Author: @0x长安, @RealResearchDAO

***Supported by @iamsixsixsix_eth ***

Recently, STEPN's Shoeboxes exceeded $2 million transaction volume in 24 hours, and it was once ranked second in Opensea's volume.

Although STEPN has suffered a series of negative impacts and a downturn in the market recently, as the head product of the X to Earn model, STEPN still has proved its advantages to promote the development of its ecosystem.

As a phenomenal crypto product, STEPN not only leads the trend of other Move to Earn products in the industry but also a series of phenomena and problems in the development process that are worthy of consideration by the entire X to Earn model.

Reviewing X to Earn through STEPN

In October 2021, STEPN ranked 4th place in all blockchain games of the Solana Hackathon and won the official grant.

STEPN’s governance token, $GMT, was listed on Binance on March 10, 2022, which instantly ignited the enthusiasm of the entire crypto market. It rose from $0.1 at the just-launched level to a peak of $4.17, which was a crazy achievement in the bear market where funds have been fleeing out.

Then the X to Earn model led by STEPN swept the entire crypto market, raising a torch in the crypto market that was originally a cold winter. Various types of X to Earn products have also appeared in the market, and this new model has also brought more funds outside to the crypto market, allowing more people to enter this charming industry.

But the X to Earn products share similar problems with GameFi, and gold farming also makes the economic model unsustainable. What’s worse, in the early morning of May 27, STEPN officially announced that it would stop providing GPS and IP address services for users in mainland China, which led to FUDs from the Chinese users. This news has led to ​​a huge loss of potential players who were then ready to enter STEPN. The price of $GMT has also entered a death spiral phase.

From the Play to Earn led by Axie Infinity to today's X to Earn, the crashes in token prices are accompanied by doubts and uncertainties. Many people believe that X to Earn led by STEPN is a pure Ponzi scheme where all the money earned is from the predecessors. It is a type of Ponzi scheme without any innovation and improvement.

But is it so? Is X to Earn just a GameFi Ponzi under a new disguise, as everyone said? Is the X to Earn model unsustainable, and the token prices will eventually die in a spiral?

This article will provide an analysis of the two models of GameFi (Play to Earn) and X to Earn from their respective underlying logic.

Compared with GameFi, X to Earn can reach more users

Let’s take Axie Infinity and STEPN as examples, the differences between the two are mainly reflected in the following three aspects:

X to Earn is easier to trigger a sense of identity belonging

• The users of Axie Infinity are often people with lower living standards in Southeast Asia, who regard gold farming in Axie Infinity as an important source of income to replace jobs in real life. However, Axie’s gold-farming playstyle is less likely to attract users from the middle class, who are more inclined to trade Axie NFTs instead of Play-to-Earn.
• In comparison with Axie, STEPN’s user base is mostly from developed countries or regions with more affluent incomes. Aside from Play-to-Earn, the concept of healthy lifestyles behind running and the concept of feeling “cool” behind holding NFTs just perfectly match the logic of those who are young and wealthy. The most typical example would be Zhu Xiaohu, the managing director of Jinshajiang Venture Capital Fund, who also bought STEPN shoes, stating that STEPN “has the opportunity to achieve success, not necessarily a Ponzi, it is worth experiencing and learning”. This is enough to prove that STEPN can be approved and gain attraction from high-income people.
• In general, STEPN success is greatly influenced by the SocialFi element it contains.

X to Earn is easier to motivate certain behaviors in real life. Different Xs bring different user experiences.

• Take STEPN as an example, it is known as the Web3 version of Keep. It can motivate users to exercise after they paid to buy the NFTs. When energy is recovered every day, it can be understood that the DApp is reminding you to exercise. And tokens can be used as incentives to encourage users who are easy to give up on exercising.
• Users can also be more healthy in the process of making a profit. GameFi, on the other hand, requires computers or mobile phones all the time to earn money. Due to the low playability of GameFi at present, it is difficult for players to experience any fun from it. Users will have to go through repeated processes like they are operating the steps like an assembly line every day like a robot. Their experiences can be said to be very boring and meaningless.
• In GameFi, when the playability is not strong enough, the only incentive to attract players to continue to play the game is the money incentives which cannot sustain for a long time. Even GameFi products that are as strong as Axie, will collapse one day.

X to Earn has a more mature market

• A very important factor for the success of STEPN is that there are a large number of potential user groups in reality, and everyone can be a potential user. In order to motivate themselves or their family members to exercise more, many people hope that a DApp can bring health to their families, which further promotes the consumption demand.
• Although playing games have a large number of user groups around the world, in different games, the gameplays and experiences are also very different. Real-life behaviors such as reading, sleeping, running, and other acts, are simpler than playing games. Therefore, in terms of market acceptance, GameFi is also difficult to catch up with X to Earn.

The success of the project can only be supported when the potential user population is large enough. Making a profit in STEPN is either through walking or running. Users can choose the type of NFTs according to their preferred exercise methods, to perform gold-farming behavior. Users can use it on their way to work every day or on their way for a casual walk. Walking is not a chore at all, and users are willing to pay for it.

It is worth noting that this is the biggest advantage of X to Earn, but also the biggest problem: the limitation of market demand for a user's behavior determines the development and launch of the X to Earn projects.

X to Earn has the underlying logic that is against human nature

There are currently two limitations of X to Earn:

• The natural market share limitations of a single behavior

  Let's take “Let me Speak” as an example. As a product featuring Learn to Earn following STEPN, it used to gain much attention in its initial operation. But soon, the price of its NFT plummeted from 250 USD to around 40 USD (take Rare rarity as an example).

  In addition to operational issues and industry impacts, we also need to pay attention to the irrationality of the logic of Learn to Earn itself.

  Let me Speak is a gimmick to learn English. However, English is the language that is used in most countries and the most widely used in the world. It is difficult for people in many countries whose native language is English to be interested in such products. Therefore, this DApp excludes such users. There will be fewer potential users, and there will be insufficient potential users, which is naturally not enough to maintain the ecological balance.

  Although X to Earn has improved a lot compared to Play to Earn, the actual product issues and the underlying logic have not changed. There are still some intractable problems at the deep level of products and X to Earn.

  In addition, BikeRush, which advocates Bike to Earn, also has the impact of market audience limitations.

  Compared with walking, the way to make money by riding a bicycle has a higher entry barrier (you have to physically have a bicycle). According to the data on the number of bicycles in the world, about 300 million people own bicycles. Although this number is large enough, compared to the total global user base of 7 billion, the market share of biking to make money is significantly weaker than walking and running.

• The anti-human nature of X to Earn itself

  When the actual behavior of X to Earn is cumbersome and takes a long time, will the users experience the DApp just for the benefits of making gold? This requires more thorough thinking.

  Let’s take BikeRush as an example. Bicycles often appear as a means of transportation. When everybody is busy and cycling is not one of their hobbies, will bicycle holders really give up their off time just to participate in the project? Will they spend a lot of money to buy a bicycle to experience it?

  Due to the limited user group and the anti-humanity participation model, it is difficult for BikeRush to absorb more potential users, which also causes its token $BRT to reach its peak just after its launch, then falls from $0.5 to $0.05, now almost returns to zero.

  The embarrassing situation of BikeRush is also evident on Let me Speak.

  In traditional industries, there are also such apps for learning English. The users of these apps are often students, who need to use this kind of application to improve their English proficiency in order to pass the exams. Therefore, the demand is driven by exams. Students keep studying just to improve in the exams, and there are no more extra goals to drive users to keep studying.

  From the age distribution, it can be seen that the users of traditional Web2 English learning apps are relatively young, and most of the users under the age of 19 are students. They use the apps in order to pass the tests, and such users concentrate on learning and have few information channels, which can not be considered as potential users. In the age group between 20-29, the composition of user identities is relatively wide, which includes postgraduate students, vocational examinations (civil servants), hobbies, etc. Users in this age group may become potential users of Let me Speak, but it is also possible that due to Let me Speak’s limited word bank, it is impossible to set up different demands according to the examination requirements of different countries. Users pursue targeted learning, thus giving up this Web3 app.

  To sum it up, the probability for the original English-learning application users to adopt Let me Speak is low. Users who are attracted by the money incentive might become potential users, but the retention rate of such users is not high, since high returns are often difficult to maintain. When earnings fall, this group of users will also exit.

X to Earn is not an exclusion of the narrative logic of financial returns

Before discussing the topic, let me tell you a story. There was once an old man in front of whose house is a public green space. He liked to enjoy the sun in this green space very much. But one day, a group of children came to play in the grass. It was very noisy and the old man wanted to drive these little kids away.

So the old man came up with a solution. In the first five days, he gave each child who came to play 10 dollars;

From the sixth day, the old man's reward for each child who came to play was reduced to 5 dollars. Although these children were a little unhappy, they accepted it;

On the tenth day, the old man only gave 1 dollar to each of the children who came to play. The children finally left the green space in anger because of the significant drop in expected income.

We can tell from this story, that when habits are financialized, when the return of funds decreases, even if it is a hobby, the decrease in the reward will lead to a decrease in interest. When the reward advantage is no longer significant, people lose interest in such activities.

If it’s you, there is a stablecoin mining protocol with an annual rate of 5%, and a Move to Earn project with an annual rate of 7%, which would you choose?

I believe most users will choose the former. Because the former only requires players to stake assets once into the pool, and it can be done once and for all. Compared with the former, the latter does not have a big advantage in terms of return, and it also requires users to put in energy and physical effort to earn the return.

In the previous part of the article, we explained the anti-human logic of X to Earn itself. What sort of remedy can cover up the anti-human logic? The answer can only be rich rewards.

Human desire is controlled by dopamine. Dopamine is a neurotransmitter with three major functions: motor control, behavioral control, learning, and memory, among which behavioral control is the motivation system. Our brains rely on the motivation system to govern our behaviors. The motivation system can be divided into a reward system and a punishment system.

The reward system is dominated by dopamine to control desire. When the capital return is rich, human beings will tend to play games due to dopamine secretion. The secretion of dopamine depends on the reward of things, which is positively related to the capital return. The desire for “what I need” is what drives people to stick to exercise.

Of course, if we keep doing something repeatedly, the stimulation threshold of dopamine will become higher and higher, and the secretion of dopamine will become less and less. When the price of a token cannot drive the secretion of dopamine, our desire for this event will also be reduced, which will naturally lead to the eventual "never come again" phenomenon.

Crypto mining is another type of such activity. POW miners not only need to pay for the mining machines but also need to pay high electricity fees when mining. This leads to unprofitable miners turning off their machines when the price of the currency falls and the revenue cannot cover the electricity bill.

From the perspective of capital efficiency, this phenomenon exists in any field. People tend to seek investment products that are simpler, easier, more sustainable, and more profitable. X to Earn and GameFi share something in common. The economic stability comes from the players who enter the game later. They buy the NFTs or tokens of the game to cover the spending for the players who entered the game early, thus driving the cycle forward. When the number of players who enter the game later decreases, the price of the token will fall, causing a death spiral for the product.

Both Axie Infinity and STEPN have carried out a series of governance attempts to optimize their value transfer process, but not surprisingly, they both went into a downward spiral.

Therefore, under the same APR conditions, people tend to pursue more stable and deterministic products. And under the conditions of the same income, for people who do not like running or sports, is it better to choose a project according to their preferences?

X to Earn does not have a dedicated consumer group, nor does it create inner value. This is why people always call this type of model a Ponzi.

So how to understand the consumption attributes of products? In a real-life gym, after applying for membership, there are still many users who do not work out often. When their membership expires, I believe that the funds invested by the user can be regarded as a consumption attribute. The more people there are, the more profit it is for the gym. It neither consumes the time of the fitness trainers nor uses the fitness equipment in the gym. At the same time, it also provides a cash flow.

And how to understand the creation of inner value? The essence of X to Earn is   Proof-of-Work, which quantifies people's actual behaviors and issues token rewards. For example, DiDi Taxi in real life can be regarded as Drive to Earn. Assuming that the driver mints a car NFT, he will earn by taking passengers every day. If the passenger needs to travel, he will pay for the driver. This consumption demand is a steady stream of funds that will be injected into the ecosystem to maintain its stability.

Conclusion

From the very beginning of Play to Earn to today's Move to Earn, the X to Earn model has changed from virtual reality at the very beginning to a combination of virtuality and reality, and is gradually integrating more with reality. It is foreseeable that various modes of X to Earn will appear. From the original Move to Earn to now Sing to Earn, various interesting in-real-life activities will be gradually introduced into the crypto world.

The X to Earn model is creating a new type of incentive model for the real world. Thus, I do not easily deny the availability of the X to Earn model, even though there are many X to Earn products that can not generate inner values and sustainable ecosystems. On the contrary, X to Earn pioneered the use of workload results to prove the size of user contributions, and distributed rewards accordingly. The redistribution of benefits of Web2 is reshaped, and the benefits originally belonging to participation are returned to the participants themselves.

I believe that one day in the future, on-chain applications can also serve real-life jobs. The X to Earn model is designed to quantify everyone's work and serve everyone. X to Earn is not just simply another model of Play to Earn or an unsustainable new model promoted by the bull market. The emergence of STEPN still has certain significance in guiding this still new model.

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