Move-to-Earn Has a Ponzi-Economics Problem

Stepn is a cautionary tale for M2E startup founders like me. But I see a better model in Sweatcoin, which leveraged real-life utility to amass over 100 million users before going on-chain, writes Iomob CEO Boyd Cohen.

AccessTimeIconMar 13, 2023 at 3:28 p.m. UTC
Updated Sep 28, 2023 at 2:23 p.m. UTC

In 2022, Stepn emerged as one of the darlings of the crypto industry. First built as part of a Solana hackathon at the end of 2021, Stepn requires users to give the app access to their GPS and movement data from their smartphones and then rewards users with the GST token for walking and running. Stepn went through a meteoric rise as the poster child for the move-to-earn industry. To wit, Stepn reported a $23 million profit for the second quarter last year just seven months after it released a test version of its app.

Read more: Boyd Cohen is CEO and co-founder of Iomob, the developers of WheelCoin, a Move2Earn game that rewards users for moving green. This piece is part of CoinDesk's Culture Week.

The move-to-earn, or M2E, concept is based on play-to-earn mechanics. Instead of playing games from your home computer or on your phone to earn tokens as you progress through a game, M2E seeks to “gamify” the physical movement of users.

The value of the M2E sector rose to more than $1 billion last May based on the aggregated value of the tokens of its top projects. Now, as I write this op-ed, that same basket of tokens is worth only $273 million. Of course, the whole crypto industry has suffered a lot since the 2021 bull market, but the M2E sector has also been hit hard, and perhaps Stepn more than most.

Stepn has been widely accused of being too reliant on Ponzi economics. The argument has been that M2E games, like many play-to-earn games, rely too much on unlimited user growth that can never be sustained and on users spending money on in-game assets like NFTs to increase their reward-token earnings potential.

Earning more tokens and acquiring more non-fungible tokens supposedly leads to users becoming rich. In the heyday of play-to-earn, users indeed were able to earn insane amounts of high-value tokens. One user, for example, reported earning an average fiat-converted token income of $350 a day just from walking.

SweatCoin’s story

There are dozens or more M2E games in the market now, such as Walken and GenoPets. Most of them rely on somewhat similar mechanics. A definite outlier is SweatCoin.

SweatCoin’s journey is unique in that it was founded in 2014, and although the founders had aspirations to bring the reward token on-chain back then, they knew it was way too early, and so it remained a Web2 app. And thanks to great execution and brand building, SweatCoin had more than 100 million users before it was deployed on the Near protocol last year.

The partnership between Near and SweatCoin was mutually beneficial. The SweatCoin deployment on Near is widely accepted to be the main driver for the number of Near wallets going from 2 million at the start of 2022 to 20 million by November 2022.

Because SweatCoin survived close to a decade without having digital assets like NFTs or a reward token on-chain, it was forced to build a business model that didn’t rely on them. Not surprisingly, in private conversations with several blockchain developers for the M2E project I lead, WheelCoin, I learned that there had been a bit of a bidding war among several leading blockchains to bring SweatCoin to their ecosystem.

Because of its origin story, SweatCoin built a business model that looks a lot like a Web2 business that is able to capture tens of millions of users. The SweatCoin team monetized its engaged-user base through a combination of in-app advertising and sponsorships. The latter appealed to fitness brands willing to pay SweatCoin for the right to offer discounts to users with an obvious interest in fitness.

Thus, by not having the ability to monetize digital assets the way crypto-native M2E apps have done, SweatCoin built what I believe to be a much more sustainable business model. With the transition to Web3, SweatCoin hasn’t lost its roots, but instead is now layering in more on-chain digital assets, including the reward token itself. This source estimates SweatCoin to have $20 million in annual revenue from its advertising and sponsorship business model.

A business model to emulate

While building WheelCoin, my team reviewed all of these different business models and approaches to community building and monetization. We leaned much more heavily on the SweatCoin business model than Stepn’s, and I believe that future M2E projects will do so as well. You may ask why would we do that when Stepn had more than $120 million in profit in one quarter while SweatCoin likely earns way less than that annually?

Providing in-real-life, or IRL, utility for the reward token, such as discounts on products and services the community is likely to value, creates a viable path to long-term sustained growth and success for move-to-earn apps.

Note, while I used the business model of Stepn to juxtapose with SweatCoin’s, the team behind Stepn has said in interviews that it is focused on reducing the Ponzi nature of its core business while also diversifying its product offerings, including leveraging its massive user base to deploy a decentralized crypto exchange called DOOAR, which quickly became the largest DEX, in the Solana ecosystem.

As many project 2023 to be the year that crypto starts to go more mainstream by connecting with the real world, I am convinced move-to-earn apps will also succeed this year, if and only if it manages to connect to real-world ecosystems and creates off-chain utility for its reward tokens.


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Boyd Cohen

Boyd Cohen is CEO and co-founder of Iomob