co-Founder: How Can Crypto Save Traditional Social Networks?
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Podcast Notes | Conversation with Variant Fund Co-Founder: How Can Crypto Save Traditional Social Networks?
The differences between major social networking platforms are shrinking, and new ideas and innovations are becoming increasingly rare.
Navigating Web3 tides with focused insightsCompiled & Translated: TechFlow
Perhaps now is the best time to build in social, because we have a new business model—ownership, a new computing platform—crypto, and a new generation of users frustrated and resentful toward existing social paradigms. They crave something new, and these factors combined make us ready for something fresh to emerge.
Over the past decade, one of the most important invisible forces shaping our world has been engagement algorithms. We’ve transitioned from social networks to social feeds, and it all happened without us noticing. How much autonomy do we really have left? Was this the promise of the internet? Can crypto solve these problems?
In this episode of the Bankless podcast, Eugene Wei and Li Jin, co-founder of Variant Fund, are invited to discuss these very questions. Eugene Wei is widely regarded as one of the sharpest product minds in Web2 social.
Hosts: David & Ryan, Bankless Podcast
Guests: Li Jin, Co-founder of Variant Fund; Eugene Wei
Podcast: Bankless Podcast
Original Title: "Li Jin & Eugene Wei on How Crypto Saves The Internet"
Episode Link: Link
Release Date: October 30
The Ad-Supported Web2 Social Network Model
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Eugene Wei points out that the ad-supported social network model has profoundly influenced the development of Web2 social. Its main advantage lies in enabling social media products to remain free, thereby attracting more users and generating greater traffic and data for platforms. As Web2 evolved, advertising became the primary revenue source for most social platforms, providing both free services to users and a stage for businesses to showcase their offerings.
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Despite its early success, Eugene Wei notes that over time, this model has revealed limitations. Attention is the scarce resource in this economy, leading to zero-sum competition among social platforms, each vying to capture and retain user attention.
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The ad model restricts other potential directions for social networks. For example, because advertising is the primary revenue stream, platforms may be reluctant to experiment with new business models or innovations. Content often becomes more entertaining and superficial to capture attention, and platforms may over-display ads to maximize revenue, disrupting the user experience.
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Eugene Wei observes that as social platforms grow and user numbers increase, information feeds shift from deterministic to probabilistic. In this probabilistic feed environment, people begin to see themselves as media figures. To stand out in algorithms, users start creating higher-quality, more engaging content. Everyone wants their content seen by more people and pays greater attention to developing their personal IP.
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Eugene Wei believes that due to the entrenched power of existing companies and the constraints of the ad model, Web2 social has reached its endpoint. Web3 and crypto technologies might offer a way back to different social paradigms—by changing the business model of social media, Web3 could enable more authentic and meaningful social interactions. Its decentralized nature also gives users greater control over their data and content, leading to better user experiences.
Web2 Social Homogenization and Business Model Bottlenecks?
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Eugene Wei mentions that people rarely adjust or reset their social networks. When joining a new platform, users might choose to follow different people or not follow everyone they did before. But on Facebook, Twitter, or Instagram, you rarely see large-scale unfollowing or un-friending—this leads to “graph lock-in,” limiting how we interact with one another.
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Advertising as the dominant business model limits the number of UI variations you can build into your product. Messaging apps represent another emerging area for social building, but they’re not highly profitable, partly because their UI isn’t feed-based, making it hard to insert ads.
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Eugene Wei observes that Instagram is imitating TikTok, Twitter is trying to mimic TikTok, and TikTok is attempting to copy Facebook—the distinctions between major social platforms are shrinking, and so is creative innovation.
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Li Jin mentions that network effects theory suggests a network’s utility increases with the number of users. However, as user count grows, network effects can turn negative—more users may actually reduce the network’s value. For instance, people may prefer posting in small private groups rather than on large public platforms.
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Li Jin believes that new computing platforms might offer fresh directions for social media. Technologies like VR, AR, or crypto provide different user experiences and interaction methods, potentially opening new opportunities for the future of social.
Network Effects, Crypto Social, and Ownership
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Definition: Network effects theory states that a network’s utility increases as more users join. When more users adopt a platform or service, its value to each individual user rises.
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Li Jin describes Web2 internet as feudal—where a few platforms (the lords) own all the land that participants, users, and farmers cultivate. But ownership belongs to the lords. Users must share part of their earnings with the platform according to its rules. In Web2, there is no user ownership—its core revolves around engagement and distribution, not ownership.
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Li Jin adds that ownership could become a new business model, surpassing advertising. It could allow social networks to differentiate user segments more precisely and deliver tailored value. This model could help smaller social networks and content creators thrive.
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Li Jin believes Web3 or “crypto social” represents a shift toward capitalism in the digital realm—implementing private property rights online so anyone can own capital on the internet. In this model, crypto enables users and participants to become owners of online capital.
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Li Jin emphasizes that crypto social means social platforms centering cryptographic ownership in the user experience. This contrasts sharply with Web2, where user ownership doesn’t exist. In a social context, ownership at the core of UX can take many forms—from simple NFT profile pictures to fully on-chain social networks.
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Li Jin notes that in crypto, we’re still building for people. People are complex actors whose decisions are driven by emotions and psychology, not just economic or rational utility. For users to truly care about financial ownership, they first need to *feel* ownership.
The Future Path of Web3 and Social Media
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Li Jin says, as a social product, you must fulfill users’ desires for love or fame. Either function as a “love” product, deepening relationships with known creators, friends, and contacts; or as a “fame” product, helping people gain more attention and recognition.
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Li Jin believes Web3 offers social networks a new direction—not just about engagement and distribution, but about ownership. In Web3, users can truly own their data and content.
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Eugene Wei notes that social networks and social media can be seen as opposite ends of a broad-to-deep spectrum. Social networks focus on deepening existing connections, while social media is about expanding reach and gaining fame. A current challenge for Web3 is that it remains at a very low level of abstraction—similar to the command-line interface of computers—making it unfriendly and difficult for most users.
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Eugene Wei believes financial capital and social capital are two distinct forms, but in Web3 they’re intertwined. This fusion may create trust issues, as financial incentives could lead people to act improperly for short-term gains.
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Li Jin argues that Web3’s issue isn’t user experience—it’s product-market fit. Currently, most crypto social products only meet users’ income needs, failing to address deeper human needs like belonging, community, and entertainment.
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Li Jin hopes to see more crypto social products built not just for money, but to fulfill other human needs. She believes the future of crypto social depends on how we innovate to deliver genuinely valuable experiences.
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Eugene Wei urges Web3 innovators to ask whether their product truly needs crypto. If removing the crypto component wouldn’t change the experience, then crypto isn’t core to the product.
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Eugene Wei hopes Web3 developers can offer new forms of social interaction—not just chasing attention. He believes we can build higher-resolution social graphs, capturing the nuances of our real-life relationships.
Ethereum as a Social Network
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Li Jin notes that crypto social has the opportunity to build entirely new networks—not based on interests or real life, but on on-chain economic graphs. These can leverage all on-chain data—asset ownership, product usage, etc.—as foundations for new networks.
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David suggests Ethereum itself might be a social network. While it doesn’t look or feel like a traditional Web2 app with a social graph, it increasingly organizes human activity in social contexts. Li Jin agrees, adding that Ethereum, PFP communities, or holding FWB tokens in a wallet can all be seen as social networks.
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Li Jin believes Web3 enables the creation of new social networks based on on-chain economic graphs. By using on-chain data such as asset ownership and transaction history, we can form new social relationships that reflect users’ real economic behaviors and interactions.
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Unlike traditional centralized social networks, Ethereum offers a decentralized platform where users interact directly without intermediaries. This decentralized social model provides greater privacy and security, reduces platform monopolies and control, and allows token economies to play a central role—users participate in social interactions through holding and trading tokens, encouraging deeper engagement and contribution.
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Li Jin believes the current moment presents a unique opportunity for building social products. A new generation of users is dissatisfied with existing platforms. They no longer want to passively consume content—they want to actively participate and contribute. They seek a platform that truly reflects their voice and values, rather than being driven by algorithms.
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Li Jin sees the true promise of Web3 social in its inclusivity and diversity. In Web3, all types of creators have a chance to succeed, free from platform restrictions and censorship. Moreover, Web3 enables new communities and connections rooted in genuine human relationships and shared values—not algorithmic recommendations.
Crypto Social Lacks Psychological Ownership
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Li Jin references her essay on “psychological ownership,” exploring the difference between psychological and legal ownership. Psychological ownership refers to an emotional sense of belonging to something, whereas legal ownership is formal, contractual possession. Li Jin argues that many crypto applications lack psychological ownership, which is one reason they fail to gain traction.
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Li Jin explains that psychological ownership is about the emotional connection between users and what they own, strengthened by fulfilling user needs and expectations. In crypto, even if users legally own tokens, they may not feel strong affinity toward the product. To enhance psychological ownership, developers should let users invest time and effort, grant them greater control, provide deep product knowledge, and ensure alignment with users’ self-identity.
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Li Jin lists several factors that strengthen psychological ownership:
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User Involvement (IKEA Effect): When users invest time, effort, and energy into creating or assembling something, they develop stronger feelings of ownership. For example, when people assemble IKEA furniture themselves—even though machines could do it—they form special emotional bonds because they participated in the process.
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Personalized Experience: When users can customize a product or make decisions about it, they feel greater ownership. On some platforms, customizing interfaces, choosing features, or setting parameters makes users feel the platform is “theirs,” shaped to their preferences.
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Education and Training: When users deeply understand a product, especially advanced or hidden features, they feel stronger ownership. An “expert user” who knows tricks and techniques unknown to others feels a tighter bond with the software.
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Self-Object Congruence: When a brand, product, or service aligns with a user’s self-image or values, they feel ownership. For example, someone who sees themselves as optimistic and cheerful might favor a brand symbolizing joy and positivity.
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Benefits of Psychological Ownership:
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Increases user loyalty and satisfaction.
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Boosts user engagement and activity.
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Encourages word-of-mouth marketing and attracts new users.
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Increases long-term user value and lifetime value.
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Price and Psychological Ownership
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In many cases, price and psychological ownership are closely linked. When users pay for a product or service, they may develop a stronger sense of belonging. Their financial investment makes them value and care more about the product.
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In crypto, users gain certain rights by purchasing and holding tokens. Although they legally own these tokens, they may not develop strong psychological ownership unless they have a deep emotional connection to the project or community.
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Ways to strengthen psychological ownership through pricing:
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Meaningful Pricing: When users perceive the price they pay as fair and meaningful, they are more likely to develop psychological ownership.
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Sense of Participation: Letting users participate in pricing decisions—e.g., voting on product prices—can boost their sense of belonging.
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Reward Mechanisms: Offering rewards like discounts or tokens to encourage participation and investment can strengthen psychological ownership.
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While price can enhance psychological ownership, excessively high prices may deter users from buying or using the product. Therefore, finding the right price point—one that attracts users while increasing their psychological ownership—is crucial.
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