Decentralized Web 3.0 Ecosystems Are Shaping a New Paradigm in Social Trading

Social trading has become a popular way for newbies in financial markets to make profits by simply mirroring or copying expert traders.

First launched in 2003 and popularized by eToro’s social trading platform debut in 2010, this form of investment has grown into a $2,229.56 million dollar market as of 2021; projections show it could eclipse $3,774.17 million within the next five years, growing at a CAGR of 7.8%.

However, while the allure of social trading is fast catching on, especially in nascent markets like crypto, many of the crypto-oriented social trading platforms that currently exist are centralized. They include prominent exchanges such as Bybit, OKX, Binance, and Gate.io, among others.

Of course, to some extent, these centralized social trading platforms have assisted newbie crypto traders to make extra bucks by copying the pros or avoiding extreme liquidation events such as the most recent one where $1.1 billion was wiped out when Bitcoin broke its previous all-time high.

Nonetheless, it is worth acknowledging that centralized social trading platforms are not built on the ethos of Web3 infrastructures: permissionless, transparency, and direct control over one’s digital assets.

Why Web 3.0 Social Trading? 

There are several reasons why Web3 ecosystems offer a greater value proposition compared to Web2 trading platforms. 

At the very core, decentralized exchanges (DEXs) such as Uniswap and dYdX are designed as permissionless ecosystems. This means that, unlike their centralized counterparts where KYC is mandatory, these DEXs offer more flexibility, allowing anyone to trade digital assets as long as they have a compatible digital wallet.

Here are a few more reasons why Web 3.0 social trading could eventually emerge as a superior alternative to Web 2.0; 

Privacy 

In Web 2.0 social trading platforms, the users have no option but to provide their personal identifiable information upon registration. This gives crypto exchanges access to the social traders in their ecosystem and could provide them to certain authorities if requested to do so by law. Web 3.0 social trading platforms, on the other hand, have the advantage of being able to leverage zero-knowledge cryptographic proofs to design ecosystems where a trader’s identity can remain anonymous. 

ApeX Pro is a great example of DEXs that are taking the privacy game a notch higher. This non-custodial trading platform is among the few DEXs, alongside dYdX, which currently offers derivatives trading in the DeFi realm. More specifically, ApeX Pro plans to introduce a privacy-oriented social trading ecosystem powered by a non-transferable non-fungible token (NFT) – SoulBound Token (SBT) dubbed ‘ApeSoul’. Instead of displaying a trader’s name, ApeSoul tokens will be used as the digital identity (DID). These SBTs will represent everything social and the trader’s activity, be it credentials, trading volume, profits, ranking, number of trades, and more. 

Consequently, SBTs with a higher ranking in key performance metrics will be selected as the Principal traders, while there will also be an option to level up or down one’s ApeSoul to unlock additional perks. All this without having to reveal the identity of the principal traders or that of their followers.

Global Accessibility

As mentioned above, Web 3.0 trading platforms are based on permissionless infrastructures. This means that whether one is operating from the most advanced part of the world or the most remote part, there are no limitations to accessing all the trading products on offer.

To provide some more context, centralized exchanges have, in the recent past, had to scale down operations in some hostile jurisdictions, ultimately limiting the scope of their social trading ecosystems as well. Binance, the leading crypto exchange, has in fact been one of the biggest casualties. The exchange had to wind down its operations in the U.S. last year and more recently announced it would exit Nigeria, which, although a developing economy, also has one of the most vibrant crypto markets globally.

With decentralized social trading platforms, the hurdles related to accessibility are minimal, given that most operate as permissionless ecosystems. First and foremost, they do not require one to go through a KYC process. Given the levels of accessibility, it is not surprising to observe that more and more people are seeking DeFi-related solutions. The total value locked (TVL) has surged by almost double to $103 billion since the beginning of 2024, a hint that crypto natives will likely start to embrace decentralized social trading platforms as well.

Community Governance 

By design, Web3 ecosystems are decentralized and therefore governed by a community instead of a group of c-suite executives as is the case with Web2 innovations. 

Consequently, Web3 social trading platforms also have the advantage of not only giving control back to the users, but also building larger communities by featuring incentives such as fee discounts, access to early sales, and revenue redistribution to users who hold the native token. This model provides a more open ecosystem for veteran traders to interact with newbies, and vice versa, compared to centralized social trading platforms where the level of interaction could be limited by a crypto exchange.

For example, in the OKX or PrimeXBT social trading ecosystems, the exchanges act as intermediaries between principal traders and their followers. Although effective to some extent, this hierarchy further complicates the communication channel. Additionally, social traders have much less say on the platform’s governance or reward distribution compared to decentralized social trading platforms. The ApeX Pro ecosystem, for instance, is governed by a decentralized community, which explains why key developments have to be voted on, such as the recently proposed sustainable token unlock strategy for its native token $APEX. 

Conclusion 

In a new market ecosystem like crypto, where many people are still struggling to find their footing, social trading could go a long way in helping newbies make some profits. However, as it stands, most crypto market participants are not deriving the maximum benefit from social trading innovations due to their predominantly centralized nature. Web 3.0 social trading platforms are the best shot at changing this status quo by introducing a level playing field built on the principles of decentralization, self-custody, and privacy.