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In-depth analysis of the Friend Tech explosion process, project revenue, top 10 risks, and death spiral.

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Friend Tech currently refuses to engage with any VC except for Paradigm and mining is the only way to obtain exposure to the company. A continuous payment mechanism must be introduced, otherwise a mutually destructive spiral will form.

Original Title: "Friend Tech In-Depth Report: Explosive Growth, Airdrop Expectations, Death Spiral, and Top 10 Risks"

Original Author: Jason Kam, Folius Ventures

Original Translation: Wu Shuo Blockchain

Folius Ventures has released an analysis report on Friend Tech, stating that it currently refuses to engage with any VC except for Paradigm. Mining is the only way to obtain exposure to the company, and it is expected that FDV may eventually reach around $1.5 billion. A continuous payment mechanism must be introduced, otherwise a two-way death spiral will form. It is expected that, provided execution is good enough, there will be at least two waves of DAU peaks, and strong airdrop expectations will keep the heat up until January-February 2024. KEY poses a significant risk of being defined as a security, and tokens may not be issued in the end. The following is the edited content by Wu, with some deletions.

Read the original article: https://docsend.com/view/cn6axjcaxcy2kx3m

Friend.Tech Development Review

Within a month, standing on the shoulders of predecessors, we have solved the pain points of the industry sharing, and at the same time, taking advantage of the speculative effect to achieve a cold start, and relying on rapid iteration and bundling with Paradigm to solidify development expectations.

● Product stitching just right: PWA is the perfect choice for social lightweight products, giving old technology a new scene, bypassing the unfriendly App store for Web3 is crucial. In addition, the integration of Web2-like login methods reduces the threshold, binding Twitter accounts to get initial traffic for free, and the joint curve design makes liquidity in and out convenient. Base/OP Stack makes good choices on the lowest security and ultra-low cost of social/small amounts, as well as the maturity of USDC offshore dollars. Stitching them together allows Friend.Tech to smoothly promote and convert under the limited infrastructure of Web3, and successfully achieve the business model of "CT drainage, FT monetization".

● To some extent, it solves the pain point: In the Web3 circle, whether it's X, Discord, WeChat, or TG, there is no good platform similar to Zhi Shi Qiu/De Dao/Expert Consultation Network that allows high-value individuals to monetize their attention and knowledge in a one-way, low-noise, and comfortable manner through cognitive payment. Friend.Tech fills the market gap to some extent, making it possible for paid access to the industry's most knowledgeable and profitable individuals.

● Speculation effect and early KOL strategy overcome cold start: In the midst of an industry narrative vacuum, Friend.Tech initially gained a large amount of traffic by directly giving cash to Twitter KOLs and sharing 5% of the key purchase profits with homeowners. Users' expectations of KOL appreciation and the wealth effect after the pull-up were realized, achieving the first wave of cold start for the project. The project's airdrop expectations and circle-breaking potential also attracted a group of loyal content creators who continue to cultivate and create content, maintaining the project's DAU activity.

● Paradigm Core Second-Level Rocket Empowerment: After the first wave of dividends declined, the news that Paradigm, as the top institution in the industry, led the investment laid a strong foundation for the project's development. The expectation of future coin airdrops and the significant increase in valuation represent a substantial increase in user deposit willingness and amount. The strong background of the investment company also means that many small product and legal issues are likely to be resolved, while significantly reducing the risk of running away, which also greatly boosts user usage and deposit willingness.

● Rapid iteration on the right track: Friend.Tech, as a product, falls short of benchmarking within the China/Asia-Pacific Web2 community. Fortunately, it has been continuously iterating on the right track for the core purpose of empowering landlords to monetize and providing users with a smooth experience while earning money. From refreshing speed, reply function, cross-chain and deposit function, global comparison/ranking interface, image function, and other features, the team's 996 work schedule is expected to continue to improve and safeguard the product, ultimately reaching the passing line of Web2.

Friend.Tech's Point System and Airdrop Expectations

Let holding Key and speaking become a disguised Pool2 mining, and it is also the only way to obtain its exposure. Currently, the potential return rate is high.

Friend.Tech's current popularity is largely due to its expected token issuance. For heavy participants, their cognitive framework is based on the possibility of converting every 1 point 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 (clicks, duration, comments, etc.).

● As shown in the table below, if Friend.Tech ultimately issues FDV tokens worth 1.5 billion, with 10% allocated for airdrops, an average TVL of 80 million within 25 weeks, and airdrop participation proportional to TVL, the final annualized airdrop rate is approximately 360%.

● Purchase KEY, maintain activity, and product friction thresholds have hindered the entry of large funds. 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 engage with any VC except for Paradigm. Therefore, we believe 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 general professionals, quick reputation monetization represents a profit of $1,000 - $10,000 in the short term. Insights in private chats are currently abundant.

● Subscription price = sell price * 0.9 - buy price * 1.1. In other words, when the price rises by 22%, the user can subscribe for free. According to the conversion formula, if the Keys holder increases by 1%, the user can "freeload" after buying again.

● The final pricing should fall at around 20% (one in, one out) of the cost of multiple consultations with a single user. Based on the current price of Ether and the pricing of industry consultations for hedge funds (ranging from $500 to $1000 per hour), the number of top-paying consultants should be around 150-215, with a single Key priced at around 1.4-3.0 Ether. Interestingly, this number of Keys, assuming a single user can hold multiple Keys, is roughly equivalent to the Dunbar number law of 150, which is also the maximum number of individuals a person can maintain close relationships with. Therefore, we believe that the design of the equation (S^2/16000 * 1) is intentional, and the price range of 1.5-3.0 Ether per person is what we consider to be a normal price for industry experts after the hype has subsided.

● The public's recognition of reputation and professionalism can quickly push prices to a reasonable range. The thrill of discovering and profiting early is addictive. The high profit sharing can also give influencers a quick sense of income, further helping to promote the platform and accelerate network effects. An influencer can earn at least about $200/$1700/$5600 purely through royalties at the 50/100/150 key nodes. If they were able to hold 3 keys at a low price in the early stages, they could earn an additional $750/$3000/$6750 by selling at the 50/100/150 key nodes. For most professionals, the temptation of quickly earning $1000-$10,000 is enough to make them participate and promote daily.

前期爆发收入与后续收入问题

Early Stage Revenue and Subsequent Revenue Issues

Friend.Tech must introduce a sustainable payment mechanism. In the following period, the decrease in KEY+token price may lead to a death spiral caused by user abandonment.

Continuing from the previous page, we believe that Friend.Tech will inevitably face the problem of inflated pricing by later stage homeowners, saturation of Key holders unwilling to sell, and a lack of purchasing power from potential users due to insufficient funds, resulting in a continuous cash flow shortage. After early monetization through option premiums and Key sales, homeowners will inevitably face a lack of momentum as a core issue. We believe that for Web2 traffic core and high-end professionals, Friend.Tech must open up a continuous pay-per-use model for external and internal groups.

● We believe that its design needs to be accompanied by differentiated pricing for those with and without keys, referral links for key holders, profit-sharing mechanisms, and appropriate free disclosure based on unlocking time or other methods in order to achieve effective and sustainable monetization for homeowners.

● If we cannot achieve this smoothly, we believe that the user churn rate will increase significantly with the sale of KEY and tokens during the downward cycle after the user base becomes relatively saturated, further affecting the price of KEY and tokens, forming a two-way death spiral.

DAU Peak

We predict that, with sufficient execution, Friend.Tech may still have at least two peaks of DAU impact in the future. After this, the product must form sufficient network effects and quality.

Subsequent potential participants:

● Silicon Valley VC + Silicon Valley entrepreneurs: Radiating through Paradigm and current Web3 personnel.

● Numerous VCs, founders, opinion leaders, cryptocurrency traders, and tech professionals in the Asia-Pacific region: see through the wealth effect radiation from west to east.

● Non-Web3 professionals from all walks of life, especially high-net-worth individuals in specific segments: continuously expanding business through the company itself and paying GTM fees. It is crucial to attract opinion leaders with cash and tokens.

● Directly configure Web3 native liquidity funds to obtain airdrop opportunities: We believe that when general liquidity funds can purchase KEY similar to ETF with one click and directly enjoy potential airdrops, large amounts of funds will flow in.

● The wealth effect that comes with new users and TVL will increase the token valuation, while attracting more existing users' stock funds. We believe that strong airdrop expectations will keep the product hot until January-February 2024.

必要功能添加： Necessary Function Addition:

● Free preview: Increase potential customers' willingness to purchase + increase chances of being discovered.

● More rich multimedia experience: especially for video and live streaming.

● Global Page: Discover excellent local content and help Influencers attract traffic. Advertising opportunities can be considered but are not necessary.

● Recommendation reward: Adding profit sharing can help influencers monetize faster and better.

● Extra encryption or paid content in the group: Help Influencers continue to monetize.

● Product Details - can be copied from WeChat + Telegram, such as voting, feedback on the same post, pinned content, and so on.

● Stronger trading scenarios, such as sending KEY, directly guiding whitelist or token/NFT purchases, and so on.

● Lower the threshold for users to join and deposit/withdraw funds.

● Significantly improve product fluency.

● Deeply consider the joint curve and introduce multiple curves, while considering the continuous incentive for active and holding users after the currency is issued.

● Consider designing something similar to LP Pool to lower the threshold for users to buy keys.

联合曲线仍有进步空间

translates to

There is still room for improvement in the joint curve

The team has made good choices in simplification, and we look forward to Paradigm's further transformation of it.

Currently, the product form of Friend.Tech is pure and simple: a concise and easy-to-understand unified curve that is suitable for high-value KOLs that bring real benefits. However, it also has its limitations - when user portraits are expanded, not every user is suitable for this type, and even KOLs need to make distinctions among their own users. We believe that giving users the right to choose (such as 3-4 curve forms) and implementing it in a simple way, Friend.Tech can reach a larger TAM:

● The KEY to strong knowledge-based pay-per-use models and S-curve pricing: prices converge after marginal users (similar to S-curve) rather than x^2, which can stabilize the acquisition cost for the vast majority of users in the later stages, while also accommodating early speculative users and being more suitable for expert talent.

The airdrop expectation endows KEY with value beyond knowledge consultation and identity authentication. Assuming that the final token airdrop result is strongly related to Points, the configuration goal should be to maximize the weekly Points acquisition. Although the team can make minor adjustments to the equation every week, we boldly predict that the conversion method is likely to be as follows:

Active users (own + others) * KEY comprehensive asset price (own + others) * KEY holding period.

● Please note that it is not easy to purchase high-activity KOLs at a low price. Therefore, for users who have sufficient bullets and their own traffic, purchasing a large amount of their own fully charged KEY at the first time may be one of the best solutions to boost parameters.

● Given that holding time is likely one of the factors, in addition to a cost of approximately 20% for each buy and sell transaction, the best strategy may be to buy early and hold for a long time, targeting users who are deeply committed to the product rather than those who are simply following the trend. Therefore, it may be a better option to carefully select homeowners who are clearly unable to cut ties or are deeply involved, rather than those who are purely following the trend.

As a social vertical product with strong financial attributes, Friend.Tech faces many risks in its development path.

● The project can completely choose not to issue tokens in the end, or have an unprecedentedly small airdrop. Therefore, for participants, it is very important to participate earlier and strictly control the loss of ETH across multiple cycles.

● Unable to break the circle and collapse in advance: Currently, the product has a high coverage of Web3. If the circle cannot be broken, all assets are at risk of depreciation.

● High commission rate: 10% The commission rate for buying and selling is very high, which may cause strong dissatisfaction as the product development slows down and the base increases.

● There is a significant risk that the regulation of KEY itself may be defined as a security. This risk cannot be eliminated and must rely on the legal team of the paradigm itself and the company's clever design.

● High product execution risk: During the company's growth process, due to its strong financial attributes, every step of function update and continuous rapid iteration/problem elimination is accompanied by a great risk of collapse. The team needs to handle everything very robustly. In addition, the product itself is still below the Web2 benchmark in terms of quality, with poor user experience. If it cannot be improved, there will be problems in retaining users after the expected elimination in the future.

● With the inevitable financial cycle brought about by fluctuations in DAU and prices: KEY itself will have strong volatility and periodicity due to changes in airdrop expectations, user entry speed, and price changes. This comes with a significant risk of permanent loss, and the team must manage expectations and iterate steadily during this cycle.

● Long-term retention risk: Friend.Tech may become a niche product due to the high price of KEY for the general public after the tide recedes, which cannot support an expected high FDV. The failure of Clubhouse and many other niche social products is a lesson learned.

● Private key and Web3 asset security risks: Due to the custodial mechanism and smart contract-based wallets, there is an inherent risk of being hacked that cannot be ignored.

● Team anonymity risk: The team has no actual responsibility towards the users. Of course, this has been reduced to some extent with the participation of Paradigm, but the reputational risk of the semi-anonymous founding team still exists.

● Content risk: It is obvious that this content platform has a high risk of violating any country's laws. 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 meet all of this.

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.