Legal risks that must be noted behind the popularity of StapN

Compared with the popular tracks such as Metaverse, NFT and DeFi, GameFi has always been in an awkward position in the big family of crypto assets. Although the leader Axie Infinity led a group of younger brothers such as Splinterlands and Alien Worlds to attract a lot of traffic in the second half of 2021 with the relatively novel P2E (play to earn) model, exquisite IP illustrations and certain playability, it successfully got a share of the pie, but compared with the NFT digital collection platform next door, which is so popular, it is a little lonely.

Who would have thought that in 2022, when NFT was caught in frequent thefts, piracy, money laundering and other turmoil , the GameFi track reversed its decline, and StapN, like a dark horse that had been accumulating momentum for a long time, rushed into the mainstream vision . Even my roommate (a running enthusiast who runs an average of 5km a day), who has no interest in the crypto asset circle on weekdays and doesn't even understand the concept of blockchain if it weren't for the author's daily talk, secretly asked the author a few days ago about " a foreign APP that is popular recently and can make money by running ". So far, StepN's popularity can be seen.

So, is the currently popular StepN a gold or a rag? Are there any legal risks hidden behind it? Today, the Sajie team is here to have a good chat with you.

1. What kind of magic does StepN have and where does it come from?

According to the white paper on StepN's official website, we can see that the project is a Web3 product that includes Game-Fi and Social-Fi elements. Players can make profits through M2E (Move to Earn). Also according to the white paper of the project, StepN has ranked fourth among more than 500 projects in the 2021 Solana Ignition Hackathon. To put it simply, this is a GameFi, which just moves the way of earning game tokens from pure online to offline, through running. Users buy NFT running shoes to run (walking, strolling, etc. are also OK, as long as they move normally), and users will get game currency, which can be used in the game or cashed out for profit .

In this project, users can obtain two tokens: game token GST and governance token GMT.

Basic gameplay ✦

In fact, StepN is not difficult to play, and the basic game logic and profit logic are not much different from many old GameFi. First, we need to create or import a SOL wallet and buy NFT sneakers in StepN. Currently, SOL is used to buy shoes in the in-game market. According to its white paper, it may be changed to direct on-chain purchase in the future.

After buying the shoes, you need to wait until you have enough energy before you can start running to earn money (physical strength system). It is generally set to restore energy at a rate of 25% every 6 hours (energy is basically restored in four time periods: 03:00, 09:00, 15:00, and 21:00).

Of course, the way to make money by playing (or "making money by moving") this game lies in these NFT sneakers, which is very similar to the weapon crafting in traditional web games. First of all, the quality of shoes is divided into high and low levels, from common (also known as the lowest threshold "gray shoes"), uncommon, rare to epic, and legendary, the quality increases in sequence. The higher the quality of the shoes, the higher the attributes, and the higher the efficiency of earning profits . Among them, the shoes also have a durability system. When the durability decreases, users need to use the earned GST to "repair", and the repair will consume the user's GST. In addition, the comfort value of the shoes can increase the GMT (governance token) income after the user reaches level 30; the luck value increases the drop rate of mysterious boxes; the elasticity value can reduce the cost of repairs...

Secondly, there are various types of attribute enhancement systems. Users can also use the slot system and gem system to enhance the various attributes of sports shoes. In general, you can earn GST by buying shoes and running, and then use GST to upgrade shoes to earn more GST and GMT. The gameplay is not complicated. Recently, the author found that StepN has raised the entry threshold in order to increase the project life cycle and achieve healthy operation. Only activation codes can be used to participate in the project . At present, activation codes from official channels are not easy to obtain.

From P2E to M2E, is it more fun?

In previous articles, we believed that the biggest problem with GameFi’s failure to become popular was that it was too investment-oriented and too low in playability . In fact, most GameFis can be seen as an investment product rather than a game. Players have unknowingly become mechanical gold-making machines, and their level of hard work in the game is even worse than that of working a 996 part-time job. They have gone from playing and making money to being a 007 worker in the virtual world. So, as StepN, now known as GameFi 2.0, has the balance between investment and playability been solved?

StepN's solution is " SocialFi ", that is, StepN wants to transfer GameFi's traditional online model to offline, and realize long-term multi-level consumption in a community by creating a healthy and low-carbon lifestyle to ensure the "lifespan" of the project. In addition, StepN attempts to redefine the entertainment of GameFi, transforming it from a simple computer game to a higher level of satisfaction achieved through social interaction and sports. In other words, StepN pursues a higher level of spiritual pleasure .

Many readers may have doubts about this: Can running alone provide a higher level of spiritual satisfaction? In fact, although the method is simple, it actually works well . Recently, StepN announced that its market value exceeded $1 billion. It is precisely by relying on this concept that it has become a new unicorn company (a term in the investment industry, generally referring to a company that has been established for no more than 10 years and has a valuation of more than $1 billion). 12 institutions including An and Shan publicly announced strategic investments in the StepN project. An unconfirmed news: The amount of financing this time is $50 million, and the market value is $1 billion. In addition, StepN's popularity is inseparable from the generous marketing of its operating team. The team used all its profits of about $26 million in the first quarter to repurchase GMT and destroy it, ensuring the continued vitality of the StepN project. At present, the total number of downloads of its APP has exceeded 1 million, and the number of daily active users has exceeded 200,000.

It is certainly a refreshing idea to switch from online to offline and obtain higher spiritual satisfaction through sports and social interaction. As Mr. Zhuo Cheng said, StepN's success is inseparable from the selection of niche tracks, the satisfaction of user needs, the rapid development and implementation of the team, the thinking on models and gameplay, the "tap water" of a large number of industry leaders, and the support of a certain security. In addition, the Sajie team currently believes that the "SocialFi" claimed by StepN is not obvious, and running alone cannot generate any social interaction. How StepN will go in the future, we need to let the bullet fly for a while .

2. Is the StepN model feasible in my country?

I believe that another question that readers are concerned about is whether the concepts such as "M2E" and "SocialFi" that made StepN soar to the sky can be implemented in my country? Is it legal and feasible? In fact, StepN's model is not new. Chinese people have already had many very similar attempts a few years ago. The most typical one is Moubu (now renamed Mouli Life).

According to public information, the gameplay of a certain step is similar to that of StepN: walking in exchange for candy (candy can be regarded as GST). At the beginning, users only need to persist for 30 days and walk 3,000 steps a day to get 11 candies. The number of candies obtained daily = 0.00008 × number of task steps × activity, among which each person's basic activity is 1, team +0.02, and recommending new user certification can get a 0.05 activity bonus. In 2019, a certain step changed the rules to require 45 consecutive days and 4,000 steps a day to get 12 candies. If you want to increase the output of candy, you need to rely on existing candy purchase tasks or "pull people" to increase activity.

This company was founded a few years ago. Seriously speaking, it should be considered one of the first projects to introduce the M2E concept. It still has a lot of traffic and popularity. The reputation of this company is currently polarized . Some people trust it very much, while others think it is a capital scheme. But the specific situation is unknown, and neither side has enough evidence to prove their point of view.

But what is worrying is that before the company changed its name in 2019, a reporter checked the Changsha Municipal Government website and found that the Changsha Economic Development Zone clearly responded to citizens in the citizen mailbox that a certain company and its project were suspected of online pyramid schemes, illegal fundraising, and financial fraud, and the Changsha Municipal Administration for Industry and Commerce Economic Development Zone has filed a case for investigation (note, not a criminal case). Later, there were rumors that the company's business license was revoked, its industrial and commercial registration information was changed, and it was unable to withdraw cash. So let's take a certain step as a sample to analyze the specific legal risks.

Does it involve the crime of illegally absorbing public deposits?

First of all, we should make it clear that "M2E" and "SocialFi" are pure business models and entertainment models. As long as they do not involve virtual currency transactions, they are not illegal in my country. Those who may incur criminal and other legal risks are actually those who use concepts such as "M2E" and "SocialFi" to illegally occupy other people's property from the beginning, or absorb public deposits in the name of novel concepts without the qualifications to absorb funds.

For such behavior, we believe that the crimes that may be involved include illegal absorption of public deposits, fund-raising fraud, organizing and leading pyramid selling activities, and in some special cases, there may also be suspicion of money laundering, tax evasion and gambling.

Judging from the marketing model of a certain step of the pioneer, "candy" cannot be bought and sold officially, but must be traded with other users through the official platform. During the user's use of the APP, the official actually directly collects the one-yuan real-name verification fee paid by new users when they register. So does its model constitute the crime of illegally absorbing public deposits or the crime of fundraising fraud?

The person who illegally absorbs public deposits must meet the characteristics of illegality, publicity, sociality, and inducement to constitute a crime, that is, the person openly absorbs funds from the public without being qualified. If a certain step promises users high investment returns and guaranteed principal and interest, it may be suspected of illegally absorbing public deposits . In addition, for the one-yuan real-name authentication fee collected by a certain step during the player's first entry, we believe that it cannot be regarded as illegally absorbed public deposits. First, the amount of one yuan is too small to generate substantial benefits for both users and the platform; second, the fee is not an "investment" but can be regarded as a "threshold fee". We will not discuss whether the collection of such fees is legal, but this behavior should not be regarded as absorbing public deposits.

Is it related to the crime of organizing and leading pyramid selling activities?

It is worth noting that the policy of developing users in a certain step is controversial. According to its rules, there are two main rewards for old users to invite new users: one is to increase personal activity, and the other is to increase contribution value. Specifically, each person invited increases 0.05 activity, and an increase of 1 activity is equivalent to 0.3666 more candies per day. The contribution value will cumulatively affect the transaction fee of users' candies. The higher the contribution value, the lower the transaction fee of candies.

According to the Regulations on Prohibition of Pyramid Selling, a certain step seems to conform to the prohibited pyramid selling model: the organizer or operator develops personnel and requires the developed personnel to develop other personnel to join, and calculates and pays remuneration to the developed personnel based on the number of people they directly or indirectly develop, in order to make illegal profits.

However, the Sajie team believes that the key to whether it constitutes a pyramid scheme is to look at: (1) whether the organization is organized into levels in a certain order, with three or more levels and more than 30 people; (2) whether the organization directly or indirectly uses the number of recruited personnel as the basis for remuneration or rebates; (3) whether there is any behavior of inducing or coercing participants to continue recruiting others to participate, defrauding property, and disrupting the economic and social order. Pure activity and contribution value rewards do not constitute the crime of organizing and leading pyramid schemes, but are a common reward for recruiting users .

Although this model does not constitute the crime of organizing and leading pyramid selling activities, the lessons learned from the past have also sounded a wake-up call for all platforms, and they need to carefully consider the specific development model when developing new users.

Is it an administrative violation?

In fact, whether it is "candy" or GST, it is essentially a token issued privately by a platform. If the platform allows users to cash out the tokens (exchange with legal currency) through their own platforms or other means after earning them, it is a violation of the "Notice on Regulating Virtual Currency "Mining" Activities" (hereinafter referred to as the 9.24 Notice) issued by 11 departments including the National Development and Reform Commission of China .

In addition, if you follow the StepN model and need to use virtual currencies such as USDT to purchase gray shoes (or other NFT items) when playing, it also violates the behavior prohibited by the 9.24 Notice. Not only will you be held administratively liable, you may also be charged with the crime of illegally absorbing public deposits or fundraising fraud.

Final Thoughts

In short, it is difficult to sum up the future of StepN in one sentence. Is the M2N concept of online and offline services a flash in the pan that will break through the homogeneity of market products and the marginal diminishing effect? ​​Or is it a gradually emerging trend? It will take a long time to observe before we can draw a conclusion. However , as to whether this model can be implemented in China, the Sajie team believes that it is necessary to analyze specific issues and be cautious .