Friend.Tech: Hype, Stats and the Risks for Retail Investors
The cryptocurrency landscape is riddled with both opportunities and pitfalls. Friend.Tech, a new application on the Base protocol by Coinbase, is capturing attention but also raises serious concerns. Here’s why retail investors, in particular, should be wary.
What we are going to learn?
What is Friend.Tech?
Friend.Tech is a platform introduced on the Base protocol that serves as a token-gated private chat system tailored for influencers. The app allows users and influencers to trade shares, which are essentially tokens, and 10% of the trading fee goes to Friend.Tech.
Influencers are making a lot of money with this new social platform. However, its structure and functionality have raised concerns about its sustainability and potential risks for retail investors.
Popularity and Activity: Friend.Tech experienced a meteoric rise, with an impressive $1.7M collected in fees within 24 hours, positioning it just behind Ethereum in this aspect.
Trading Volume: The platform has already processed over 30,000 ETH, equivalent to around $50M in all-time volume. This intense activity, especially for a newly launched platform, highlights its rapid acceptance within the crypto community.
Seed Funding: Friend.Tech’s credibility was enhanced when it unveiled seed funding from the prominent technology investment firm, Paradigm. This firm has been known to back successful projects in the past.
User Incentives: A Friday points airdrop program was introduced, with 44,000 users benefitting from its first distribution. Over its six-month beta phase, friend.tech plans to distribute 100 million points based on platform activity.
While Friend.Tech has demonstrated an impressive onset in the Web3 social media space in a very short span of time, the concerns that have emerged, especially around transparency and the platform’s sustainability, should be carefully considered by potential users and investors.
Friend.Tech: Insider Moves and Network Activity
Coinbase insiders, including its co-founder who is also the founder of Paradigm, reportedly offloaded a significant amount of $COIN stock near its peak and bought back during the recent sell-off.
Notably, a few days back, Coinbase announced the launch of the first viral social dapp on Base: Friend.Tech. This boosted activity on the Base protocol significantly.
The link between Coinbase, Paradigm, and Friend.Tech becomes even more pronounced when Paradigm announced its backing of the app.
Unstable Platform Mechanics
Despite its novelty, Friend.Tech’s execution has been far from smooth.
Designed as a token-gated private chat platform for influencers, the app has been described as buggy. Even more concerning are its mechanics. The platform allows influencers to purchase their shares, which are essentially tokens, and sell them, manipulating individual share prices. Such manipulation can be lucrative for influencers, but detrimental for retail investors who may be buying at artificially inflated prices.
Friend.Tech: Is the Economic Model Sustainable?
The invite only blockchain application operates with a steep bonding curve.
As a result, share prices can escalate rapidly. However, this kind of structure is notorious for leading to bubbles. When the hype diminishes, share values might plummet just as quickly. This creates a high-risk environment where latecomers, often retail investors, can be left holding devalued shares.
As per a twitter user, retail investors also face competition from bots on the platform. Reports suggest that not only are these bots front-running retail trades, but the entities selling these bots are also front-running their bot-using clientele. In this automated game of high-frequency trading, retail investors are at a distinct disadvantage.
Illiquid Shares and the Airdrop Illusion
One of the main attractions of trading shares on Friend.Tech is the hope of securing airdrops. However, for retail investors, the potential rewards might not justify the risks. They could find themselves purchasing illiquid shares, which might be challenging to offload without incurring losses, especially if there are no buyers willing to pay a premium.
A Chain of Beneficiaries, Excluding Retail
Coinbase benefits from increased network activity on the Base protocol, enhancing its value proposition to prospective investors. Paradigm, with its connections to Coinbase, is poised to earn millions from platform fees. Influencers stand to earn significant sums through share price manipulations. In this ecosystem, everyone seems to have a clear path to profit, except for retail investors.
Conclusion: What should you and I do?
I wanted to give you a 360 degree view of the new sensation – Friend.tech.
It is upto you how you take this information and make money from it, or save yourself from losing money in this platform.
The world of cryptocurrency and decentralized apps offers a vast horizon of opportunities. This is definitely one such opportunity – but mainly for influencers with a lot of followers, and marginal opportunity for retail to make money.
Ofcourse, there will be some retail success stories around Friend.tech on how they made a large sum of money with this platform, but many new investors may end up losing their money on this platform.
One must understand, Friend.Tech, despite its allure, poses significant risks, especially to retail investors. The age-old advice of “caveat emptor” or “let the buyer beware” is particularly pertinent here.
As with all investments, thorough research and risk assessment are crucial. In the volatile world of crypto, where fortunes can be made or lost overnight, retail investors must tread with extreme caution.