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Stepn Revisited: Market Repricing and the Core Use Case
Stepn faces its first reckoning. Jerome Powell & Co. are bringing the party to an end. All risk assets are selling off as we brace for Quantitative Tightening. Bracing begins with selling. Sustained selling pressure puts new assets in a difficult place.
When Stepn found its earliest adopters, the app’s tokenomics were such that those users were making tons of money for participating. Most of this was price appreciation from new users buying into the app’s assets. Obviously, this creates an unhealthy dynamic where early users are making profits from new users. There were articles about people earning $400 a day for running outside. The most self-aware of those early adopters would admit this was unsustainable.
The old saying is still correct: “there ain’t no such thing as a free lunch.” The money has to come from somewhere, so where is it coming from? Using the technology adoption curve, we can show the cycle that happens for nearly all new things.
Here’s what happens: Early adopters enter when supply and demand are stable (but low), with low entry prices. As the curve progresses to the Early Adopters and Early Majority, rising demand and stable supply cause the price to rise. Early investors see their asset prices appreciate dramatically and move to take profits. Selling pressure from this profit-taking is absorbed by the demand flooding into the market from the Early Majority and, in some cases, the Late Majority. To enjoy the same asset price appreciation, later investors would need an influx of even more demand. But there is no more demand because the curve is heading down it backside of the slope. At this point, supply expands, or demand wanes, and the price stagnates or falls—leaving later investors in the red.
This is the Greater Fool theory. It’s also where the term “bagholder” comes from, to mean the investor left holding the asset when it falls in price. They take the loss, the other side of the early investor’s gain. The lesson here is that speculating if you aren’t an Innovator or Early Adopter is risky. It’s very difficult to know when the music is going to stop.
How do you know which category you’re in? If you’re an innovator or a laggard, you would know it. For everyone else in the middle of the curve: Who told you about it? If it was an innovator, you’re almost certainly an early adopter. If it was an early adopter, maybe you’re in the late half of the early adopters, but more likely, you’re in the early majority. If you read about it in the corporate media, proceed with caution.
A Kite Dancing in a Hurricane
Looking at the graph below, Stepn’s new daily active users (DAU) begin to slope downwards into June. Decreasing users is never ideal, but it is not entirely unexpected, given that Stepn is saturating the market for its current position on the adoption curve. The slow retention shown by the widening light blue band indicates a growing contingent of returning users.
Price action for GST, Stepn’s in-game currency, has steadily declined along with all other assets. As the exchange price for GST/fiat drops, it becomes more valuable for its use in the game. This incentivizes users to use their GST of taking an unfavorable exchange rate on the open market. This phenomenon plays out in the increasing returning DAU count that inverses the exchange price.
Put GST’s price chart in the context of the broader crypto price action over the past week. Below is ETH’s chart.
… and below is the S&P500. Note the two most recent candles.
As an aside on financial engineering, the paper below lays out the monetary strategies that happen at the highest levels of the government. (A few years after publishing this paper in 1998, Mankiw was named the Chairman of the Council of Economic Advisers in the Bush administration. Every administration since then has adopted the policy laid out within).
If you don’t have a JSTOR subscription, here is the relevant quote.
“We call [U.S. deficit spending] a Ponzi gamble because it is an attempt at a Ponzi scheme—a perpetual rollover of debt that is not certain to succeed.”
Back to Stepn.
Stepn’s in-game assets are likely experiencing the fallout from a tulip-adjacent bubble. The question is whether the app has a user base at whichever prices the market is able to find.
The Layers of Stepn
Everything laid out up to this point has dealt only with the in-game assets through the lens of speculative risk assets. Speculation is a behavior that can be projected onto any investable asset: Buying in hopes of profit, with the risk of loss. But Stepn is interesting more for its use case than its assets. The use case has layers, so let’s lay them out below.
Layer One: A movement tracking app
This is Stepn’s core product. You can use the core product without buying a shoe (or anything else) from the marketplace. You download the app, make an account, lace up your (actual) shoes, hit start in the app, and begin running or walking. The app will map your route, provide distance and speed totals, and even color-code the line you create on the map according to your movement speed. But that’s just Strava, you say.
Yes, so let’s go deeper.
Layer Two: A marketplace for in-game assets
Okay, so up to now, we have “web3 Strava.” Beyond the core route-tracking app, Stepn has a mechanic that allows users to own unique, scarce “shoes” with stats and traits. When a user equips a shoe, the same movement they were doing before now produces a reward depending on several factors.
If you equip a ‘walking’ shoe and go for a walk, you earn the in-game token GST. The GST you accrue for moving can be used to level up your shoe, repair it after use, unlock traits, and more.
Layer Three: Real Assets
Many products have in-app economies, but it’s all just monopoly money. Here’s what sets Stepn apart. GST has liquidity on exchanges. You can trade your earned GST on the open market. You can also exchange shoes for SOL. This is what Stepn is building, which is more than just a run-tracking app or speculative assets. Because the in-game economy is tied to the larger crypto economy, user activity can be priced by the market.
Using the App
Market connection is a major change from web2 apps. Old apps would “gamify” actions. web3 attempts to connect in-game economies to real markets.
I’ve been using the app for a few weeks now. Here’s what I can say.
Think in Terms of Spending, Not Investing
This is where most people trip up. They overinvest or try to speculate to get a return. I wouldn’t think about the app this way.
A healthier strategy is to consider any money you put into Stepn as “money spent.” I bought a shoe for ~3.8 SOL when SOL was at ~$40, so call it a $152 purchase. I don’t expect to see that $152 in cash ever again. I compared it to a year’s subscription for a web2 fitness app. In my mind, I’ll never see that money again. In reality, it’s there in the app, I could list the shoe for sale and potentially recoup the purchase price.
The screenshot below is from this morning. I was out for an hour or so and turned Stepn on for a few minutes. Earning is based on current energy, and I only had 1.6 accrued this morning. So I had Stepn tracking for around ten minutes. It’s worth reading Stepn’s docs to fully understand the energy and earning mechanics.
You can see that I earned 4.9 GST for my ten minutes of movement tracked. At current market prices, 4.9 GST = $1.35. At GST’s all-time high (ATH), 4.9 GST would have been $38.41.
With one shoe at current market prices, I can max out my daily energy for roughly 8 GST, or $2.26. With three shoes, the max earnings would be 16 GST/day, which is $4.43 at current prices or $136.16 at the ATH.
The only point of mentioning the ATH prices is to give a sense of where the market has been over the past few months. We may never see the ATH prices again. Also, there are mechanics built-in to control daily GST earnings. You can’t earn tens of thousands of dollars by walking for 14 hours daily. Again, best to read Stepn’s docs before diving in.
The Power of Small Incentives
So, a market price for walking and running outside. Not life-changing, but interesting. It’s not about ‘points’ earned, which are only good for status games. Now we can see if web2-style apps have a future if they are connected to real markets—which is one of web3’s visions.
It’s not about making lots of money. You might end up breaking even over time. You might lose money. Who knows? All I can say is the market connection makes the app compelling. Maybe this is overfinancialization. Or maybe there is a future for useful apps, that users like, which are connected to markets that aren’t limited to fake in-game point systems.
I’ve noticed that testing the app is making it easier to move more. Perhaps this is because its new and novel. Maybe it’s because there is something more here. I still work out (earning nothing) for the intrinsic reward of being healthy. But I also think that web3 has new ideas to bring to the table.
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This is not financial advice. It is not a solicitation to buy or sell any financial asset. Investing involves the risk of loss. Past performance does not guarantee future results. This post is for informational purposes only. Do your own research and consult with a financial advisor if necessary.