Social investing networks were conceived with a vision of retail forming a collective edge in financial markets. In this online economy, expert retail investors help amateurs, build clout and monetize. Amateur investors connect with experts and participate in communities that help them achieve financial goals. However, by adjoining web2 data silos with offline financial rails, Social Investing 1.0, fell short of its vision.
As previewed by WallStreetBets(r/wsb), a community that transcends Reddit, Social Investing 2.0 is a future in which retail organizes to compete with institutions. Social Investing 2.0 is more than a social layer for investing. It’s an interface to a people’s Wall Street, on web3, where retail can collaborate, develop careers, and compete in financial markets as an internet native market participant.
Pitfalls of Social Investing 1.0
To imagine Social Investing 2.0, let's examine eToro, the first successful Social Investing 1.0 network. eToro allows traders to create profiles, share investment ideas and influence capital directly via Copy Trading. However, eToro failed to help retail form a competitive advantage for several reasons:
eToro’s is built on top of geo-locked financial rails. A social trader in the UK cannot directly influence the capital of a trader in the US. Infact, eToro has separate platforms depending on the user’s domicile, suppressing network effects. Social Investing 2.0 encourages cross pollination of ideas, people and capital, globally
eToro is a walled web2 garden where users develop social capital locked in data silos. Retail investors cannot import or export investing performance and other forms of value created. Lack of financial reputation continuity inhibits users from building a career on the internet. Social Investing 2.0 gives financial creators ownership and control of online careers.
eToro provides a limited view on the social trader’s holdings and performance. This inhibits users' trust with one another leading to poorer connections. Social investing 2.0 forms connections based on holdings, investing history and financial goals.
Social Investing 2.0
Social Investing 2.0 arms retail with global financial infrastructure -- DeFi. Using a novel social graph built using on-chain activity, Social Investing 2.0 helps like-minded investors discover each other. Portable reputation allows investors to glide between platforms. DAOs, platform-agnostic organizational structures, help retail participate in the metagame that is financial markets.
I. DeFi - An Internet Native Financial Fabric
Social Investing 1.0 pieces together dilapidated financial systems of nation-states. Conversely, Ethereum introduces a native financial layer to investing communities. Financial protocols, like MakerDAO, Uniswap and UMA allow for value transfer, exchange and instrumentation, respectively. Furthermore, innate programmability and composability allow for open access to institutional grade financial services. We’ll look back at DeFi's impact on finance much like web2’s impact on information (think newspapers vs Twitter).
Social investing 2.0 will plug into DeFi to benefit retail by:
Unlocking network effects from day 1 -- by building on top of internet native infrastructure, cross pollination of ideas, opportunities and capital occur fluidly, on a global basis.
Creating more investment opportunities -- Tokenization of assets, from real world to crypto native (like content, social capital), is leading to a world where value is unlocked and tradeable. This cambrian explosion of assets creates infinite investment opportunities in markets unattractive to institutional funds. Organically, niche investment DAOs will rise to take advantage of emergent markets.
Utilizes novel liquidity innovations that allow cheap leverage of capital. Flash loans, automated market-makers, peer to peer liquidity pools all allow for retail investors to compete by utilizing institutional-grade prime brokerage services.
DeFi markets will continue to be dominated by retail. As DeFi becomes a core segment of the worldwide financial fabric, retail investors will utilize DeFi as a weapon to compete against institutions.
II. Continuity of Financial Reputation
Web2 social networks, like Twitter and Reddit, own user content and reputation. Investing community members must move fluidly between networks, communities, and DAOs, with their accrued credibility. They require continuity of financial reputation, free from platform risk to feel in control of their internet native careers. Web3 transitions from platform-centric gamification to user-centric reputation. Users and communities can unshackle themselves from walled data gardens.
By harnessing user-owned resumes and DAOs, Social investing 2.0 will look more like a neutral gathering place for investors to mingle and collaborate -- the future of work for finance.
Encourage anyone to have a financial career -- Access to a job on Wall Street isn’t fair. Through pseudonymous profiles, communities and DAOs encourage meritocratic talent aggregation, globally.
User-owned resumes -- With increasing utility of on-chain reputation and credentialing, investors will confidently instantiate their careers online
Easier filtering and matching of opportunities -- DAOs can gate access, allocate attention and determine decision making power to those satisfying verifiable prerequisites. Reputation becomes an indicator of how DAOs should acquire and allocate resources.
Imagine DAOs that help retail coordinate to conduct fundamental research, create structured products and manage capital. You don't have to, they already exist.
DAOs give internet communities platform-agnostic coordination structures to compete against well-resourced financial institutions. Imagine DAOs that help retail coordinate to conduct fundamental research, create structured products and manage capital. You don’t have to. They already exist. Retail will use social investing networks as launchpads into DAOs that play the financial markets metagame.
III. Actionable Connections
Social investing networks help investors make trusted connections to explore financial markets together. Social Investing 1.0 became fleeting because they were not instantiated on trust. Without transparency into the investing history and performance of a financial creator, it’s difficult to gauge if they are worth listening to or if they just have a passion for growth marketing.
Relatedly, discovery algorithms dictate connections encouraged on social networks. For example, Twitter’s discovery experience uses “Likes'’ and “Followers” to form implicit social circles and surface popular content. Web3 allows users to carry a dataset of activities such as investing history, protocol interactions, owned assets and performance. Trust is productized and connections develop on more than social proof.
Social investing 2.0 uses on-chain data to form an on-chain graph, not a social graph. Connections are promoted on economic common ground, financial goals, and most importantly, financial reputation. This encourages meritocracy, not a popularity contest. Actionable collaboration is instantiated between like-minded investors that accomplish financial goals.
What’s the role of a social network in a user-centric web3 world? No longer platform-centric venues, social networks become portals into a metaverse, full of opportunity. Users own the value they create and carry the credibility they accrue. Social Investing 2.0 promotes meaningful connections that lead to platform agnostic, liquid collaboration between like-minded, incentivized investors. A better, fairer Wall Street for anyone to take their talents. The cultural undercurrents of retail participation in active investing are paving the way for a new category of financial market participant.