Friend.tech gets unfriended: Daily transactions drop 95% as hyped decentralized social app loses steam

It may be time to put to rest yet another effort to build a social network on a blockchain: The number of transactions on decentralized social network friend.tech has cratered after less than 20 days since its launch.

Friend.tech is trying a new spin on a decentralized social network by letting users tokenize themselves and sell “shares,” now dubbed “keys,” to fans and followers. People who buy these shares then become “shareholders” and can engage with the creator directly.

While many rushed to sign up like it was the next gold mine as big name crypto influencers, NBA players and OnlyFans creators jumped onto the platform, others were more cautious and skeptical because the app needed you to deposit funds when signing up, lacked a clear privacy policy, and had a pretty foggy roadmap. Now, it appears the people who hesitated on betting their net worth on others’ may be the ones to come out on top.

Activity on the app, running as an invite-only public beta since August 10, had declined 95% from a peak of almost 39,000 daily transactions on August 21 to about 1,400 at the time of writing, according to Dune Analytics data from user cryptokoryo.

Just seven days ago, I wondered if friend.tech’s early growth would be sustainable, and we can see clearly that the answer is clearly “no.”

Besides declining transactions, the inflow of funds on the protocol has also tumbled from $1.98 million at its peak on August 20 to about $8,300 today. Still, the app has recorded inflow of about $81 million in total, which isn’t insignificant for a platform this new.

To be fair, it isn’t uncommon to see declining user engagement after launch: Social media platforms BlueSky and Threads gained ample early traction only to see the hubbub fade in the following weeks and months.

Bitcoin startups remain undercapitalized as funding drought drags on

The crypto industry has not had a great run over the past year. Along with increasing regulatory scrutiny and skeptical investors, capital deployment has pulled back significantly from the highs of 2021, which has left many young startups struggling to raise funds.

This capital crunch is affecting the Bitcoin ecosystem as well. According to Erik Svenson, co-founder and CFO of blockchain infrastructure firm, Blockstream, Bitcoin-focused companies are falling behind as fewer checks are being written.

“I think investment into crypto kind of peaked early last year,” Svenson said on TechCrunch’s Chain Reaction podcast this week. “But Bitcoin itself has always been an area that has been undercapitalized.”

Founded in 2014, Blockstream focuses on its own sidechain technology, dubbed Liquid Network, it has bitcoin mining operations, and provides hardware wallets for bitcoin and other assets. Notably, it doesn’t have a token of its own, unlike many other crypto companies that launched their own during the initial coin offering (ICO) boom in 2017.

“We decided early on not to issue our own token,” Svenson said. “We didn’t raise an ICO like many projects did, so we’ve been relying on more traditional VC investment,” he added.

Blockstream raised $125 million in late January, bringing its total funding to about $400 million. The company had a post-money valuation of $2.49 billion as of August 2022, according to PitchBook data.

However, it’s not been all smooth sailing for the company, especially as the crypto waters have grown choppier amid the broader funding crunch. Svenson pointed out that while Blockstream has some “really bullish Bitcoin investors” on its cap table, it also has LPs, and the turbulence in the crypto market has made things more challenging. “The LPs are trying to parse both the macroeconomic factors and then also the industry-specific direction that everybody’s experienced in the last year.”