Betting On 7 Deadly Sins

SocialFi: 100x-ing on pride, greed, wrath, envy, lust, gluttony, and sloth

The infamous “greed is good” phrase of Gordon Gekko from the 1987 movie Wall Street has always caused moral outrage. Not because it’s wrong, but because it’s taken at face value.

To make sense of greed (and financialization/speculation in the context of our article), one has to look at scale transformation property. It’s best illustrated by N. N. Taleb’s quote from Principia Politica:

Politics is not scale-free. One can be "libertarian at the federal level, Republican at the state level, Democrat at the county level, socialist within the commune, and communist at the family and tribe level."

Greed and desire to make it by the individual can scale into desirable properties on a societal level (capital investments, job creation, taxes, and creation of a welfare state). The opposite is true as well: the road to hell is paved with good intentions (see communism).

We are led to the frontiers of invention by greedy, speculative, and self-interested individuals. Regardless of the endeavor – crypto, space exploration, or cryonics – it is often written off as immature, speculative, and lacking real-world utility.

The opinion columnists at Financial Times are seething at the nature of markets and mankind

The History of Speculation

Thales of Miletus, the philosopher of Ancient Greece in 600 BCE, is the first recorded speculator in human history. Having predicted the favorable weather and good harvest, he obtained all olive presses in Miletus ahead of time and enriched himself handsomely, when presses were in high demand the following season.

An olive mill and an olive press dating from Roman times

The speculation of Thales has manifested through various forms and objects of desire ever since. The first company to ever issue stock publicly was the Dutch East India Company in 17c. The speculators on the ground in Amsterdam would then wager bets as to how well the colonial rule in East Asia was doing. In 19c, we had the gold rush in the U.S. and the railway mania in Great Britain.

Speculators in Great Britain expected a smooth, upward journey in their railway stocks

Then, the oil extraction craze and cable network boom in the 20c happened. The Dotcom bubble followed in the late 20c. In between, we had many more isolated crazes and bubbles that accompanied every meaningful technological or societal outcome. Thankfully for crypto, there have been precedents for breaching securities laws in every speculative wave.

We’re emphasizing the fact that speculation is not cringe, it’s not a fad, and it’s not something that youths grow out of as they turn adults (happens in the 30s these days anyway). The objects change, but the desire for wealth and some form of status is ever-present – it’s not subject to age, cultural context, or grander trends. The U.S. speculator has always been the tastemaker for the rest of the world, as illustrated by Liaquat Ahamed in this passage:

Charles Dickens, visiting the United States in 1842, had been struck by the local taste for speculation and the desire “to make a fortune out of nothing”. After the 1884 panic on the New York Stock Exchange, the London magazine The Spectator commented, “The English, however speculative, fear poverty. The Frenchman shoots himself to avoid it. The American with a million speculates to win ten, and if he takes losses takes a clerkship with equanimity. This freedom from sordidness is commendable, but it makes a nation of the most degenerate gamesters in the world.”

Relevance of signal in the digital realm of speculation

With the development of the internet, most physical objects became digitized. The world of atoms now has its equivalents in the world of bits – physical commodities have futures trading, brick-and-mortar stores are in the business of e-commerce, address books are replicated in the cloud, physical money has digital representation, etc.

We came up with new forms of objects that are natively digital – blockchain and distributed consensus, ERC20 tokens, artificial intelligence, and VR. The development of everything-online has also accelerated the velocity of everything. The news spreads faster, beliefs form instantly (never mind the lack of substance), capital flows quicker, and barriers to transacting have collapsed. The result is the greatest economic bonanza we have ever seen.

Because the internet reduces the barriers to transacting, and anything can be amplified and go viral, internet-native objects are the best suited for speculation. Everyone is a speculator because everyone can do it with as little as a dollar. We are never going a hundred years back, when our grandfathers had to obtain bank financing to dig the hole in the ground and discover an oilfield.

Ultimately, speculation is a form of filtering (or curation). Price is the wisdom of the crowd that surfaces signal in the abundance of information noise. This is what economist Friedrich A. Hayek wrote in his 1945 article “The Use of Knowledge in Society”:

“The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. … Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coördinate the separate actions of different people in the same way as subjective values help the individual to coördinate the parts of his plan.”

Another approach to the same conclusion was presented in the The Information Bottleneck Method. It emphasizes the need for “relevance” in using inputs to predict outputs successfully. Inputs X are compressed (modified) to form a “bottleneck” that is then used to predict Y. In every asset class and commercial context, the price has always worked as a bottleneck (signal). It’s because it compresses the entirety of all market participants and their individual decisions over time into a single data point.

The SocialFi Thesis

The Web 3 Social thesis is changing. From the top-down vision of the decentralized social graph to the bottom-up obscure features like selling your data to the advertisers, all of these grand Web 3 ideals of openness, composability, and ownership were quickly taken over by the cheap dopamine of SocialFi degening.

Instead of recreating “generic but decentralized” products and “own your data”, SocialFi is tinkering with novel wacky features. Instead of projecting what we think users ought to be doing, we give them what they want. Instead of a poor man’s Twitter, here's a way to get rich and poor fast. Instead of selling ideals, what about indulging users in new experiences?

The key question we ask when assessing new products is: does this allow for new user roles? SocialFi can blur the lines of boring creator-fan bifurcation and potentially create many new roles in between. Hopefully, the monetization capacity of SocialFi will alter the one-way flow of capital towards creators.

Contrary to popular opinion, we think of the introduction of asset pricing into social networks as a way of filtering noise, or, at least, making noise proliferation more expensive.

With the advent of AI, generic content production is to grow exponentially. SocialFi can become the filtering layer for social media and solve the attribution problem.

The Web 2 social platforms already curate through the noise by putting the most successful content creators/influencers on the pedestal. There is a financial motive – visible people earn money hence they’re doing something “right” and become a signal – SocialFi is simply turning the implicit element (ad revenue and influencer earnings) into an explicit one (price).

We would join the sentiment heralding friend.tech as Cryptokitties of SocialFi. The cool, yet short-lived craze could be the much-needed innovation trigger as it has already inspired experimentation in this niche. Below we’re presenting a series of our brief individual investment theses in the emerging category of SocialFi.

SAX: Trade the Meme, Not the Token

Anything that becomes an object of attention can also become an object of speculation. In the digital post-scarcity era, memes have become objects of attention with the least resistance – the efforts to start and spread a meme are minimal. Compared to other (tangible) asset classes, memes require much less mental capacity to engage with.

Hadyen presenting Uniswap V4 at ETHCC

SAX is building a meta-casino that abstracts away tokens and enables users to bet on memes directly. It will define a new user role – instead of token holders, users will become information speculators. Never before the ability to shape public opinion has so directly translated into capital gains (or losses) for financial assets.

SAX uses a bonding curve to price memes, and the curve changes shape based on a given hashtag’s virality on social media. In other words, the price steepens as the hashtag becomes trendy, and vice versa. The bonding curve would apply individual coefficients to posts, likes, comments, and reposts.

While SAX initially will only cover X (Twitter), the aim is to track every platform where memes spread, including Tiktok or WeChat, and protocols like Lens and Farcaster. We want to see memes and their price discovery originating on-chain. The purpose is not to decentralize the memes but to accelerate the velocity and capital formation that blockchain enables in this new asset class.

SAX interface – bet on or against interest in Putin, Palestine, or Israel

The beauty of memes is that they are permissionless. We expect speculative meme connoisseurs to spin up trends on X, and bet on their success on SAX. Also, manipulation of memes in this context is a feature, not a bug – everyone who traded memecoins can attest to that.

The bonding curve also removes the capital requirement to start a meme; unlike with ERC-20s, the meme’s success will not be constrained by the initial capital used to seed the pool. Everyone can be a trendsetter, no matter the amount of capital they have.

The financial engineering within crypto has produced many 0-to-1 outcomes in DeFi and other verticals. Now, SAX is using financial engineering to give an ordinary person the opportunity to bet on what’s trending in culture. Being able to set or notice it will pay directly, as opposed to indirectly like it did in the past through ads, sponsorship deals, and subscriptions.

I am not smart enough to define truth,

I just think ppl want truth,

And I’m willing to price it.

(Overheard in a conversation with the founder of SAX)

AlphaClub: Derivative Market for X Spaces

When talking to founders, we occasionally discuss Clubhouse as a social product that failed because its exclusivity has diminished, and which suffered from content becoming commoditized. When a product involves status-based entry, scaling of groups from small to large takes away the status. The more people listen, the less alpha.

AlphaClub is building a gamified, audio-based social platform where a bonding curve is used to price the entry into a voice room. Users toss in bids for speaker slots; the seats are limited and new bidders can nudge out existing speakers to take their spot. If the 8th person hops into a full room of 7, the 1st entrant is forced to take profit for being early and gets kicked out. The exclusivity is maintained through price.

AlphaClub is financialising the X Spaces

The wedge of AlphaClub’s rooms is crypto alpha in the bull market – you pay in for access in expectation of financial profit. Similarly, those who are early in anticipating both the crypto narratives and the speakers/influencers who would participate in the specific room are rewarded for entering the room first with their bids.

The open question for AlphaClub’s model is how to balance the utility and status of the participants. While the early participants earn both utility (financial capital) and status (being the tastemaker), the late entrant ends up being the exit liquidity for the room and needs to attain something to return next time.

Similar to SAX, AlphaClub would reward people who identify trends early and allow them to monetize in socially inclusive ways. As opposed to the static and stale information flow from X influencer to the reply guy, AlphaClub participants always know they’re in the same boat, and this could be taken even further by having the room participants connect their wallets. 3,3 innit?

Polymarket: UGP (User-generated predictions)

“But prediction markets have been tried so many times and always failed!” – We agree, so did social media attempts before MySpace. We have intermittently given up on the idea, thinking markets don’t need prediction markets. But since real-world events are the spectacle and permissionless deploying of markets can scale these days – why not give it one more try?

Polymarket, despite a niche audience, captured some mindshare and the year 2024 will be rich in events. It is an ideal time to validate this thesis – either the prediction markets become big this year or they fade into irrelevance (again). We think betting on this before the event could be much more lucrative than after the fact.

One could argue that prediction markets are not part of SocialFi, but we think that embedding itself into a larger trend could be a way to percolate itself into mainstream relevance. We loosely attach prediction markets to the SocialFi trend because a) it’s definitely “-fi”, and b) the social aspect could be the feature it was missing to gain wider adoption.

Polymarket has already become a social product to check on the odds of events and discuss it with friends. While the discussion happens outside of Polymarket, the objective, of course, is to convert those lurkers into participants through social features (chats, forums, Q&A, etc.)

Polymarket has larger web traffic than the absolute majority of DeFi apps – never having used the token incentives or paid ads. Because Polymarket is a thing of its own, i.e. it has a wedge, it doesn’t need to compete against commoditized businesses like sportsbooks or casinos.

The growth unlock is UGP (user-generated predictions), where anyone can start a niche market, and Polymarket’s team is no longer the sole decision maker on what is interesting enough to trade. This will enable market liquidity to idiosyncratic events, the same way Uniswap enabled liquidity to the long tail of tokens.

Another social angle, if you believe in price as the arbiter for truth, is spinning a prediction market with a couple thousand as a sponsor, and getting a high signal, real-time forecast.

In fact, some Zee Prime team members have been long-time users of Polymarket, having bet on the 2020 US presidential elections. Recently, we have predicted the reinstatement of Sam Altman as a CEO during the OpenAI drama. Over the years, we have seen Polymarket improve and grow into one of the most usable crypto-native products.

We have bet on a team that has been around for a while (by crypto standards), and who is in a great position to scale and doesn’t optimize for LTV/CAC (lifetime value to customer acquisition cost) games prematurely. Building a prediction market engine is a complex task that could be compared to building an exchange. In fact, it is an exchange – but built in a different format.

Ryzz: Capital Formation for Creators, Skin in the Game for Fans

Can speculation unlock additional capital for creators and lead to stronger fan engagement? That’s the thesis for Ryzz; as a platform, Ryzz brings typical streaming features, but also introduces speculation-as-a-feature which allows streamers to monetize their influence in the form of keys, whose price reflects the channel’s fundamental value.

Financial “skin in the game” for fans can be a powerful incentive, particularly for those who would be fans regardless. As strictly financial participants enter the market purely for monetary gain, trading the instruments in this new asset class, superfans would have an immense advantage due to being able to discover unknown talent early. This type of skillset cannot be internalized by latecomers – only outsourced.

From the creator side, access to capital formation early into their career (in the form of creator keys, where a portion is sold to fans) can have the potential to accelerate growth, while the liquidity from tokenized engagement can help them push their content to higher levels. In many ways, creators will have to think of themselves as venture-backed founders because they’ll be trading portions of their creative output for financial resources.

In principle, the market has already told us they value this. The largest Youtuber in the world – MrBeast – has been selling the royalties from videos quickly to secure capital for future content since very early on. This allowed him to push videos quickly that far exceeded anything else.

While creator capital formation (and broader speculation) is the wedge of Ryzz, they will also deliver a competitive streaming experience to any other platform, including mini-games to earn in with platform tokens, filters, creator tools, and more. This crypto-native approach comes at a time when streamers continue the never-ending saga of boundary-pushing content at Twitch.

Kizzy: DraftKings for Social Media

Whilst we have seen explorations facilitating speculation on memes, streams, and dreams, another piece to it is a betting market for existing social platforms, or “DraftKings for Social Media”. We couldn’t conceive of such a thing before Kizzy’s team showed it.

Kizzy is a Solana-based SocialFi project that will allow the placing of bets on a variety of social media attributes for a given influencer’s post such as views, likes, retweets, emoji uses, and more, across the most popular social platforms. Users will be presented with sports betting-style odds to choose from.

Despite sports leagues having a Gen Z problem and its potential implication on the over $40 billion sports betting industry, we believe the predisposition for speculation does not ever leave. All that is needed is a different medium or context.

Going back to MrBeast, his average video seems to clear well over 100 million views (the same as the Superbowl) compared to an average NFL game of around 16 million, and therein lies a cue. What else would Gen Z speculate on than what they are already most passionate about? The digital Olympics are far more rapid, divisive, granular, and entertaining.

Experimenting

At Zee Prime, we have been iterating on SocialFi ideas for over a year now, and, at some point, we’ve decided it is worth proceeding and shipping a wacky product. We’ve called the devs, who are now helping us do something. As we write this, the experiment is getting close to beta testing.

If you are a content creator (NSFW or SFW) or a degen who loves to test out new products please feel free to sign up here.

Closing Remarks

Technology is a substrate on which society exists. Technology dictates the frequency and amplitude of information flow. Society transforms with the change in information flows. Medium is the message.

Social media transformed reality shows to “the show that is reality.” Reality is the spectacle and people want to take part in it – and one way is via speculation. After all, speculation is a form of coordination.

Price is the arbiter of truth and a signal upon which we’ve built wealth and prosperity. The dissatisfaction with conventional social media is not going to resolve itself; in fact, it is already getting noisier with the proliferation of dismal AI content.

Rather than judge normatively, we want to explore the change in information flows and determine what the novel incentives enable. Let us avoid orthodox thinking of what crypto use cases must exist, or what user profiles must look like.

If you are working on your own SocialFi experiments, then hit us up if you’d like to chat.

Disclosure: Zee Prime has invested in all of the projects mentioned in this article