Is Trading Shares of Social Media Influencer Accounts an Investment Contract?
Friends We Traded Along the Way
In a world where tech evolves each day,
Comes influencers traded, in a novel way.
Attention's the price , and rises with each dawn,
As a paradigm shifts, and the old is gone.
A likely question that will be debated in the crypto space is whether trading fractional shares of a person’s social media identity constitutes an investment contract under the Howey Test?
After launching last week, the Friend Tech social trading app has taken the space by storm and drawn lots of interest. This is not the first time the space has experimented with a decentralized on-chain social media platform.
Back in 2021, Bitclout launched a blockchain social network that enabled social media influencers to claim accounts and enable users to trade on that influencer’s token. According to the Bitclout white paper, it’s a “a decentralized, blockchain-based, open source social network. It is not a competitor to Bitcoin or Ethereum, but to existing closed social networks like Twitter and Facebook.” Although the app initially on-boarded thousands of users, it ultimately did not catch traction in the crypto space. in 2023, Bitclout recently announced their plan to launch Bitclout 2.0 and an upcoming airdrop.
But prior to Bitclout 2.0 launching, Friend.Tech dropped its version of a decentralized social media influencer trading platform. Since going live on August 10th, the app has onboarded thousands of users. Now the app’s top user ranks are stacked with whales and floor prices of well known influencer accounts are climbing fast. On the user side, the app is also seeing rapid mass-adoption with day-traders creating wallets and eager to speculate on which influencer accounts will continue to rise in value. According to media reports, Friend.Tech is a social platform that “lets holders buy "shares" of people who hold an account on X, formerly known as Twitter, and grants the buyers certain privileges …” Coindesk
These decentralized on-chain social media trading apps have no doubt flipped the entire social media paradigm on its head. Different from traditional Web2 social media platforms, there are no free follows on these decentralized social Dapps. Users must therefore think long and hard whether it’s worth spending the ETH to follow a social media account. A factor to now consider is whether that influencer’s account will go up or down in value. Influencers are thereby incentivized to bring value to their shareholders in the hopes of increasing the value of their shares. It’s not just about social media interactions anymore, it’s now about day-trading attention.
At the hight of the the 2021 crypto bull run, many in the space debated whether NFTs met the definition of an investment contract under the Howey Test. And now after the recent launch of Friend.Tech we are once again seeing a similar debate around whether trading shares of social media influencer accounts also constitutes an investment contract under Howey. The Howey Test defines an investment contract as: (1) An Investment of Money; (2) In a Common A Enterprise; (3) With the Expectation of Profits; (4) From the Efforts of a Others.
On-chain social media trading accounts clearly represent a significant paradigm shift in the world of social media because they blur the lines between traditional social media and investment platforms. And as with NFTs, one could certainly make the argument that trading fractionalized shares of influencer accounts could meet the definition of an investment contract. But whether these social trading platforms are ultimately considered the equivalent of investment contracts still remains to be determined as this is still very new and uncharted waters.