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This past Saturday, the total Friend.Tech (FT) trading volume was $12.3M, vs just $9.15M for the entire NFT market. 🤯
At the same time, daily active wallets interacting with Ethereum NFTs remained below 15k while Friend.Tech surpassed 10k daily active wallets. 📈
While everyone is going crazy about Friend.Tech, we’re going crazy about the money that is flowing to the blockchains that Friend.Tech is built on.
This report is about Friend.Tech, except it’s not.
It’s about understanding one of the Web3 Academy Core Concepts: Onchain Value Accrual.
Onchain Value Accrual is one of the most important concepts that we will ever teach you. This concept is vital to capitalize on the opportunity of web3. 💰
Friend.Tech Onchain Value Accrual Overview ⛓️
Since launch, Friend.Tech has accumulated $148 million in total volume across 4.1 million onchain transactions.
This has created millions of dollars in value. But where did all that money go? 🤔
How much went to Friend.Tech? And what about creators? 🎨
Also, under the hood, what about the protocols on which Friend.Tech is built: Base, OP Stack, and Ethereum?
Quick context on how Friend.Tech is built onchain:
Friend.Tech is built on Base
Base is built on the OP stack (we'll get more into this later)
Base settles on Ethereum
These blockchains play a vital role in how Friend.Tech functions, therefore they all receive a share of the financial value generated by the app. 🤳
One of the coolest things that blockchain gives us is the opportunity to see how money flows. Shout out to decentralized and transparent databases! 🗣️
This leads to so many exciting outcomes:
We can see network effects in action where an app like Friend.Tech has an immediate impact on the chains it’s built on
We can be hyper-smart investors by understanding the bottom-line impact an app has on its chain
We can see why investing in chains is like no investment ever before because we’ve never been able to invest in this kind of infrastructure layer of technology
In order to make this simple, here's the flow of money that has gone through Friend.Tech in 1 chart…
As you can see, there are multiple layers of value accrual which most of us likely do not think about. 🤷
Absolutely incredible that this is all done in a permissionless (no lawyers or contracts) and composable (seamless integration of tech) manner.
If you need a second to take a deep breath I get it. This was a HOLY SHIT moment for me too. 🙂
When exploring Onchain Value Accrual, it's best to think of the concept as a triple-layered cake 🍰: the Application Layer, Execution Layer, and Settlement Layer.
In this report, we’ll break down value accrual at each of the layers, which are getting paid as a result of all the activity on Friend.Tech:
Application Layer
Friend.Tech - $7.4 million
Creators - $7.4 million
Execution Layer
Base - $482K
OP Collective - $72K
Settlement Layer: Ethereum (Holders & Stakers) - $254K
What is Friend.Tech? It Doesn’t Matter. 🤷
I know what you’re thinking. What the heck is Friend.Tech? How has an app generated $148 million in trading volume in 1 month? What are people doing on this app?
Here’s the thing. It doesn’t matter.
Remember we told you this report isn’t about Friend.Tech. 😉
In order to understand onchain value accrual it’s not necessary to understand Friend.Tech.
There will be millions of apps built onchain over the coming decade. It would be impossible to understand them all, which is why onchain value accrual is such a powerful concept.
It teaches us that it doesn’t matter which apps achieve the greatest success onchain. Value will always flow to the blockchains (execution layer and settlement layer) the apps are built on.
But we never want to be like your friend leaving you hanging on a high five. So if you’re curious, here’s a bit of background on Friend.Tech. 🤝
If you're like us, and you care more about value accrual, you can skip this section.
What is Friend.Tech?
FT allows users to tokenize their social network by buying and selling keys, enabling a person who purchases another’s key to access a private group where they can see messages from the creator.
Why Are Keys Selling for 5+ ETH?
This is a great question. The highest key right now is Racer at 7.7 ETH.
Why has Racer (Friend.Tech Founder) shot up the leaderboard? Because people see his keys as buying the Friend.Tech Index. His keys have become the de facto index for Friend.Tech and are seen as the easiest way to bet on the success of the app and set yourself up to gain from the airdrop.
As for the rest of the creators?
TylerD provided a nice list of the types of people/groups using Friend.Tech and how they're using it.
Aggregators/Indexors: Those who are buying up many keys, aggregating the content, and providing it to their key holders
Builders: Teams using key token-gating for their products
Celebs/Insiders/Influencers: Big social accounts that people simply want access to
Alpha Group: Token-gated market commentary (crypto, NFTs, etc.)
Non-crypto: People outside of our bubble experimenting with the tech
Protocols: Teams launching protocols or boosting their tokens via keyholders
(3, 3): Those who promise to buy the keys of their holders (Olympus DAO throwback) or share airdrop benefits
Creatives: Artists providing special access to their content for key holders
Dormant accounts: People who signed up, set up an account and abandoned it
Want to learn more about Friend.Tech? Listen to our podcast on your favorite podcast platform. 👇
Value Accrual - The Application Layer 📲
At the application layer, value accrues to Friend.Tech and Creators based on total trading volume. As of September 13th, the total trading volume on Friend.Tech was $148 million. Friend.Tech and Creators each take 5% of the total trading volume.
Value Accrual to Friend.Tech - $7.4 million 💰
In just 1 month, Friend.Tech has made $7.4 million! As you can see from the chart below, in just the last few days, they are bringing in revenues of over $400k/day… impressive! 👍
FT has generated these revenues from a total user base of just 141,000 accounts (...also impressive). 👍
Why has there been so much activity on Friend.Tech, and is this sustainable?
The activity is happening for 3 main reasons:
Access to people - This is the main purpose of the product. People pay for keys which gives them exclusive access to a creator's group chat.
Airdrop farming - We are still in the early stages of this marathon, with weekly point drops happening for 6 months. Today we are 1 month in. After 6 months, the team has teased an airdrop based on points, with people speculating that 1 point could be worth $1.
Key Flipping - Buying keys that you think will appreciate in value. With so much volume on Friend.Tech, many NFT traders have moved from flipping jpegs to flipping keys.
There’s no shortage of opinions and controversy around Friend.Tech. From people saying it’s a hype cycle based on airdrop farming to the usage of bots in order to take advantage of the financial opportunity.
Here’s the thing. It doesn’t matter! ❌
Value accrues onchain regardless of whether it’s a bot or human.
This is very different from the typical web2 model, which is to make money from advertising. In web3, with money flowing onchain, there is an entirely new business model that’s based on activity (more on this in a second). ⏬
Value Accrual to Creators - $7.4 million 💰
Creators also take a 5% fee on total trading volume. The total amount of money paid to all creators so far from Friend.Tech is $7.4 million.
This is spread across 141k+ creators/users on Friend.Tech. Every time a creator/user’s key is bought or sold on Friend.Tech, that creator gets 5%.
Creators are making serious money from Friend.Tech. So far, 107 creators have made at least $10k in just 1 month.
This likely isn’t sustainable, but the short-term opportunity is certainly there for those who got in early – as it often is the case with any new app that gains this level of popularity.
From September 10-12, Friend.Tech paid creators $1.1 million. For context, over that same period, all Ethereum NFT exchanges – combined – paid creators $140k. 🤯
We’ve seen creator royalties go to zero across most NFT marketplaces, but interestingly, inside a consumer crypto app like Friend.Tech, creator fees ARE enforceable. Could this be a new mechanism for creators to profit from their content? Maybe…
It’s not just the top creators that are making all of the money either. The top 20 creators account for 23.5% of the total creator earnings, meaning that over $5.4 million is being split by the rest of us.
Even Web3 Academy made $50 in creator fees on Friend.Tech, and we’ve basically done nothing on the app!
Value Accrual - The Execution Layer & The Settlement Layer 🍰
The above revenues to Friend.Tech and creators are generated at the application level via trading volume. If we move down the tech stack, there are also revenues generated at the protocol level.
For a quick review of this, check out our Value Accrual PRO Report.
Here’s the TLDR:
The Execution Layer consists of layer 2s (Base & Optimism) which provide inexpensive blockspace for the application layer.
The Settlement Layer consists of Layer 1s which provide secure and decentralized settlement guarantees (Ethereum).
Every time a wallet transacts with Friend.Tech, they need to pay fees to execute and settle the transaction. These are called ‘gas fees’. ⛽
The amount of gas paid to the execution and settlement layer is based on the total number of transactions. In this scenario, users are paying for this, not Friend.Tech. For each transaction a user makes, they pay gas in addition to the transaction amount.
As of September 13th, there have been over 4 million transactions on Friend.Tech. This has driven over $730k in revenue to Base. From this revenue, Base then pays fees to Optimism and Ethereum.
Keep reading to understand how and why value accrues to Base, Optimism and Ethereum.
Value Accrual to Base - $730k 💰
All activity and success in the application layer drive profit to the execution layer.
In return for providing inexpensive & decentralized blockspace, with fast settlement guarantees to Friend.Tech, Base has received over $730k in fees paid to them.
One of the reasons that L2s like Base are such a great business is that the execution layer only has expenses (payment to settlement layer, aka Ethereum) when it generates revenues (fees from the application layer, aka Friend.Tech). Read more about L2 Tokenomics & Value Accrual here.
Now, because Base is built on the OP Stack and part of the OP superchain, Base also pays 15% of its profit to the OP Collective in return for the rights to use the OP Stack. We call this L2-as-a-Service.
Base also pays fees to Ethereum for settling all their transactions.
After paying out fees to OP Collective and Ethereum, Base is left with a profit of $410k. 💰
That might not sound like a lot based on the total trading volume. But let's put it into perspective. That’s $410k in profit from 1 app in just 1 month! 🤯
Since launching, Base has generated $3.8 million in profit from over 27 million transactions. This means that Friend.Tech is responsible for roughly 10% of all total transactions on Base.
This is the power and impact that 1 successful app can have on Onchain Value Accrual.
It’s important to note that Friend.Tech wouldn’t be possible without Base (or another L2). If Friend.Tech was built on Ethereum, users would have to pay around $5 to process each transaction. At 4.1 million transactions, that would cost users $20.5 million.
You can see the recent comparison in fees below. L2s are an order of magnitude cheaper than the L1!
I think we can all agree that Friend.Tech wouldn’t exist if users had to pay $20m to use it. But thanks to Base, they only had to pay $730k so far.
Last cycle, major consumer apps with large transaction volumes couldn’t be built on Ethereum. Now they can!
And here we come with the cherry on top. 🍒
Here's how everything flows down to Ethereum…
Value Accrual to Ethereum - $254k 💰
Rather than provide secure settlement, Base simply takes a % of their fee revenue and gives it to Ethereum to settle transactions for them.
In order to provide secure settlement to Base for over 4 million transactions from Friend.Tech, Ethereum has accrued value of $254,700.
Ethereum is a decentralized network. There are no employees. No overhead. So where does this money go?
👉 It is either burned or given to the stakers who secure the network.
From this $254,700 that flowed to Ethereum $254,225 worth of $ETH has been burned.
Burning $ETH accrues value to all $ETH holders as it makes $ETH (the asset) more scarce.
The remaining $475 worth of $ETH has been distributed to stakers who secure the network.
Remember, staking is a public good for the Ethereum ecosystem. Any user with any amount of $ETH can help secure the network and earn rewards in the process.
Currently, there is over 25 million $ETH staked ($40 billion USD) by 791k validators earning around 3-4% APR.
To learn more about Ethereum refer to our PRO report here.
Value Accrual to OP Collective - $72k 💰
Base is a Layer 2 built on top of the OP stack, which means they are using Optimism's code and also using the Optimism team to support their tech. 🧑💻
In return, Base pays 15% of its profit (after paying fees to Ethereum) to the OP Collective. In the case of Friend.Tech, this has driven over $72k in value to OP Collective.
You can think of OP Collective as the treasury of the Optimism community. Read more on OP Collective and OP, ARB, IMX & Polygon Value Accrual in our previous PRO reports.
Friend.Tech Doesn’t Matter. But What Does? 🤔
1. Onchain Value Accrual Isn’t Possible in Web2
In web2, value accrues only within the application layer. We also can’t see any money flow in web2 because it’s all in closed databases.
And we certainly can’t invest in the protocol layer of web2 the same way we can in web3.
This would be the equivalent of investing in HTTP/HTTPS, which is the foundation of data communication on the internet and is used by web browsers to retrieve web pages and other resources from web servers.
2. Web3 is All About Redistributing Value/Ownership
Fundamentally, web3 is about redistributing value and ownership.
In web3, the application itself doesn't always have to directly provide financial value to its users. Holding the underlying infrastructure can be equally lucrative.
For example, if you hold or stake $ETH, you can earn money when people use applications built on the Ethereum network and its L2s.
3. The Future is Bright for OP
Currently, $OP holders do not experience value accrual from activity from the OP Stack because Optimism isn’t yet sharing revenues with their holders.
This approach makes sense, especially in the early stages, as OP is primarily focused on providing value to developers.
Distributing value to token holders too early could potentially drain value from the network.
A similar strategy was seen with companies like Apple, which didn't provide dividends to shareholders in their early days but eventually started doing so.
4. HODL $ETH Forever
Onchain Value Accrual is why we place such a strong emphasis on holding $ETH. Holding $ETH allows you to benefit from the activity on all applications that settle on the Ethereum network.
You don't need to speculate on which specific application will succeed or which L2 will succeed; instead, holding the underlying infrastructure ensures that you receive a portion of the value generated by the entire ecosystem.
5. The Future of Ethereum and L2s Is Unimaginable
It's essential to consider that this report pertains to just one application within the Ethereum ecosystem.
Already, thousands of applications are accruing value to L2s and Ethereum. Now, imagine a future where there are thousands of L2s and millions of apps, all contributing value to Ethereum.
There won’t be any $ETH left! That’s why I’m trying to buy it all now. 😉
Friend.tech is the first consumer app that has reached meaningful scale and value accrual.
It’s exciting to be able to look onchain and understand how various parties can generate revenues from an onchain consumer app.
The tech is ready for more of these to be built and Web3 Academy PRO is prepared to continue to produce reports sharing where value is accruing across blockchain ecosystems.
By looking onchain, we can better understand what apps and business models are working as well as what technologies are accruing value from onchain activity.
Now that you have read this report, I’d recommend you check out the value accrual image again and see if it makes a little more sense to you.
We’ve got a lot more of these coming your way soon!
In the meantime, share this with your friends! Take the Friend.Tech Onchain Value Accrual chart above and share it on Twitter (X) & tag @web3academy_!
We’ll repost!! ♻️
Tell your friends that Onchain Value Accrual is one of the most important concepts to understand in order to capitalize on the opportunity of web3.
Thanks for reading. And remember, you're strong, you’re powerful, you’re alpha! ❤️
See you soon. ✌️
ABOUT THE AUTHOR
Jay Hamilton
Founder of Web3 Academy and Impact3
Find him on Twitter
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