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What is Farcaster, and why did it raise 150M USD?

Farcaster, a crypto-based decentralised social networking protocol hit the news this week, by raising an eye watering 150 million USD, with a valuation of 1 billion USD, all the while sporting around 80K daily active users. For context, Bluesky has around 300k daily active users. The news raises a few questions: What exactly is Farcaster, how does it differ from the other decentralised social networking protocols, and why did it get such a massive valuation?

A short history of the name Farcaster:

• 1989: The Hyperion Cantos is a science fiction novel series from the 1990’s, in which a farcaster network allows instantaneous travel between different worlds. The farcaster network is build and maintained by an AI Civilization called the TechnoCore. In later books it is revealed the TechnoCore was planning to use the farcaster network to destroy humankind.
• 2020: 2 ex-Coinbase directors, Dan Romero and Varun Srinivasan, start their own company, and start working on a product called RSS+.
• Late 2021: a viral tweet sets a new standard for naming tech products.
• Summer 2022: Romero and Srinivasan rebrand their product Farcaster, and announce a 30M funding around led by a16z.
• May 2024: Farcaster announces a 150 million USD investment with a valuation of 1 billion USD.

There are two main parts to understanding how the Farcaster protocol works: Integration with the Ethereum Blockchain, and decentralisation via relays (called Hubs).

A Farcaster account is registered on the Ethereum blockchain, and you create an account by having your Ethereum account making a transaction on the Ethereum blockchain (called an onchain transaction). This means that you’ll have to pay transaction fees in order to create an account. If you use Warpcast, the microblogging app for Farcaster build by the Farcaster team, they will handle the transaction for you, charging you a roughly 4 USD fee to cover the blockchain transaction costs.

Hubs are the core part of the network. If you send out a message, or like a cast (posts are called casts on Farcaster), or follow another account, then you send this data to a single Hub. The Hub is automatically selected by the App you use to. Hubs contain and process all the data of the entire Farcaster network. Your Hub then sends out your data to all other Hubs on the entire Farcaster network, and Hubs are responsible for making sure that their data is in sync with all other Hubs in the network.

Another feature of Farcaster is that you have to pay to store your data in Hubs. It costs around 7 USD per year to store 5000 posts. If you make more than 5000 posts your oldest posts will get deleted, or you have to pay for more storage. Farcaster claims that “charging rent prevents users from spamming the network.” Considering X’s succes in fighting spam bots by charging 8 USD/month for a blue checkmark, charging more than 10 times less will surely also be successful in preventing spam on a network that has build financial incentives into its core architecture.

The Ethereum blockchain is involved in various other parts of the network:
When you want to use a new app on Farcaster, you’ll have to authorize that app with a transaction on the blockchain. With current pricing it costs around 0.1 USD to use a new app within the Farcaster network.

Another feature of Farcaster is Frames, which allow you to turn a post into an interactive app. These Frames/apps can be integrated with blockchains as well, and by far the most popular usecase I see for Frames is for minting NFTs, with airdropping memetokens being another option.

Warpcast is the most popular usecase of Farcaster, and the official microblogging app made by the same people who are building the Farcaster protocol. Other products are also possible to build with Farcaster; Paragraph.xyz is a web3 newsletter platform that has integrated with the Farcaster protocol. If the crypto wallet you used to register with Farcaster is the same as the wallet you used to register with Paragraph, your followers relationships carry over and you can see the long-form writing of your Farcaster followers in Paragraph. There is also a button in Warpcast that apparently mints Paragraph articles as an NFT, but for the sake of my own sanity I’ve decided not to press that button.

The various ways that Farcaster integrates with crypto and blockchains make the network especially popular with the web3/NFT crypto crowd. Notably this is a different crowd than the people on Nostr. A rough summary is that Nostr is for people who like Bitcoin and are into libertarianism, and Farcaster is for people who like Ethereum and are into NFTs.

Farcaster raised 150M USD this month, with a valuation of 1 billion USD, with the funding round led by Paradigm, and joined by a16z crypto. Paradigm is a crypto VC fund (with a Coinbase co-founder) and a16z crypto is the crypto VC fund of 16z.

Farcaster’s valuation of 1 billion USD raised some eyebrows for being just ever so slightly on the high side. With an estimate of 45k DAU at the time of raise, this translates to a completely normal and sensible valuation of 22k USD per user. Even by a16z’s own standards this is an exceptional valuation: in spring 2021 a16z invested in audio app Clubhouse, valuing it at 4 billion. Clubhouse had 10 million weekly active users at the time, and had clearly broken through into mainstream awareness, an more importantly, was free to use at the time.

That said, I think there are some reasons why Farcaster is valuable to Paradigm and a16z crypto:

• The uptake of Farcaster shows hockeystick growth over the last few months. This is especially noteworthy considering that growth on other decentralised social networks has stalled over the last months, and it costs money to join Farcaster. Being able to show hockeystick-type of growth considering these two added difficulties makes Farcaster worth paying attention to.
• Usage of Farcaster increases usage of crypto, of which crypto exchanges, especially Coinbase, are major benefactors. More specifically, much of Farcaster uses a derivative of the Ethereum blockchain called Optimism. There are many links between Farcaster and Coinbase, both in the people who work on the project as well as investors who funded both organisations. An increase in usage of the Optimism blockchain is directly beneficial to Coinbase.
• There are a ton of crypto projects that have been build over the years that do not have any users, often with VC investments. Providing a social graph to integrate crypto projects into can help these crypto projects gain a user base.

Overall I think there are clear reasons why Farcaster is valuable to VC Crypto companies such as a16z and Paradigm. Whether ‘valuable’ also means ‘1 billion USD valuable’ is less clear, however.

Thank you for reading. I write about what is happening in the world of decentralised social networks, with a weekly newsletter on the fediverse and a monthly newsletter about Bluesky. You can subscribe here, or follow me on the fediverse:

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