STEPN: Fad or The Future of Fitness?

After publishing my breakdown on blockchain gaming, a number of people have asked “What are your thoughts on STEPN?” So, here they are!

In this post, I break down three key questions:

  1. What is STEPN?
  2. How Does STEPN’s Economy Currently Work?
  3. Is STEPN’s Economy Sustainable?

What is STEPN?

Screenshots from STEPN's in-app sneaker marketplace
Screenshots from STEPN's in-app sneaker marketplace

Per the startup’s whitepaper, “STEPN is a Web3 lifestyle app with inbuilt Game-Fi and Social-Fi elements.” To get started, users must purchase a sneaker from the app’s marketplace. Sneakers vary based on type (walker, runner, jogger, trainer), attributes (luck, efficiency, comfort, resilience), quality (common, uncommon, rare, epic, legendary), level, gem sockets (luck, efficiency, comfort, resilience), and shoe minting event (7 allowed per sneaker). As of May 2022, the cheapest sneaker is currently priced at ~13-14 SOL.

Since the public beta launch in Dec. 2021, STEPN has experienced rapid growth - all while the app has controlled demand through activation codes (only 1,000 issued per day). Per the company, STEPN has two to three million monthly active users worldwide. Further, transaction volume and user growth seems to have remained strong despite an overall market correction.

How Does STEPN’s Economy Currently Work?

STEPN's token vesting schedule
STEPN's token vesting schedule

Per STEPN’s whitepaper, the app’s economy is based on a game token (GST) and governance token (GMT). GST supply is unlimited while GMT token supply is capped at 6 billion and deflationary with a halving every three years. Per STEPN’s litepaper, GMT allocation is as follows: 30% to move and earn, 30% to ecosystem/treasury, 16.3% to private sale, 14.2% to team, 7% to Binance Launchpad (public sale), and 2.5% to advisors. The team has developed an 8-year plan for tokenomics with private round tokens unlocking in 2023 and vesting over three years. As Nat Eliason points out, the slowness of the token emissions and 8-year-token planning shows that the team and investors are committed to the project for the long-term. However, they are still likely to significantly profit even in the case of a sharp downturn because of the probably low valuation for the team’s $5M seed round in Jan. 2022 (current Fully Diluted Market Cap is over $1.5B).

In the app, GST and GMT are rewarded for move-to-earn activities, with GMT earnings only available at level 30 or higher. GST is paid out every minute of movement, with the amount dependent on the type of sneaker, sneaker’s efficiency attribute, sneaker’s comfort attribute, and the speed of movement. Users have a daily energy cap, which can be increased by getting more or higher quality sneakers, as well as a daily token cap for GST (maxes out at 300 GST; no token cap for GMT). Users must spend GST to repair their sneakers and increase their earning power (e.g., leveling up, upgrading gems, minting sneakers).

STEPN takes a 6% fee (2% trading, 4% royalty) on every sale in its marketplace, resulting in the company currently generating $3-5 million in net profits from trading fees per day and earning up to $100 million every month. The 2% trading fee is reserved for operations while no less than 5% of the startup’s profit is given back to the STEPN ecosystem.

Per the company’s blog, STEPN is agile in the management of the in-game economy to ensure the app is “both profitable for established players and price-friendly for newer players.” For example, STEPN introduced cooling mechanisms when GST hit a high of $9 from only being $4-5 a week earlier. In addition, STEPN recently committed its Q1 profits of ~$26M to buyback and burn GMT, which momentarily drove up prices to a height of $3.94 before falling to the $1-1.50 range (also part of a broader market correction).

Is STEPN’s Economy Sustainable?

NFT sneakers from STEPN's partnership with ASICS
NFT sneakers from STEPN's partnership with ASICS

I’m excited by the financial gamification of real-world activities like fitness and see long-term potential in this trend. My question is whether STEPN will have longevity or simply be an early experiment in a promising space. In its current state, STEPN’s economy is not sustainable in the medium-long term. However, the company is only in public beta and may be able to address key concerns. Below are areas for STEPN to focus on to achieve its mission of inspiring millions to a healthier lifestyle leveraging Web3.

Adjusted In-Game Tokenomics

STEPN’s in-game tokenomics are not sustainable. First, its current sinks are net inflationary - an issue pointed out by GameFi analysts at Delphi Digital and The Block. Current sinks, such as buying socket upgrades, leveling up sneakers, or repairing sneakers, lead to increasing or restoring the emission rate of GST and GMT. Second, STEPN has a “runaway sneaker breeding problem,” which could result in the sneakers eventually losing their value - as noted by Nat Eliason. As Nat states, the end result of these two issues is a potential economic collapse due to insufficient new demand for sneakers resulting in falling sneaker prices or GST’s price falling due to too many people achieving top level sneakers with high earnings.

Improved User Experience

As Quirky Qwerty points out, more players playing for the love of the game than to earn is critical for a game to be successful in the long-term. Having tried the app, I believe that the current user experience is inferior to comparable Web2 fitness apps (e.g., Sweatcoin, Strava) in terms of tracking functionality (e.g., lack of metrics, such as calories, heart rate, elevation, etc. may not appeal to pro users), social features (e.g., no social feed or group challenges), and ease of use (e.g., limited sneaker marketplace discovery & curation, no notification that sneaker efficiency is dropping, separate wallet and spending accounts, etc.). In addition, continuing to enhance the app’s gamified design (e.g., mystery boxes, sneaker levels, energy optimization) will be key in ensuring players spend for the utility and fun of using STEPN, rather than just financial incentives. Per the STEPN whitepaper, the app plans to add social-fi elements, enhance gamification through achievement badges and quests, and improve onboarding through a sneaker rental system.

External Cash Inflows

Ideally, STEPN can provide value to brands, organizations, and vendors. As MapleLeafCap writes, these external cash inflows could be used to either stabilize the economy or burn in-game currency in exchange. With the exception of a partnership with Asics for NFT sneakers, STEPN has not yet implemented this strategy. Further, STEPN launched the Asics collection on the Binance NFT marketplace and thus trading fees have not fully benefited the STEPN ecosystem. New Chief Revenue Officer Mable Jiang plans to address this need for external cash inflows. In her recent announcement of her decision to join the company, she writes “the real question lies at how STEPN can bridge *positive economic externalities* into the system, and provide easy access for its community members to monetize from the proof of their physical work, their in-app time, and their attention.” Mable cites potential areas of partnership expansion, including brands, organizations that promote carbon offset and health, and local vendors. Whether STEPN can successfully generate sufficient external cash flows to sustain the in-game economy is to be determined. In the Web2 space, Sweatcoin profits from brand partnerships but consumers can only spend sweatcoins (i.e., in-app non-cryptocurrency tokens) on limited offerings (e.g., discount on Hulu subscription or a first Handy cleaning) that are inferior to straight cryptocurrency/cash. Further, the current bear market and downfall of Luna/UST may be poor timing to convince non-crypto natives about the potential of Web3.

If you have feedback/comments or want to exchange thoughts on the future of X-to-earn, I’m excited to chat!

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