STEPN announced a cleanup of accounts in mainland China, and the price of STEPN tokens fell to 1/4 of its high point

The official Twitter account of Move to Earn app STEPN released an "Announcement on the Investigation of Accounts in Mainland China". The announcement stated that in order to actively respond to relevant regulatory policies, STEPN will conduct an investigation of software users. If users in mainland China are found, STEPN will stop providing GPS and IP location services to their accounts at 24:00 on July 15, 2022 (UTC+8) in accordance with the Terms of Use. If users expect to log in and use their accounts in the GPS or IP location of the region for a long time, the official encourages users to make their own decisions to deal with the assets in the app. During this period, more details will be notified to users through official social media announcements, emails, in-app prompts, etc.

• STEPN 's popularity continues to soar, with more than 800,000 daily active users according to the game's developers.

• Skeptics began to question whether STEPN’s token economics were sustainable.

• If STEPN's player growth stagnates, its economy will be in danger of entering a death spiral, just like previous play-to-earn games.

Interest in move-to-earn apps is surging. But previous attempts to create crypto gaming economies suggest the excitement won’t last.

STEPN's History

The idea behind STEPN is simple: you get paid for moving.

The "mobile money-making" lifestyle app launched in beta in December 2021 and has been growing steadily with new users joining through weekly Discord calls and Twitter space. STEPN ambassadors will reward participating community members with in-game NFT sneakers, allowing them to start earning Green Satoshi tokens (GST) by running, jogging, or walking within the community. At the time, players could earn $5 to $50 per day, depending on how long they exercised and how many pairs of sneakers they owned.

As the cold winter months came to an end, STEPN’s growth accelerated as the prospect of earning tokens by running outdoors became more appealing. The game also moved into open beta, allowing anyone with an activation code to participate in the project.

In March, STEPN had accumulated over 100,000 downloads through the Google Play store. Now, the game’s developers boast that it currently has over 800,000 daily active users (according to Dune Analytics , it only has 90,000 daily active users), and the daily trading volume of STEPN NFT sneakers has reached an all-time high of 264,000. This is important because STEPN’s main source of income is the 6% commission it gets from trading its NFT sneakers in the secondary market. The more NFTs that are minted and traded, the more money STEPN makes.

April has seen a sharp rise in the price of STEPN tokens. The game’s governance token, GMT, reached an all-time high of $4.03 in April, having traded for less than $1 in March. GST tokens earned by playing the game have seen a similar rise, peaking at over $8 at the height of the mobile earning craze in late April.

Since entering May, both GMT and GST have basically given up all their gains. As of now, GMT is quoted at US$1.17, a daily drop of 15%; GST is quoted at US$2.11, a daily drop of nearly 20%.

While the prices of both tokens have now cooled significantly, they appear to be holding their value. Since players need GST and GMT to repair and upgrade sneakers, demand should remain high as long as people continue to play.

Is STEPN’s economic model sustainable?

As a new cryptocurrency project offering lucrative rewards to players, skeptics have questioned whether STEPN’s token economics can continue to pay users so well. To understand whether STEPN’s economic model is sustainable, it’s important to understand exactly how the game mechanics work.

While players only need one pair of STEPN’s NFT sneakers to start playing, owning multiple pairs means they can earn more GST tokens. The sneakers generate energy every day, and every 5 minutes of movement will convert 1 energy point into GST tokens determined by the sneakers’ efficiency level.

Players who hold at least two pairs of sneakers can also mint new ones by burning GMT and GST tokens. "Virgin" sneakers that have not been used to mint new ones require fewer tokens, and the cost increases with each minting. After minting seven times, the sneakers can no longer be minted.

STEPN’s economic structure is similar to Axie Infinity , the first wildly successful play-to-earn game. In Axie Infinity, players breed Axies by burning AXS and SLP tokens, which are required to play the game and earn tokens; in STEPN, Axies become sneakers.

Both Axie Infinity and STEPN rely on new players joining to keep the game profitable for existing players. If demand for new sneakers dries up, their price on the secondary market will drop. This means fewer new sneakers will be minted, removing buying pressure from GST and GMT. Meanwhile, those who are already playing the game will continue to earn tokens to sell on the open market, driving the value of GMT and GST down in a race to the bottom.

If such a scenario sounds far-fetched, Axie Infinity saw a surge in popularity during the "Summer of NFTs" in 2021. As new players entered the game, the price and demand for Axies soared, and gaming guilds rented out their Axies to players who couldn't afford to buy one in exchange for a portion of their revenue. However, as so many players earned and sold in-game SLP tokens, their price eroded, making them less attractive to new players.

Eventually, the honeymoon period for Axie Infinity wore off, and the game struggled to retain players. Once the monetary incentive disappeared, fewer people played the game for the sake of playing, and demand for Axies and the tokens needed to grow them shrank. The price action of the game’s flagship AXS token sums up this story perfectly. AXS soared from $4 last May to an all-time high of $160 in November. Today, AXS costs less than $20.

However, unlike Axie Infinity, STEPN introduces some new mechanics in an attempt to balance its token economy. GST, an earnable token similar to Axie Infinity’s SLP, has more uses in the game besides creating new sneakers. Players need GST to repair sneakers (a necessity to continue earning money), unlock more sneaker slots, level up sneakers, and upgrade gems for sneaker upgrades. While this additional utility should help keep demand for GST high, thereby increasing player profits in the game, it doesn’t prevent the game from entering a death spiral after player growth peaks.

Additionally, since STEPN can limit the number of new players that enter the game through its invitation-based registration system, it has some control over how fast the game grows. This is integral to managing the STEPN economy. As Twitter user PhABCD recently pointed out, STEPN's sneaker inflation is currently growing at an unsustainable rate of 31,000% over the next year. To slow down the production of sneakers, the game's designers have two options: increase the cost of minting new shoes or reduce demand by slowing user growth.

By managing STEPN’s growth curve, designers can prevent it from spinning out of control temporarily. However, there will likely come a day when there aren’t enough new players, or when minting shoes isn’t profitable enough for existing users. At that point, STEPN’s economy will be in danger of disintegrating, which could collapse its tokens and NFT sneakers across the board.

Looking ahead

Although it may not happen in the next second or next month, previous play-to-earn games have shown that STEPN's current model is unsustainable. Unless the game makes drastic changes, collapse is almost inevitable.

With this in mind, the main goal of the STEPN team seems to be to keep the game alive as long as possible in order to profit from sneaker NFT transaction fees. According to a recent TechCrunch article, STEPN is currently bringing in over $100 million in transaction fees per month. If this continues until January 2023, when the STEPN team’s vested GMT tokens will begin to unlock, the money earned through the game will be almost as much as the total value of those tokens (at a market price of $1.3). As the team’s tokens gradually unlock until 2027, it is very likely that the majority of its profits will come from transaction fees.

Additionally, anyone associated with STEPN seems to be very cautious about who they talk to and who can contact them. Crypto Briefing has attempted to contact STEPN team members and ambassadors multiple times since we first reported on the STEPN game in March, but have received no response. The game’s creators seem more interested in getting STEPN into Web2 media like Forbes and TechCrunch than talking to Web3 media. The official email on the STEPN website is unresponsive, and anyone directly associated with the game on Twitter has had their DMs shut down. It almost feels like STEPN has anticipated the controversy and is trying to keep its operations as unaffected as possible before the storm hits.

Those who started playing STEPN early are earning tokens and their initial investment may have increased by several orders of magnitude. However, anyone who is just starting out may find it increasingly difficult to make a profit going forward. STEPN does make people money and encourages more people to adopt healthier, more active lifestyles. But will it be enough to retain players when the rewards dry up?