StepN: A Quantitative Look at Move-to-Earn’s Sustainability
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StepN ignited the frenzy for walk-to-earn, skyrocketing to $23 billion FDV at its peak.
But seasoned crypto vets know numbers like this - especially with “X-to-earn” concepts - are not sustainable. This week, we’ll take a dive through the numbers to see just how realistic is the StepN model over time.
As always, this report is for informational purposes only and not financial advice.
Contents:
What is StepN
How StepN Works
StepN’s Token Design
Modeling StepN’s Sustainability (with interactive model)
Upcoming Catalysts
What is StepN
StepN is a Web 3 lifestyle application that pays users for one thing most of us do daily - moving around. They were the first project that effectively brought the move-and-earn concept to life and finished 4th out of 500+ projects at the Solana Ignition Hackathon 2021.
Earning up to $700 per day just for walking turned out to be an easy sell, and in less than 6 months since launching their application, StepN managed to achieve a peak record of 400K Daily Active Users (DAU), 1.7M Monthly Active Users (MAU) and was already one of the most downloaded apps in the fitness section of the app store
How StepN Works
Setting up the account
A user would first have to download the StepN app from the Apple or Android app store and sign up for an account with their email address. An activation code is required to activate the account and can be obtained by joining StepN’s Telegram or Discord channel where they issue 1000 codes on each platform daily. Alternatively, users can get activation codes from existing users that have earned these codes.
After activating the account, they’d need to choose between creating a new wallet and importing their existing wallet on Solana or Binance Smart Chain. This wallet - which users own the private keys to - is used to store the users’ tokens and in-game NFTs.
Users would then fund a separate in-app wallet called “Spending Wallet” with GST, GMT (more later) and SOL/BNB as various in-game actions require different tokens and all in-game transactions will be done against this “Spending Wallet”.
Sneaker NFT
Before a new user can begin earning rewards for walking, they have to own at least 1 sneaker NFT which can be purchased from other users on the app’s marketplace. As of 15th June, the cheapest NFT sneakers cost about 4.5 SOL , or roughly ~$130.
Every sneaker is not created equal! Each sneaker is differentiated by its Type, Quality, Efficiency, Resilience and Level, which in turn affects a user’s earning potential within the game. Earnings can also be further enhanced as users unlock Socket slots - which allows upgrades, called Gems, to be inserted.
Users can also use 2 sneakers to “breed” an additional sneaker. Each sneaker can only be used to mint a maximum of 7 sneakers and the higher “breeding” count a sneaker has, the more in-game tokens (GST and/or GMT) it will cost.
Game Mode and Earning Mechanics
There are 3 game modes in StepN: Solo, Marathon and Background.
As of 15th June, only Solo Mode is live. In an effort to not overwhelm the game’s ability to pay out attractive rewards, the team created an Energy System to limit the number of walking minutes a user is eligible for rewards: every 1 Energy represents 5 minutes of walking.
Every user starts with 2 Energy, which means they have up to 10 minutes of gameplay that is eligible for rewards before a cool-off period. They can increase their Energy cap by getting more or higher quality sneakers until it reaches the Energy Cap of 20 (or 100 minutes of earn-able playtime). 25% of the user’s total Energy is replenished every 6 hours until it reaches the user’s Energy Cap.
In order to not have inflation run rampant at the onset, on top of the Energy Cap, a user’s daily earnings are also limited by the Daily Token Cap. Users start the game with a 5 Daily GST Cap (i.e. earn up to 5 GST daily, or ~$0.65 at today’s price, with upgrades that can push this number up to 300 GST, or ~$40 at today’s price).
The Cap is increased when users level up their Sneakers, and diehard users can increase beyond the 300 Cap by burning some GMT, the game’s governance toke (GMT will also be used as a reward token later, and currently there are no plans for a cap).
In an effort to ensure there’s no rampant cheating that leads to overinflation of rewards, the team also made a few thoughtful decisions. Firstly, StepN incorporates GPS into the application (as opposed to the typical accelerometer-only fitness trackers) to ensure users are moving. Second, StepN also only rewards users in a specific speed band to prevent users from using StepN while driving.
In sum, while the various sneaker attributes determine the number of tokens earned per energy spent, a player’s Daily Energy and Token Cap put a limit on the maximum amount of tokens that can be earned daily.
Token Design
Now that we have a rough idea of how users are earning money via StepN, we can dive into the specifics of the token design and attempt to map out the game’s overall sustainability.
StepN has a dual-token system:
Popularized by Axie Infinity, a dual-token system is useful for X-to-earn applications: one token is designed to be a highly inflationary reward token bearing the brunt of the selling pressure from users cashing out their rewards (GST) and the other to accrue the value created by users’ transactions on the app (GMT).
By definition, for StepN’s incentives to be sustainable, it must not have a highly inflationary token supply for its reward token (GST) over time - otherwise infinite tokens are printed against constant sell pressure, which forces price to trend towards zero, unable to support in-game rewards at scale.
Not All Sinks Are Created Equal
In StepN, various in-game activities require users to spend tokens. The in-game activities essentially function as “token sinks” where the tokens spent are burnt i.e removed from the circulating supply.
Token sinks exist to control the inflationary pressure caused by asset issuance/creation. However, there is a catch:
While some features are in place to remove current circulating supply, they actually lead to more emissions in the future!
To avoid confusion, we will divide StepN’s token sinks into the following two types:
Net-positive sinks: results increase in the rate of emission over time
Net-negative sinks: do not result in an increase in the rate of emission over time
Consider the example of minting a sneaker NFT, an action which costs 200 GST:
User spends 200 GST, and 200 GST is burnt/ removed from the current circulation
However, another source of GST emissions (the new sneaker) has now been produced
Over time, the GST produced by the new sneaker will exceed the 200 GST spent to mint it
A net positive “sink” is created
For low level sneakers, the time needed for a token sink to become net inflationary can be as low as 30 days (e.g. a level 9 sneakers takes approximately 30 days to produce 250 GST, which covers the 200 GST minting fee and 50 GST leveling up fee)!
While GMT is also burnt in several net-positive sinks like sneaker leveling, minting and upgrading with gems, these sinks only result in greater emissions of GST, not GMT.
As the burning and value accrual to GMT still depends on StepN’s user growth and retention, which in turn depends on whether users generate enough rewards to consider the app as worthwhile to use, GST as the main reward token cannot be overly inflationary over time.
So now - the multi-billion dollar question: is StepN’s current model sustainable?
Modeling StepN’s Sustainability
In the past 3 months, GST market cap grew by 100%, but GST price dropped by ~92%. This is because circulating supply increased by a whopping 2500% (20% daily) over that period.
While GST rewards do not have to be net-deflationary over time for the game to be sustainable, it is self-evident that consistent hyperinflation in GST rewards will lower rewards over time, calling into question StepN’s ability to introduce new players.
We’ve constructed a multivariate model that allows readers to test out the exogenous investment required (e.g. either from speculative demand on the GST token, or from direct investment by StepN team or sponsors) to keep GST net 0 in inflation.
Note that the model is not intended as a basis for investment decisions, only as a tool for users to toggle multiple variables and examine their theoretical effects on monthly inflation.
We make an optimistic projection of StepN’s user growth (averaging 5% a week in year 2, which Paul Graham cites as a good rate for high-growth startups), but readers are free to toggle the growth rate to their own assumptions. Some of the more granular details - such as when additional inflation impact comes from new shoes minted - are deliberately abstracted away for simplicity.
While we do not believe GST needs to be strictly net-deflationary for StepN to remain sustainable, under our subjective projections StepN will be required to:
Have an average of $122M per month over the next 6 months in exogenous demand for GST for rewards to remain where they are today.
Have $27B in total demand for GST in year 2 of its operation - or almost as much as Adidas’ entire market cap - for GST price to remain where it is today
Assuming 0 speculative demand on GST from external investors, spend ~$50M per monthly active users per month by its second year to keep rewards where they are today
Exogenous demand can come from speculative pressure on the GST token itself. At the peak of the StepN frenzy in April, GST traded as much as $155M in volume a day, or ~$77M in demand pressure assuming half of it were buys. Given current market conditions it may be unrealistic to rely on external speculative pressure on GMT, let alone GST.
While StepN likely has ample dry powder to sustain development of the project for years to come, we also find it unlikely they will expend significant capital into supporting GST price, which means rewards very likely continue to dwindle.
In short, we find it highly unlikely that rewards can sustain at current levels over time, even with GST price having declined by 90%+ from the top already. This problem will exacerbate over time as user count continues to grow, especially as the largest token sinks today are still completely circular: users burn tokens in order to mint more sneakers that produce more tokens.
One caveat is that beyond the initial sneaker purchase, the friction for StepN’s user retention is low. For most users, the choice between getting paid to walk versus not is likely an easy one to make.
In other words, while current users may continue to stay on even if rewards continue to dwindle, the key question is what is the equilibrium daily reward for the average user is before user growth tapers off. Should the breakeven period for the initial sneaker purchase be years, new users may not have any incentive to onboard due to opportunity cost, and emergence of competitors that offer lower financial cost of onboarding.
Either way, the penetration StepN has had in its short existence thus far has been nothing short of impressive, and we view StepN as one of the most exciting efforts to broaden the adoption of Web 3 to the mainstream.
Appendix: Analysis of Upcoming Updates/Catalysts
There are some key upcoming catalysts that can materially impact the sustainability of StepN rewards which we would like to call to our readers’ attention:
Toggle between earning GST and GMT
30% of GMT supply (1.8 billion tokens) will be allocated to move-and-earn. On Binance’s research page, GMT rewards emissions start in September this year and every month, ~0.42% of the total GMT supply (~25 million tokens) are emitted until its reward halving in August 2025.
This will likely introduce net selling pressure for GMT; however, it might relieve part of the marginal selling pressure on GST. Since earnings are calculated based on different sneaker attributes for the 2 tokens (Efficiency for GST and Comfort for GMT), we also expect sneakers with better Comfort values to appreciate in price.
New game modes and rental system
StepN plans to introduce two additional game modes - Marathon Mode and Background Mode. While the additional game modes sound interesting, we are concerned about them worsening the sustainability of GST rewards by introducing two more streams of rewards.
The rental system allows users without sneakers to rent one from a leaser. The leaser sets the rental terms (% split of earnings between the leaser and renter) and upon completion of a session in Solo Mode, a smart contract will distribute the earnings in accordance with the agreement.
We believe renters are even more likely than owners to sell GST rewards as there are no avenues for them to spend GST without owning a sneaker. As each sneaker owner can only equip and generate rewards on one sneaker currently, a rental system increases utilization of sneakers and likely creates additional selling pressure.
Sneaker Enhancement via Burning System
Instead of a chance at obtaining a higher grade sneaker during shoe-minting, StepN will allow users to burn 5 lower quality sneakers, some GST and GMT to have a 100% chance at getting one higher quality, enhanced sneaker
While a user takes approximately 60 days to breakeven from the cost of upgrading, the net-inflationary impact to GST’s supply happens at a much later date. This is because net-inflationary impact is calculated by dividing GST Cost Of Upgrade with the Increase in Daily GST Rewards instead of Total Daily GST rewards. Therefore, the net-inflationary impact actually happens after 240 days.
Therefore, we find this feature to be effective as a sink to reduce circulating supply temporarily (until net inflation happens). We also expect this feature to increase the demand for GST and sneakers in the short term, which could result in a temporary price increase.
Realms
A realm is a server that hosts a fork of the StepN game (either on a new blockchain or StepN’s existing blockchains). Each realm will have its own in-game utility token (own version of GST) but shares GMT as the main governance token.
While this is beneficial for GMT as value accrual and GMT burn still occur across chains, we will need to monitor the effects on GST since we are unable to predict the reaction of users.
Cosmetics/Customization
Users will have the option of burning GST/GMT/NFT to customize their Level 30 Sneaker NFTs. This upcoming feature is the only net-negative sink which will slow down the rate of $GST emissions permanently.
We have seen the willingness of gamers to spend on in-game cosmetics that adds no functional value to the game they are playing (an average user spent $102 per year on Fortnite skins) and the extent crypto-natives are willing to pay for NFTs as a form of social-signalling.
The effectiveness of this sink will depend on the extent to which social signalling applies to StepN as a multiplayer fitness application and users’ perceived value of the brand partnership for sneaker cosmetics.
StepN’s own decentralized exchange - DOOAR
Previously, when users traded tokens on StepN’s app, the trade is actually facilitated by an AMM Pool on Orca. This meant that the trading fees were paid to Orca (and the liquidity providers) and not StepN. Over the past 30 days, $375 million worth of trades were executed on GST alone and $1 million in fees were collected by Orca.
Now that StepN has built their own in-app decentralized exchange, the trading fees will be collected by them and can be used to offset GST inflation or burn GMT - both of which are beneficial to token prices.
Resources
StepN
Data
More info on upcoming updates
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amazing write up and deep dive, thanks for the insights!