Since its launch in December, StepN, an app that lets users walk and run to earn tokens, has quickly become a household name in the play-to-earn blockchain gaming, or GameFi, world. Two to three million users worldwide are now active on the app every month, StepN’s co-founder Jerry Huang recently told TechCrunch.

That number is nowhere close to the hundred-million player size enjoyed by popular web2 titles, but in the world of crypto, it’s a meaningful breakthrough for a five-month-old app. As of May 22, the market cap of StepN’s native token GMT stood at around $860 million.

Founded by Huang and his co-founder Yawn Rong in Adelaide, Australia, StepN debuted at a Solana hackathon in October. After coming in fourth, its exposure at the event helped land its first batch of beta users. When it officially launched two months later, words about the app that let one earn by staying fit had already spread within the blockchain community. Without any splashy ad campaign, scores of users signed up.

In weeks, StepN was growing so fast that the team needed to cap the number of daily registrations. Now, tens of thousands of new users are joining the app per day, according to Huang.

Huang, a serial entrepreneur, and Rong, a blockchain venture capitalist, were self-funding the project at first for the pair were “financially stable.” But in September, they decided that fundraising could bring in other meaningful resources such as partnerships and publicity. The founders spoke to over 100 investors and revised their pitch deck over 40 times before closing a $5 million seed round from Sequoia Capital and others in November.

“We didn’t have a product at the time, and many investors couldn’t understand what we were doing. Sequoia did. The process of addressing investor questions also helped us refine the product to where it was later,” said Huang.

Indeed, the fast-growing app appears to be self-sustainable for now. It’s generating $3-5 million in net profit from trading fees a day, and earning up to $100 million every month. In April, it picked up another round of strategic investment from Binance.

Is it a game?

Some argue what makes StepN — and other play-to-earn blockchain games like Axie Infinity — successful is the fact that they are essentially financial products with a gamified twist.

To start earning tokens and logging one’s mileage on StepN, users need to first spend at least 12 sol or around $600 on a pair of virtual shoes at the current market rate. The digital shoes are in the form of a non-fungible token (NFT) that runs on the Solana network and Binance’s smart chain so can be resold later, but the entry fee is still not a trivial amount for any casual player.

Over time, StepN users will need to accumulate new kicks to level up. The usual return on investment requires about a month, upon which people can start generating income of up to several thousand dollars per day depending on their level, activeness, and the current price of StepN tokens. In other words, the game can be quite lucrative.

In the eyes of some gaming veterans, the gameplay of most existing GameFi apps is “easy and mindless.” Axie Infinity, for instance, features cute blob-like creatures that fight in simple battles. As such, web2 gaming incumbents are entering GameFi in droves, pledging to bring quality back to the industry.

Huang begged to differ. “A lot of the triple-A games overemphasize aesthetics and big budgets, but they aren’t really that innovative when it comes to gameplay, whereas some simple-looking games like Plants vs. Zombies come with brilliant gameplay that makes them last,” said Huang, who ran his own gaming studio in China before moving to Australia a decade ago.

“Many newcomers to GameFi are blindly pursuing triple-A productions,” he continued. “But if they weren’t already successful in web2, why would they be in web3? Some simple-looking games aren’t that simple behind the scene, for instance, how we design the economics of our app.”

Is it sustainable?

Other critics question the financial sustainability of play-to-earn. Maintaining such a business model means the gameplay needs to be either so addictive that users continue to play without cashing out their coins, or that the app continues to attract new users who buy in only to replace those who cash out. Critics have even drawn parallels between play-to-earn to pyramid schemes.

Axie Infinity hasn’t been able to sustain its meteoric rise. Sky Mavis, the Vietnamese gaming studio behind the game, was valued at $3 billion in a $150 million financing round last October. But its token has lost over 80% of its value since peaking in November at $160, and its sales volume has nosedived from $754 million to just $5 million.

Losing a few thousand dollars isn’t the end of the world for most of StepN’s users, who are 20-40 year-olds from affluent countries like the US, Japan, and Europe. China, where crypto trading is banned, accounts for less than 5% of its user base, Huang said. But Axie Infinity’s players are concentrated in developing countries like the Philippines and Venezuela, many of whom are betting a significant amount of their savings on the game, a major source of their income during the COVID pandemic.

StepN proposes a two-fold solution to sustainability. For one, it’s working on a price stabilization mechanism to ensure the cost of its coins is always at a rate that the shoes are affordable for new users but also not so cheap that existing users lack the incentives to mint new shoes, that is, create new shoes on the blockchain and sell.

Price manipulation is achieved through its dual-token system. When the price of its “utility coin” GST is too high and shoes get pricey, StepN will ask players to burn its “governance coin” GMT to mint new shoes. The supply of GST increases as a result, leading to a sell-off and bringing its cost down.

Huang also argued StepN’s fitness component makes it fundamentally different from Axie Infinity. “Yes, users can make money from StepN in the early stage, but over time they will also grow accustomed to staying active, so they will continue to walk or run regardless of financial rewards.”

“Many people don’t see StepN as a real game. Nor do they consider it a running app because users can make money from it,” said Curt Shi, founding partner at Welinder & Shi Capital and an early investor in StepN. “It’s hard to define what it is right now, but time will tell.”

Killer app?

Huang’s other defense is the role StepN could play in evangelizing blockchain to the world. An estimate of 30% of the app’s users has never used any blockchain services before.

“Many people might have used centralized exchanges like Binance and Coinbase to trade, but few know what a DEX [decentralized exchange] is, nor have they traded NFTs on a marketplace or owned a self-custodial wallet. We have the potential to onboard tens of millions of web3 users and I think this is something very meaningful.”

“I think people are paying too much attention to the [sustainability] issue,” the founder continued. “ROI might slow over time, but all games have life cycles. You also need to look at what value an app creates.”

Momentum might slow down sooner than expected for the app amid crashing crypto values. Venture capital firms are warning startups to brace for a “crypto winter” and industry giants like Coinbase are applying the brakes on hiring. As consumers lose confidence in the market and become less willing to spend on tokens or NFTs, blockchain apps that rely on attracting new users to drive up their economies might face more roadblocks.

But Huang finds a silver lining in the current downturn. “There was a lot of froth in the market. Now the bubble is bursting, our shoes will become more affordable, and only the [blockchain] apps with real use case will survive.”

“The market was clearly frothy, so it’s a good thing that [StepN’s market cap] has shrunk over the past few days,” said Shi. “To maintain an ultra-high market cap can be stressful for the team, and now the team will be focusing more on the product itself and we believe StepN will outperform in bear and will be a winner in the next bull market.”

Operating with a rapidly expanding team of 70 people across countries including Australia, the UK, the US and Singapore, StepN’s next step is to build a social product around its token holder community, the challenge now is to prove that it can continue to draw in a constant stream new runners.

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