Friend.tech in-depth report: Analyzing various indicators, why is the valuation reaching US$1.5 billion?

Author**|Jason Kam, Folius Ventures**

Compilation**|**Wu Shuo Blockchain

This article does not represent Wu Shuo’s views. Readers are requested to strictly abide by local laws and regulations and not participate in illegal financial activities.

Folius Ventures released an analysis report on Friend Tech, pointing out that it currently refuses to contact all VCs except Paradigm. Mining is the only way to gain exposure to the company. It is expected that the final FDV may be about 1.5 billion US dollars; a continuous payment mechanism must be introduced. Otherwise, a two-way death spiral will form; it is expected that if the execution is good enough, there will be at least two waves of DAU peak impact, and strong airdrops are expected to maintain the popularity until January-February 2024; KEY existence is defined as a security Risk, you can also not issue tokens in the end. The following is the edited content of Wu Shuo, with slight deletions.

Friend.Tech Development Experience Review

Within a month, we stood on the shoulders of our predecessors and solved the shared pain points of the industry. At the same time, we achieved a cold start through the speculative effect at the right time, and relied on rapid iteration and bundling Paradigm to solidify development expectations.

● Product stitching is just right: The choice of PWA is in line with social lightweight products, giving new scenarios to old technology, and it is crucial to bypass the App store that is not friendly to Web3. In addition, it integrates a Web2-like login method to lower the threshold, binds Twitter accounts to free initial traffic, and combines the curve design to make liquidity in and out convenient. Base/OP Stack has good social/small amount minimum security + ultra-low cost. The trade-offs, as well as the maturity of USDC offshore dollars, are stitched together to allow Friend.Tech to promote and transform smoothly under the current limited infrastructure of Web3, and successfully achieve the business model of “CT traffic, FT realization”.

● Solve the pain points to a certain extent: Web3 circles, whether it is X, discord, WeChat, or TG, are not as good as Knowledge Planet/Get/Expert Consultation Network, which pays according to cognition, allowing high-value individuals to monetize in a one-way, low-noise, and comfortable way. Scenes of attention and knowledge. Friend.Tech fills a gap in the market to a certain extent, making it possible to pay directly to the most knowledgeable and profitable people in the industry.

● Speculative effect and early KOL strategy to overcome cold start: Coinciding with the industry narrative vacuum period, Friend.Tech initially obtained a large amount of traffic by directly giving cash to Twitter KOL + 5% of the profit from users purchasing Key to homeowners. Users’ expectations and implementation of KOL’s appreciation expectations and the wealth effect after the market launch achieved the first wave of cold start of the project. The project’s own airdrop expectations and market-breaking potential have also attracted a group of diehard fans to continue working hard and create content, keeping the project’s DAU active.

● Paradigm core secondary rocket empowerment: After the first wave of dividends declined, the news that Paradigm, as the leading institution in the industry, led the investment has laid a strong foundation for the development of the project. In the future, the coin airdrop is expected to be solidified and the valuation is expected to increase significantly, which means that users’ willingness and amount of deposits will also increase significantly. The strong background of the investment company itself means that many minor product problems and legal issues will most likely be solved. At the same time, it greatly reduces the risk of running away, and also greatly boosts users’ willingness to use and deposit.

● Iterate quickly on the right path: As a product, Friend.Tech is really failing in horizontal benchmarking within the China/Asia-Pacific Web2 circle. Fortunately, we continue to iterate on the right path in terms of the core monetization for homeowners and users to make money + enjoy a smooth experience, and are very pragmatic in implementation. Judging from the refresh speed, reply function, cross-chain + deposit function, global comparison/ranking layout, picture function and other functions, the capabilities of Team 996 are expected to continue to protect the continuous improvement of the product and eventually reach the Web2 passing level.

Friend.Tech’s point system and airdrop expectations

Holding Key and speaking has become a disguised form of Pool2 mining, and it is also the only way to gain exposure to it. The potential return rate is currently high.

The current popularity of Friend.Tech is largely due to its expected currency issuance – for heavy participants, their cognitive framework is that every 1 point may be converted into a token airdrop of 1-5 US dollars, or 200 according to the participation amount. -500% APR and more for mining:

● Friend.Tech will issue 100 million points within 25 weeks. The general consensus is that points represent token airdrops and are strongly related to the total amount invested in Key, holding period, and in-app activity (clicks, duration, comments, etc.).

● As shown in the table below, if the final FDV of Friend.Tech’s issued currency is 1.5 Bn, 10% is used as airdrop, the average TVL within 25 weeks is 80 mm, and the proportion of participants’ airdrops is equivalent to the participating TVL, then the final annualized airdrop interest rate is approximately ~ 360%.

● Purchase KEY, stay active, and product friction threshold hinders the entry of large funds. However, we believe that with improved industry awareness, product iteration, improved supporting financial facilities, and the entry of Silicon Valley + Asia Pacific + traffic-oriented people, TVL and KEY prices are likely to rise significantly.

● It is worth mentioning that Friend.Tech currently refuses to contact all VCs except Paradigm. Therefore, we believe this is an opportunity for retail investors and secondary funds, and mining may be the only way to gain exposure to the company.

About PMF (Product-Market Fit)

For the average professional, rapid reputational change represents short-term gains of $1,000 – $10,000. Insights abound in private chats right now.

● Subscription price = selling price*0.9 - buying price*1.1. In other words, when the price increases by 22%, users will subscribe for free. According to the conversion formula, it is approximately equivalent to if the number of Keys holders increases by another 10% after buying again, then this user can “have a free prostitute”.

● The final pricing should fall within the cost of multiple consultations for a single user ~= 20% of the price (one in, one out). According to the current price of Ether and the one-hour industry consultation pricing of general hedge funds (US$500-1000), the number of KEYs for top paid consultants should be about 150 – 215, or the price of a single Key is about 1.4 – 3.0 Ether. Interestingly, under the premise that a single user can hold multiple KEYs, this number of Keys is actually approximately equal to 150 in Dunbar’s Law. It is also the number of people in a small circle that is easiest for a single person to maintain. Therefore, we believe that this (S^2 / 16000 * 1) The design of the equation should be intentional, and the single personal price of 1.5-3.0 Ether is also what we think is the normal price for general industry experts after the tide recedes.

● The public’s perception of reputation + professionalism will quickly push the price to a reasonable area. The thrill of early detection and profit is endless. The high profit sharing allows influencers to quickly feel the pleasure of income, thereby further helping platform promotion and accelerating network effects. An influencer node with 50/100/150 Key costs at least about 200/1700/5600 dollars purely through royalty. In the early stage, if you can hold 3 KEYs at a low price, you can earn an additional 750/3000/6750 knives by selling 50/100/150 KEY nodes. For most professionals, the temptation of quickly earning $1000-10,000 is enough for them to participate and promote every day.

● Users may be inclined to hold it because they hope to get paid for free and maintain a status symbol. In addition, we believe that the opportunity to obtain the attention of the top people in the industry is extremely rare. At present, the cost of reaching the attention of the top people with power and cognition is extremely low. For those in need, the price that can be paid for attention and feedback can be unlimited, which opens up the ceiling of Key. However, continuing to bring cash flow to influencers in the later period may be a problem and needs to be solved.

The issue of early burst income and subsequent income

Friend.Tech must introduce a continuous payment mechanism. The price drop of KEY+ tokens in subsequent cycles <-> user abandonment may cause a death spiral.

Continuing from the previous page, we believe that Friend.Tech will inevitably face problems such as excessive pricing by homeowners in the later period, users holding keys that are full and reluctant to sell, and potential users lacking willingness to purchase due to insufficient funds, resulting in continued cash flow shortages. Homeowners will inevitably face the core problem of insufficient stamina after realizing one-time cash from royalties and selling keys in the early stage. We believe that for core Web2 traffic and mid-to-high-end professionals, Friend.Tech must open a continuous pay-per-view model for both external and internal groups:

● We believe that its design needs to be matched with Key/Keyless differentiated pricing, referral link/profit sharing mechanism for Key holders, and appropriate free disclosure based on unlocking time or other methods, in order to achieve effective and continuous monetization for a homeowner. .

● Under the premise that this cannot be achieved smoothly, we believe that in the downward cycle after the user volume is relatively saturated, the user churn rate will increase significantly as KEY and tokens are sold, which will further affect the price of KEY and tokens, forming A two-way death spiral.

DAU Peak

We predict that if the execution is good enough, Friend.Tech may still have at least two waves of DAU peak impact in the future. After this, the product must form sufficient network effects and quality.

Potential subsequent participants:

● Silicon Valley VC + Silicon Valley entrepreneur group: radiated through Paradigm and current Web3 people

● Many VCs, founders, opinion leaders, currency speculators, and technology professionals in the Asia-Pacific region: radiating from west to east + wealth effect

● Non-Web3 people from all walks of life, especially those in the high-net-worth category: continue to expand business and pay GTM fees through the company itself. Attracting opinion leaders with cash and tokens is extremely important

● Web3 native liquid funds are directly allocated to obtain airdrop opportunities: We believe that when general liquid funds can purchase ETF-like KEY with one click and directly enjoy potential airdrops, large amounts of money will pour in.

● The wealth effect that continues to accompany newcomers + TVL will increase the token valuation and attract more existing users’ existing funds. We believe that strong airdrop expectations will keep the popularity of the product until January-February 2024

Necessary features added:

● Free preview: Increase potential users’ purchase intention + increase chances of being discovered

● Richer multimedia experience: especially videos and live broadcasts

● Global page: Discover excellent content locally and help influencers attract traffic. Advertising opportunities can be considered but are not necessary.

● Recommendation rewards: plus profit sharing, influencers can monetize faster and better

● Additional encrypted or paid content in the group: Help Influencers continue to monetize

● Product details – you can copy WeChat + Telegram, such as voting, comments on the same post, pinned content, etc.

● Stronger transaction scenarios, such as sending KEY, directly guiding white orders or token/NFT purchases, etc.

● Further reduce the threshold for users to join and deposit and withdraw funds

● Significantly improve product fluency

● Think deeply about the bonding curve and introduce multiple curves, and also think about the continuous incentives for active + currency holders after the currency is issued.

● Consider a design similar to LP Pool to lower the threshold for users to buy Keys

There is still room for improvement in the joint curve

The team has made a good choice in simplicity, and we look forward to Paradigm’s deeper transformation of it.

At present, the product form of Friend.Tech is pure and single: the concise bonding curve is easy to understand, suitable for high-value KOLs that bring real money; but it also has its limitations - when the user profile is expanded, not every user Suitable for this type, at the same time, even KOLs need to stratify their own users. We believe that by giving users several choices (such as 3-4 curve shapes) and implementing them in a simple way, the TAM that Friend.Tech can reach will be greater:

● Realizable, constant price KEY: constant price rather than x^2, most (eg 90%) rather than 5% of the income goes to the homeowner. In this way, the key holder can be expanded to thousands of people, similar to onlyfans. Through the key’s utility adjustment, the generalization is faster.

● Strong knowledge payment form, S-curve price KEY: Prices converge after marginal users (similar to S-curve) instead of x^2, which can stabilize the acquisition cost of most users in the later period while taking into account early speculative users Enter, more suitable for expert talents.

● Event-driven, multi-S-curve price KEY: similar to the above, but there is room for improvement after the number of users breaks through different bottlenecks. It is suitable for celebrity homeowners. It can cooperate with Referral Link to drive user spontaneous promotion, thereby making the price breakthrough. plateau period.

Fortunately, Paradigm’s own expertise in mechanism design and mathematics can greatly help the Friend.Tech team.

Maximize Points

If maximizing Points is used as the logic for configuring KEY, then homeowners who have long-term holdings of high traffic, high stickiness, high net worth, and have been deeply involved in products for a long time may be the most suitable.

The airdrop is expected to give KEY value beyond knowledge consultation and identity recognition. If we assume that the final token airdrop result is strongly related to Points, the configuration purpose should be to maximize the weekly Points acquisition. While the team can fine-tune the equation each week, we’d venture to predict that the approximate conversion would be as follows:

In-app activity (own + others) * KEY comprehensive asset price (own + others) * KEY holding period

With this in mind, before the formula is tweaked, a rough guide to maximizing weekly points might be as follows:

● The product should always be open and communicated to its own and other people. The owner of the KEY held at the same time should be an active user.

● Priority should be given to homeowners with abundant back-up resources. The ETH in their hands will most likely be converted into KEY, thereby increasing the weight. At the same time, priority should also be given to users with high total asset prices.

● It is worth noting that it is not easy to buy highly active KOLs at a low price at the first time; therefore, for users with sufficient bullets and their own traffic, it may be possible to buy enough KEYs in large amounts at the first time. It is one of the best solutions to boost parameters.

● Given that the holding period should be one of the weights, plus a fee of about 20% for one in and one out, the best solution may be to buy early and hold for a long time the users who are most willing to delve into the product, rather than buying and selling frequently; therefore It may be better to carefully select homeowners who are clearly uncut, or clearly deeply involved, rather than those who are simply following the trend.

● Therefore, in terms of configuration, a homeowner with high traffic, high stickiness, high net worth, and a reason to be willing to develop his own brand in the product for a long time should be the best choice to hold it for a long time to maximize points. Interestingly, this type of user should also have gained quite a lot of Points in the past four weeks, so it may also be used as a filtering criterion.

Risk

As a social vertical product with strong financial attributes, Friend.Tech has many risks on its development path:

● The project can completely issue no tokens in the end, or the airdrop intensity is unprecedentedly small: Therefore, it is very important for participants to participate earlier and strictly control the loss of ETH over several cycles.

● Unable to break out of the circle and collapse in advance: The current product coverage of Web3 is already very high. If it cannot break out of the circle, all assets will be at risk of depreciation.

● The commission is too intense: 10% The commission on buying and selling is very intense, which may cause strong dissatisfaction after product development slows down and the base increases.

● Regarding the huge risk that KEY itself is potentially defined as a security in terms of regulation: This risk cannot be eliminated and must rely on the clever design of paradigm’s own legal team and the company itself.

● Huge product execution risk: In the company’s growth process, due to its strong correlation with financial attributes, every step of functional update and continuous rapid iteration/elimination of problems are accompanied by a huge risk of collapse. The team needs to be very robust with everything. In addition, the level of the product itself is still below the Web2 baseline, and the user experience is poor. If it cannot be improved, there will be problems with retention after the subsequent expected elimination.

● DAU fluctuations and price fluctuations bring inevitable financial cycles: KEY itself will have strong volatility and cyclicality with airdrop expectations, changes in user entry speed, and changes in the price itself. This comes with a significant risk of permanent loss, and teams must robustly manage expectations and iterate through this cycle.

● Long-term retention risk: After the tide dissipates, Friend.Tech may become a niche product due to the high price of KEY for the general public, unable to support the expected high FDV. The failure of Clubhouse and many niche social products is a lesson from the past.

● Private key and Web3 asset security risks: Wallets based on custody mechanisms and smart contracts have inherent risks of being hacked, which must be considered.

● Risk of team anonymity: The team has no actual responsibility to users. Of course this has been reduced somewhat with Paradigm’s involvement, but the reputational risk that comes with the semi-anonymous founding team is still there.

● Content risk: It is obvious that this kind of content platform has a very high risk of content that violates the laws of any country. As the platform becomes larger, it will inevitably face many audit and regulatory challenges. The team needs a lot of patience and preparation to face this.