Why STEPN will collapse? | StepN Is The Next Crypto Ponzi

Since last year, there have been bear market fears in financial markets, and the crypto space is no exception. In particular, the recent collapse of LUNA has exacerbated market concerns.

Many people think that STEPN will become a representative project of the collapse after LUNNA, because they all suddenly become popular with high returns, and the product logic is based on the expectation that more and more people will join.

So is STEPN a Ponzi scheme? Is the ending a crash or a bubble?

Introduction

STEPN (GMT) is a web3 lifestyle app designed with features like SocialFi and GameFi. They have efficiently succeeded in upgrading an old concept of exercising to move-to-earn which is currently fully functional and vastly popular in the blockchain industry. Build on Solana and BNB Chain.  It has more than 20k daily users active and is trading at $1bn. STEPN has a dual token economy model similar to Axie Infinity; GST (SLP) is the uncapped utility token, and GMT (AXS) is the capped governance token.

How It Work

STEPN NFT users can choose to participate and earn using three different STEPN app modes: solo, marathon, and background:

• Solo mode: In solo mode, a user can earn tokens by moving. Green satoshi token (GST) rewards depend on your level of physical activity and the rarity and attributes of the sneakers you own.
• Marathon mode: If users opt to participate in weekly or monthly marathon competitions, they must register for each race 24 hours before starting the event.
• Background mode: Users can earn GST without the app when they own at least one sneaker pair. When the STEPN app is off, background mode pulls the step count from the mobile device’s health data. Steps achieved in background mode will not reduce sneaker endurance.

Users can sell/buy or lease/rent NFT sneakers, gems and badges on the marketplace and can earn game currency by jogging, walking or running outside, which can be cashed out for profit or utilized in-game. The marketplace has a simple filter and sort tool for quick navigation. 

For instance, once your sneaker is ready, you can begin running and earning GST utility token rewards (rewards are distributed of the 30% of the supply that is set aside for this purpose). However, please note that STEPN has yet to operationalize the rental and the credit system.

Earnings

The number of daily GST that a user can earn is based mainly on the number of sneakers owned per user but there are other factors as well such as sneaker level, rarity, attribute, type, attached gems, etc. The number of daily GST earned per user is capped by a daily energy limit.

To sustain or grow the GST earnings, a user should constantly reinvest GST back into the ecosystem by buying inflationary sinks such as repairing shoes, increasing levels, buying gems, etc. — all with the expectation that they can earn even more — “If I buy this $10 gem now, I can make $30 more over the next 15 days” or “if I don’t repair the shoes now for $5 now, I will earn 20% less going forward”.

Ponzi schemes and the Ponzi model

STEPN is Ponzi, but when we discuss Ponzi, As seen in every Ponzi, yields come from new capital inflows — for STEPN those are new sneaker buyers/minters; their sneaker purchases/mints translate into more GST burnt which translates into higher GST price and thus higher returns for sneaker holders.

The main killer of every Ponzi is slowing new capital inflows as every Ponzi is fueled by new capital inflows. If a Ponzi runs out of new capital inflows, it will collapse. If STEPN’s sneaker minting growth slows down, GST prices will gradually fall, resulting in lower returns. Thus, the economy is dependent on fresh capital inflows to sustain the returns (and GST price).

However, the real challenge begins once the demand for controlled growth dries up as the user count matures. A sharp drop in the number of new users can be seen leading to a negative impact on the price of GST. STEPN needs to find even more users to sustain the ponzinomics and there are 2 warning signs that STEPN has started struggling with growth; activation codes and guilds. Activation codes used to be difficult to get access to but this has changed in recent days.

In the last 2 months, bad market statements have negatively affected projects, unable to attract much capital flows from individual investors. The price of GST continuously dropped. At press time GST is at $0.1945, down -97% from the peak of $6.83 on April 28, 2022 (according to coincu.com data)

Verdict

STEPN’s Ponzi model is destined to be unsustainable, and it will usher in a thunderstorm moment, and the skyrocketing or slumping GST price will trigger a thunderbolt. Although the STEPN team tried to revise the economic model to avoid a thunderstorm, it was still something that would happen sooner or later.

If you have any questions, comments, suggestions, or ideas about the project, please email ventures@coincu.com.

DISCLAIMER: The Information on this website is provided as general market commentary, and does not constitute investment advice. We encourage you to do your own research before investing.

Issac

Coincu Ventures