Market Byte: Threads Launched Us Into the Fediverse

Zhao B&W
Michael Zhao
Last Update 07/17/2023

In this piece, we explain the term – “Fediverse” (Federated Universe) – following news that Meta’s social media app, Threads, has joined the Fediverse. What is a Fediverse? Could the launch of Threads signal a shift in the future of social media that embraces decentralization and promotes user control? We explore these questions and more below.

Picture this: you’re scrolling through your social media feed, laughing at the memes, liking your friend’s vacation photos, reading shared articles, when suddenly— you’re locked out. Banned. No warning. No recourse. Your digital life seemingly erased in an instant. It sounds horrifying, right? Yet, it’s a scenario that’s become all too real for many on today’s centralized social media platforms. In these ‘walled gardens,’ a single corporation holds the power to control and monetize users’ data, manage discourse, ban users without explanation, and more.

Now, let’s imagine a different kind of digital space – one where no single, centralized entity holds such power. Enter the “Fediverse”, a decentralized network of servers that launched in 2008. The Fediverse’s first open source iteration, GNU social, was an open-source microblogging platform similar to Twitter, but with a crucial difference: data was dispersed across various independently operated servers that interacted with each other, forming a federated network of user interactions.

However, the Fediverse isn’t solely populated by smaller open-source projects – even big tech companies have started to take notice. Given the usual ‘walled garden’ approach favored by tech giants, Meta’s decision to integrate their newly launched companion messaging app, Threads, into the Fediverse has turned heads. The app’s rapid accumulation of over 100 million users, growth that even outpaced even OpenAI’s ChatGPT, makes this development all the more notable. Meta’s unanticipated use of decentralized infrastructure in its launch of Threads could signal the onset of a new era in social media, where control is more balanced and users aren’t at the mercy of a single entity.

Diving Deeper: Inside the Mechanics of the Fediverse

More specifically, the Fediverse is a collection of interconnected but independently operated servers that host applications and platforms. These servers provide decentralized alternatives to popular social media services. For example, Mastodon offers a Twitter-style microblogging experience, Pixelfed is akin to Instagram for photo-sharing, and PeerTube is a video-sharing platform much like YouTube (Figure 1). The Fediverse functions in a way similar to email. Just as an email can be sent from a Gmail account to an Outlook account, a user on a Fediverse server (also referred to as an “instance”) on Mastodon can interact with another user on a different Fediverse instance like Peertube. Just as each email service sets its own spam filters and usage rules, each Fediverse instance also has its own procedures and policies.

Figure 1: Fediverse Applications

Source: For illustrative purposes only.

The interoperability between different instances is what separates the Fediverse from centralized social media. These servers can communicate with each other through ActivityPub, which can be thought of as a common language that all servers in the Fediverse speak (Figure 2). Thanks to the ActivityPub protocol, these platforms can all interact, allowing, for example, a Mastodon user to follow a PeerTube channel or comment on a Mastodon post, ultimately offering a comprehensive social media experience that enables greater user control.

Figure 2: Example of a Mastodon instance interacting with a Pixelfed instance

Source: @samuelroland,

Deciphering Meta's Move: A Strategic Shift?

At first glance, Threads seems like a departure from Meta’s established strategy of closed-end systems. After all, Threads’ open design lowers user ‘switching costs’, the hurdles faced when changing platforms. In a closed system, these tangible and intangible costs are high, driven by the inconvenience of learning a new platform, the nuances of transferring data, and the risk of losing social connections, content, and credibility. The Fediverse reduces these costs, allowing users to switch platforms without severing social ties or having to adapt to a drastically different system. Conversely, platforms like Facebook, Instagram, and WhatsApp, all under Meta’s umbrella, keep users within defined boundaries. This control has historically enabled Meta to manage and monetize user data.

But perhaps Meta is taking a longer-term view on the paradigm shift associated with new technology. If this is true, the perceived risk of creating an app on Fediverse may well be a carefully thought-out strategy from Meta. The company has previously articulated their vision of the metaverse as a ‘web of public and private standards, norms and rules.’ This suggests a desire to cultivate a more open, inclusive digital landscape where diverse platforms can coexist, echoing the ethos of the Fediverse.

By integrating open standards like ActivityPub into Threads, Meta appears to be aligning more with this open-source vision. It’s plausible that Threads could serve as a bridge between Meta’s existing services and the wider Fediverse, further enhancing the company’s connectivity and communication within the broader digital ecosystem. If true, this move could position Meta as a pioneer in the transition towards a more decentralized web, which reflects and aligns with users’ preference to have greater control over their digital lives.

Apples and Oranges? Contrasting Crypto and the Fediverse

So, what does any of this have to do with crypto? 

Both the Fediverse and the crypto community align under a shared philosophy: individual users should control their data, not centralized authorities. In the Fediverse, the ability of users to choose their instance based on their preferences ensures that their data aligns with the policies and rules they are most comfortable with. Crypto takes a similar stance, but employs blockchain technology to distribute transaction records across a network, ensuring that no single entity can monopolize control. Additionally, crypto wallets give users direct control over their digital assets, reinforcing the notion of personal data ownership.

Different Origins

While the Fediverse and cryptocurrencies share the philosophy of decentralization, their primary uses are quite different. The Fediverse is predominantly a hub for decentralized social interaction, whereas cryptocurrencies are typically used for transferring and storing value. This can be traced back to their origins: the Fediverse emerged from the desire for a decentralized alternative to mainstream social media, while the original purpose of cryptocurrencies, such as Bitcoin, was to facilitate peer-to-peer value transfer1. As a result, social media applications are widespread in the Fediverse, while the crypto world is rich with decentralized finance (DeFi) applications.

Blueprint Breakdown

There are stark differences in terms of infrastructure. In the Fediverse, even though users can transfer personal data between different instances, the operators of each instance hold significant control, including potential access to private messages, location data, and account passwords. As a result, users need to trust these operators to ensure their data security. On the other hand, in a cryptocurrency blockchain like Bitcoin, each node contains a copy of the full transaction ledger, which enhances data redundancy and reduces the chances of data tampering. Consensus mechanisms such as Proof-of-Work2 and Proof-of-Stake3 make altering transaction data expensive. The existence of a consistent, unalterable blockchain in crypto significantly diverges from the more adaptable shared standards in the Fediverse.

Who is the Boss?

Governance marks a key difference between the Fediverse and crypto. In the Fediverse, decision-making power rests largely with the operators of each instance. If users disagree with the rules or policies of their current instance, they can transfer their data to another instance that aligns more closely with their preferences. However, the potential for direct influence on instance policy is inconsistent and can vary widely. While some instances may adopt user-inclusive decision-making models, others might retain a more centralized control.

Meanwhile, many decentralized crypto applications integrate explicit governance procedures as a core component. These systems often establish clear rules for users to propose, discuss, and vote on changes to the protocol itself. Rather than simply tolerating an unsatisfactory protocol or switching platforms, users in these spaces have the opportunity to enact change directly, provided they can convince others of their case. For example, users can propose and vote on issues that range from minor risk parameter adjustments to overhauls of the protocol’s fee accrual mechanism.

Decentralized Social Media in Crypto

Although crypto-based social protocols aren’t as widespread as those within the Fediverse, it could be beneficial to examine existing crypto-based social protocols in order to understand their trajectory.

Lens Protocol: NFT Social Graphs

Lens Protocol is a decentralized social media protocol built on the Polygon sidechain, designed to provide users with ownership of their data through Non-Fungible Tokens (NFTs). It operates by allowing users to store their content, such as their profiles, posts, or comments, into NFTs (Figure 3). By tokenizing user interactions, Lens Protocol creates an open economy for social media content, attempting to align incentives for creators and consumers.

Figure 3: Lens Protocol Architecture

Source: Nansen Research, as of 4/25/2023

The network’s architecture centers around the concept of a “social graph”, a model that illustrates the relationships and interactions between users. This graph is stored on-chain4, enabling decentralization and interoperability between various applications that are built on top of the protocol. As users interact with each other on the platform, their actions are represented as transactions on the social graph. This allows for various applications to leverage the same underlying data while providing unique user experiences.

Farcaster: Hybrid Architecture

Farcaster is a social network protocol that brings together the Ethereum blockchain’s robust security with the efficiency of decentralized off-chain data management (Figure 4). It employs Ethereum for managing user identities, assigning unique addresses via smart contracts to ensure each user’s identity is safeguarded. Furthermore, this system ensures seamless integration with other Ethereum-based identities, such as the Ethereum Name Service (ENS).

Figure 4: Farcaster Architecture

Source: @dwr (Dan Romero) founder of Farcaster

Farcaster’s data storage mechanism relies on user-controlled off-chain servers called Farcaster Hubs. When a user posts or interacts on the platform, their action is authenticated with a digital signature, and the signed message is then distributed across the network using a decentralized peer-to-peer protocol. This design ensures that user data is propagated throughout the network, making censorship attempts by any single entity ineffective. In effect, Farcaster encourages an environment of openness and freedom of expression, while giving users full control over their online identity and data.

A Socially Connected Future

Looking forward, we anticipate that both crypto and the Fediverse will continue to coexist, each dominating in their particular areas of strength. Crypto’s role in decentralized finance is likely to remain unchallenged, while the Fediverse’s array of social media applications will likely continue to appeal to users who value user control and interoperability.

However, the two realms are starting to blur. Exciting projects are pushing the boundaries by integrating aspects of both crypto and Fediverse domains. For example: Nostr, a decentralized social media platform, operates on its own open standards akin to the ActivityPub protocol, and yet, it uniquely incorporates built-in Lightning payments on the Bitcoin network – effectively merging the decentralized social media experience with the financial capabilities of crypto.

Such innovations underscore the dynamic nature of these evolving technologies and hint at a future where the Fediverse and crypto continue to cross-pollinate, each enriching the other to create a more user-empowered digital ecosystem. This intersection holds a lot of promise, and as we look ahead, it sparks an optimistic vision of a more decentralized internet, where every individual has greater control over their digital identity, finances, and social interactions.

For us, the question around whether Threads will usurp Twitter is short-sighted. The bigger (and arguably better) question is how these new platforms are being built and how decentralized technologies may impact our digital lives and our socially connected collective future.

1. The first sentence of the Bitcoin whitepaper (the first cryptocurrency): “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.“

2. Proof of work is a consensus mechanism in blockchain networks where participants compete to solve computationally intensive problems in order to validate and add new transactions to the blockchain.

3. Proof of stake is a consensus mechanism in blockchain networks where participants are chosen to validate new transactions and create new blocks based on the number of coins they hold and are willing to “stake” as collateral, rather than relying on computational power.

4. Larger pieces of content like video or photos can be stored on a decentralized storage service like IPFS or Arweave using a Uniform Resource Identifier (URI) that points to the content itself.


Investments in digital assets are speculative investments that involve high degrees of risk, including a partial or total loss of invested funds. Investments in digital assets are not suitable for any investor that cannot afford loss of the entire investment.

All content is original and has been researched and produced by Grayscale Investments, LLC (“Grayscale”) unless otherwise stated herein. No part of this content may be reproduced in any form, or referred to in any other publication, without the express consent of Grayscale. 

This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any investment in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change. This content does not constitute an offer to sell or the solicitation of an offer to sell or buy any security in any jurisdiction where such an offer or solicitation would be illegal. There is not enough information contained in this content to make an investment decision and any information contained herein should not be used as a basis for this purpose. 

This content does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of investors.

 Investors are not to construe this content as legal, tax or investment advice, and should consult their own advisors concerning an investment in digital assets. The price and value of assets referred to in this content and the income from them may fluctuate. Past performance is not indicative of the future performance of any assets referred to herein. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. 

Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on Grayscale’s views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied in such statements. In addition to statements that are forward-looking by reason of context, the words “may, will, should, could, can, expects, plans, intends, anticipates, believes, estimates, predicts, potential, projected, or continue” and similar expressions identify forward-looking statements. Grayscale assumes no obligation to update any forward-looking statements contained herein and you should not place undue reliance on such statements, which speak only as of the date hereof. Although Grayscale has taken reasonable care to ensure that the information contained herein is accurate, no representation or warranty (including liability towards third parties), expressed or implied, is made by Grayscale as to its accuracy, reliability, or completeness. You should not make any investment decisions based on these estimates and forward-looking statements. 

There is no guarantee that the market conditions during the past period will be present in the future. Rather, it is most likely that the future market conditions will differ significantly from those of this past period, which could have a materially adverse impact on future returns. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. We selected the timeframe for our analysis because we believe it broadly constitutes the most complete historical dataset for the digital assets that we have chosen to analyze.

Related content