Investing in a Decentralized Social Graph: The Next Web3

The Investment Case for a Decentralized and Composable Social Graph

Let’s cut to the chase. For the past fifteen years, social media has been dominated by a handful of giants. Facebook (now Meta), Twitter (now X), LinkedIn. You know the names. They built empires on a simple, yet powerful, concept: the social graph. Who you know, what you like, who you follow—it’s all data. And that data, locked inside their walled gardens, has become one of the most valuable resources on the planet. But what if that model is fundamentally broken? We think it is. The future isn’t another walled garden; it’s an open, interoperable, and user-owned network. This is the investment case for a decentralized social graph, and it might be one of the most significant opportunities in the next decade of the internet.

Key Takeaways

• The Problem with Web2: Current social graphs are proprietary silos. Your data, followers, and content are trapped on platforms like Facebook or Twitter, creating immense lock-in and stifling innovation.
• The Web3 Solution: A decentralized social graph separates your social data (your profile, followers) from the applications built on top of it. You own your digital identity and connections.
• The Power of Composability: This is the secret sauce. When a social graph is open and composable, anyone can build new apps on it without permission. This sparks a flywheel of innovation, as developers create new experiences using the same underlying social connections.
• The Investment Thesis: The value accrues not to a single application, but to the underlying protocol layer. By investing in the foundational social graph, you’re betting on the entire ecosystem of applications that will be built on top of it—a much larger and more defensible moat.

What’s So Wrong with the Current Social Graph?

Think about your online life. You have a network on LinkedIn for professional contacts. Another on Instagram for friends and photos. Another on Twitter for public discourse. Each one is a separate island. If you want to leave Instagram, you can’t take your followers with you to a new, better photo-sharing app. You have to start from zero. It’s a digital ghost town. This isn’t an accident; it’s the business model.

This is what we call the “cold start problem.” Every new social app has to convince millions of people to painstakingly rebuild their social connections from scratch. It’s a monumental task, which is why we’ve seen so little true competition for the incumbents. They don’t have to be the best product; they just have to be the one where all your friends already are. Their moat isn’t innovation, it’s inertia. They’ve locked the doors and thrown away the key.

The Data Dictatorship

Beyond the lock-in, there’s the issue of control. These platforms are the undisputed dictators of their digital realms. They can change the algorithm on a whim, decimating a creator’s reach overnight. They can de-platform you for opaque reasons, effectively erasing your digital presence. You don’t own your account; you’re renting it. And the rent is your data, which they monetize through hyper-targeted advertising, a multi-hundred-billion-dollar industry built on your digital footprint.

This centralization creates a single point of failure and a bottleneck for innovation. Why would a developer build a cool new feature for Twitter when Twitter could just copy it and integrate it natively, killing their business instantly? They have zero incentive to play nice with others. The result is a stagnant, predictable social media landscape where true innovation is rare.

Enter the Decentralized Social Graph: A Paradigm Shift

So, what’s the alternative? A decentralized social graph. It’s a simple but profound idea: what if your profile, your content, and your list of followers weren’t stored in Facebook’s database, but on a public, open, and permissionless network, like a blockchain? What if you, the user, held the keys to your own social identity?

In this model, the social graph becomes a foundational layer of the internet—a shared public utility, not a private corporate asset. Think of it like this: The Domain Name System (DNS) is a protocol that lets you type `google.com` into a browser to find Google’s servers. It’s open. Anyone can register a domain, and anyone can build a browser or a web server that uses it. Imagine if a single company owned DNS; they’d control the entire web. A decentralized social graph aims to be the DNS for social connections.

Your profile becomes an NFT or a decentralized identifier (DID). Your followers are connections linked to your unique address on the blockchain. Your content could be stored on decentralized storage networks like Arweave or IPFS. With this setup, you can grant any application permission to access your graph. Suddenly, you’re in control.

What is Composability and Why Does It Matter?

This is where it gets really exciting for investors. When a system is “composable,” it means its components can be picked apart and reassembled in new ways, like LEGO bricks. A decentralized social graph is inherently composable.

Because the graph is open, any developer, anywhere in the world, can build a new application on top of it without asking for permission. Let’s walk through an example. Imagine a decentralized social graph protocol—we’ll call it OpenSocial.

1. You create your OpenSocial profile and start following your friends and favorite creators.
2. A developer builds a beautiful, minimalist photo-sharing app called “Pixelate” that uses the OpenSocial graph. You log in with your wallet, and instantly, all your followers and the people you follow are there. You didn’t have to re-add anyone. Your social context is portable.
3. Another developer thinks LinkedIn is stale. They build a professional networking app called “ConnectSphere,” also on OpenSocial. Again, you log in, and your same graph is there, but the interface is tailored for professional use. Maybe it filters to show only your connections who work in finance.
4. A third team creates a decentralized video platform. A fourth builds a Substack-like newsletter tool. A fifth builds a niche community for dog lovers.

All these apps share the same underlying social layer. They are not competing to build the graph; they are competing to provide the best experience for using the graph. This flips the entire Web2 model on its head. The cold start problem is solved. The competition moves from hoarding users to actually innovating for them.

“Composability is to software what compounding interest is to finance. It’s a force multiplier. The ability for developers to freely build on and combine the work of others is the single greatest driver of innovation.”

The Investment Thesis: Unpacking the Value

So, how do you make money from this? The investment thesis for a decentralized social graph is not about picking the winning application, like the next Instagram. It’s about investing in the protocol itself—the foundational railroad tracks on which all the trains will run.

True Network Effects, Not Platform Lock-in

Web2 network effects are fragile. They are tied to a single platform. If everyone leaves Facebook, its network effect collapses to zero. A decentralized social graph has a much more robust, protocol-level network effect. Every new user that joins the protocol and every new application that builds on it strengthens the entire ecosystem. The value accrues to the shared infrastructure. A user leaving one app (e.g., Pixelate) for a better one doesn’t weaken the graph; they take their connections with them and strengthen the new app, which in turn reinforces the value of the underlying protocol. It’s an anti-fragile system.

The Developer Flywheel: A Moat Built on Innovation

The real moat is the developer ecosystem. As more developers build on the protocol, more interesting and diverse applications emerge. This attracts more users to the ecosystem. More users make the protocol more attractive to the next wave of developers. It’s a powerful, self-reinforcing flywheel.

Think about Ethereum. Its value isn’t just in the ETH token; it’s in the thousands of decentralized applications (dApps), DeFi protocols, and NFT projects built on top of it. The developer community and the composable nature of its smart contracts create an incredible gravitational pull. The same dynamic will play out with the winning decentralized social graph protocols.

Data Portability = User Power

In the new paradigm, users are no longer the product. They are the owners. This shift is powerful. When users know they can pack up and leave at any time, applications are forced to treat them better. This means better features, fairer monetization, and more respect for privacy. Platforms that fail to do so will be abandoned. This user-centric approach is not just ideological; it’s a powerful market force that will drive adoption. The protocols that enable this freedom will capture immense value.

New Monetization Models Beyond Ads

The advertising model of Web2 is exhausting. It’s built on surveillance and manipulation. A decentralized graph opens the door to a universe of new monetization models that are aligned with user interests.

• Creator Economies: Users can directly support creators through token subscriptions, selling content as NFTs, or tipping, with the protocol facilitating these interactions without a massive middleman cut.
• Protocol Fees: The protocol itself might charge tiny fees for certain actions (like creating a profile or a high-volume transaction), which could be distributed to token holders or used to fund further development.
• Curated Experiences: Applications could offer premium features, better curation algorithms, or specialized tools for a subscription fee, competing on the value they provide, not on how much data they can extract.
• Data Economies: Users could choose to selectively and privately monetize their own data, opting into research or market analysis in exchange for payment, giving them direct control and compensation.

The Players in the Arena: Lens and Farcaster

This isn’t just theory; it’s happening right now. Two of the most prominent projects building this future are Lens Protocol and Farcaster.

Lens Protocol, built by the team behind the DeFi giant Aave, takes a very Web3-native approach. Your profile is an NFT, and actions like following someone or collecting a post are on-chain transactions. This makes the entire graph incredibly composable and transparent. It’s a bold vision for a fully on-chain social future.

Farcaster takes a slightly different, hybrid approach. It uses a decentralized identity system on Ethereum but handles most of the social interactions (casts, likes) on a network of off-chain servers called “Hubs.” This allows for a more familiar, faster user experience, closer to Web2, while still preserving the core principles of user ownership and data portability. The race is on, and both approaches have compelling merits.

Risks and Challenges to Consider

Of course, this isn’t a guaranteed home run. There are significant hurdles to overcome. As an investor, you need to be clear-eyed about the risks.

• User Experience (UX): Web3 can still be clunky. Managing wallets, signing transactions, and paying for gas fees is a far cry from the seamless onboarding of Instagram. The winning protocols will be the ones that abstract this complexity away from the end-user.
• Scalability: Putting every like and comment on a blockchain is expensive and slow. Solutions like Farcaster’s off-chain approach or Layer 2 blockchains are working to solve this, but it remains a technical challenge.
• Moderation and Spam: In a decentralized world, who decides what content is acceptable? How do you prevent spam and malicious actors from overrunning the network? This is a complex governance and technical problem with no easy answers.
• Monetization and Value Accrual: The exact mechanism for how the protocol’s token captures the value of the ecosystem is still being tested. Will it be governance, staking rewards, or a fee-sharing model? The tokenomics must be sound for the investment to pay off.

Conclusion

The investment case for a decentralized and composable social graph is a bet on a fundamentally different architecture for the internet. It’s a bet that open, permissionless systems will out-innovate closed, proprietary ones. It’s a bet that users will eventually demand ownership of their digital identity and connections. The incumbents of Web2 built their moats by trapping users and data. The giants of Web3 will build their moats by empowering users and developers.

The road will be long, and the winners are not yet certain. But the shift from platform-centric networks to user-centric protocols feels inevitable. The value at stake is not just the social media market but the very fabric of digital identity and communication for generations to come. For investors with a long-term horizon and an appetite for paradigm-shifting technology, the decentralized social graph represents one of the most compelling opportunities of our time.

FAQ

Is this just for crypto-native people?

Initially, yes, the early adopters are crypto-savvy. However, the long-term goal for projects like Farcaster and Lens is to create user experiences so smooth that the end-user doesn’t even need to know they’re using a blockchain. The complexity will be hidden, just as you don’t need to understand TCP/IP to browse the web today.

How is this different from Mastodon or other federated social networks?

Federated networks like Mastodon are a step in the right direction, but they still have a form of lock-in. Your identity is tied to a specific server (an ‘instance’). If that server shuts down, you lose your name and have to migrate. A truly decentralized social graph uses a global, shared namespace (like the Ethereum Name Service), so your identity is independent of any single server or application and is truly portable across the entire ecosystem.

Can’t Meta or X just build their own decentralized system?

They could, and they’ve made noises about it (e.g., Bluesky, which originated at Twitter). However, their entire business model is predicated on owning the user data and selling ads against it. A truly open, decentralized system is an existential threat to that model. It would be like a taxi company inventing Uber. While not impossible, it would require a level of corporate self-disruption that is historically very rare for established monopolies.