Vader Research: Why is the STEPN crash inevitable?

This article explains in a data-driven way why the STEPN bull case argument won’t stop sneaker prices plunging in GMT, GST. Game developers and early investors may end up getting rich, and the STEPN brand name may still have some value, but that won’t be reflected in GMT, GST, and sneaker prices in the long run.

After previously analyzing the  token economics of Axie Infinity , Pegaxy, Thetan Arena, Luna and predicting their collapse, Vader Research is very confident STEPN’s model is not sustainable either, with GMT, GST and sneaker prices eventually collapsing.

Vader Research: Why is the STEPN crash inevitable?


STEPN is a run and earn game that rewards users with cryptocurrency for their daily outdoor workouts. It has more than 500,000 users and a transaction volume of $8 billion. STEPN has a dual-token economic model similar to Axie Infinity: GST (SLP) is an uncapped utility token and GMT (AXS) is a capped governance token.

Users need to purchase virtual sneaker NFTs to start earning GST through daily activities. STEPN does not sell sneaker NFTs, they are minted by existing sneaker NFT holders who can mint new sneaker NFTs by paying a casting cost set by STEPN – similar to Axie ‘s breeding cost. The cost of minting is usually denominated in GST and GMT, which is then destroyed.


The amount of GST a user can transfer per day mainly depends on the number of sneakers each user has, but there are other factors such as sneaker level, rarity, attributes, types, additional gems, etc. The amount of GST earned per day is limited by daily energy per user.

To maintain or increase GST income, users should continually reinvest GST back into the ecosystem by buying shoe repairs, leveling up, buying gems, etc. All with the expectation that they will earn more. “If I buy this $10 gem now, I can earn an extra $30 in the next 15 days” or “If I don’t spend $5 on shoe repairs now, I’ll earn 20% less later . ” These are textbook-like behavioral economics strategies that drive users to make purchasing decisions.

A STEPN user who owns 3 regular sneakers can earn around 20 GST per day net after purchasing an inflation bank (repairs, upgrades, etc.). Every time a sneaker is minted, about 200 GST is burned. The GST payback period for sneakers is 30 days (3 sneakers*200 GST/20 GST).

That’s a net 2.2k GST per sneaker out of thin air in a given year. In other words, every new pair of sneakers creates 2.2k GST inflationary pressure on the economy. The current sneaker price is around 5 SOL , which is slightly more than the minting cost of 200 GST. Assuming constant GST prices, the 1-year return for a sneaker buyer or mint is about 10x.

We assume that the average user owns 3 normal sneaker NFTs , but this is not the case, as there are various sneaker rarities, and the user may own more / less than 3 sneakers  this may result in each user generating higher / lower net GST . That said, the numbers are more or less similar, and even with the example of 3 common sneaker NFTs, we can get a sufficiently accurate picture of STEPN’s economic health.

Ponzi death spiral

By now, it’s clear that offering payback periods as low as 30 days and annual returns as high as 10x is not sustainable. But where do these gains come from?

As seen in every Ponzi scheme, the gains come from new capital inflows – for STEPN, these are new sneaker buyers/minters; the sneakers they buy/mint translate into more GST burn, This translates into higher GST prices, resulting in higher returns for sneaker holders.

The main killer of every Ponzi scheme is to slow down new capital inflows because every Ponzi is driven by new capital inflows. If a Ponzi scheme drains new capital inflows, it collapses. If STEPN’s sneaker casting growth slows, GST prices will gradually fall, resulting in lower earnings. As a result, the economy relies on new capital inflows to maintain returns (and GST prices).

The bigger the Ponzi, the harder it is to attract daily new capital inflows to maintain returns. For example, “Now we have to pay $10 to 1 million users, instead of paying $10 a day to 1,000 users. So we need to attract $10 million, not $10,000 a day.” With Pang With the growth of swindles, this number has grown exponentially.

Therefore, if growth is controlled to a certain extent, a Ponzi scheme may continue for a relatively long period of time. That’s what STEPN has been doing. STEPN has been limiting the number of new users who can enter the ecosystem with invite-only activation codes, which has also led to the growth hacking style hype surrounding STEPN.

However, once the demand for controlled growth dries up as the number of users matures, the real challenge begins. STEPN needs to find more users to maintain Ponzi economics, and there are two warning signs that STEPN is already struggling to grow; activation codes and guilds. Activation codes used to be hard to come by, but that has changed in recent days.

Learn what happens once growth matures and slows.

Vader Research: Why is the STEPN crash inevitable?

Once the economy hits a peak in users and struggles to attract the same growth rate of new capital, there will be less sneaker minting and therefore less GST consumed. This will result in more daily net GST minting, increasing the GST circulating supply. As sneaker holders cash out their daily earned GST, the growing GST supply/inflation will put selling pressure on GST prices, causing GST prices to drop.

Sneaker prices are related to GST prices as minting costs are determined in GST. Lower GST and sneaker prices will result in lower APY returns for sneaker holders. This will lead to lower growth as now users may not want to take risks with lower returns, and some existing users may even churn as other apps that mimic M2E may offer higher returns. This death spiral will continue forever because GST can be infinitely minted like LUNA .


STEPN has communicated plans that it will enable a delegation/lending model, which will lead to guilds/speculators expanding sneaker NFTs and lending them to users in low-income areas.

Vader Research believes that guilds will extract value from STEPN’s economy and make it more unsustainable. Why?

Guild = stipend student

Existing STEPN users may be spending their money on deflationary pools because they can afford $1,000+ sneaker NFTs in the first place, but stipend students don’t have the financial means to buy them. They treat play/exercise activities as work. For them, running 40 minutes a day with STEPN for $4 is an alternative part-time income. Academics are in a very tight financial situation and often cash out their daily earned GST as quickly as possible to cover their living expenses.

Involving guilds in STEPN is like going with the devil, they will bring much-needed short-term working capital and will artificially inflate DAU figures, but the long-term economic impact of inviting guilds will be irreversible .

unit economics

Before jumping into the bull market argument, let’s introduce a framework for corporate sustainability. At very high levels, a business is sustainable if revenue exceeds unit expenses. Common metrics used to assess unit economics are Lifetime Value (LTV) and Customer Acquisition Cost (CAC).

I developed a free mobile game at home and released it on the App Store. I spent $100 on a Facebook ad and got 100 users → I spent $1 ($100/$100) to get a new user. Therefore, the CAC is $1.

The average user plays the game for about 7 days and then starts to churn. The game has no ads, but profits from users by selling cosmetics. Average player spends $1 a day on cosmetics → I made $7 from new users ($1*7). So the LTV is $7.

It cost me $1 to acquire a new user, and I made $7 from that user → $6 profit per user. This is a great money making business and I should spend more money on advertising right now to get more users.

Let’s assume LTV is not $7 but $0.5 → then this will not be a sustainable business as I will lose $0.5 per ad spend per user. It’s a losing business and I shouldn’t spend any more money on advertising.

Unit Economics at STEPN

How does unit economics apply to STEPN?

STEPN users are mainly attracted and retained through token incentives. In the previous section, we calculated that a STEPN user with 3 normal sneakers puts 6,600 GST worth of pressure on the economy over a year.

Therefore, STEPN’s 1-year CAC to acquire/retain this user is 6,600 GST ($12,000). Unlike F2P mobile games, this is not a one-time fee, but an ongoing annual fee, because if STEPN reduces the token incentive to 0, users may switch to another M2E project with a higher token incentive. Therefore, STEPN’s 3-year CAC for acquiring/retaining new users is 20,000 GST ($36,000).

These CAC figures then translate to $12,000 and $36,000 at current GST prices. Anyone familiar with unit economics for consumer applications knows that these are astronomical CAC figures.

STEPN can only be sustainable if users can generate more revenue over their lifetime (LTV) than CAC. Even if the healthy ratio is a minimum 3x LTV/CAC ratio, I think a 1x ratio can be maintained.

Let’s look at the revenue/LTV side. What are the existing and potential revenue streams?

Market Fees → Every time a market transaction occurs, the economy collects a tax. This is usually a 5% tax. A user with 3 regular sneaker NFTs typically pays STEPN 100 GST ($180) per year in market fees .

Deflation → The deflation library is not active yet, but assumes that users can buy custom sneakers/cosmetics sponsored by brands/influencers (Nike, Prada, etc.). This is a social signal-driven behavior that is very common in MMO games. The average Fortnite user spends $86 a year on virtual items. Just like in the F2P industry, some players will spend thousands of dollars on deflation sinks and some will spend nothing, let’s multiply Fortnite’s data by a factor of 10 and assume the average STEPN user will spend on deflation sinks each year on average $860.

Advertising Revenue → Consumer brands (shoe makers, fitness equipment products/services), crypto apps (DeFi, GameFi, L2s), nearby retail stores (restaurants, grocery stores, retailers) are willing to advertise their product service. Therefore, they are willing to pay for their attention. But how much will they cost? Meta earned $242 in ad spend from the average North American user. STEPN has a more targeted user base, so we assume STEPN can generate 4x the revenue of Facebook, or $1,000 per user per ad.

This makes annual revenue per user about $2,000. We are more than $5000 away from CAC. Let’s add a 66% premium to life insurance revenue, sweepstakes/lottery, retail referral revenue, and other ideas, and we’ll get $33,000 a year per user. Based on these figures, the unit economics are clearly unsustainable as the 1 year LTV is $3300 and the CAC is $12000.

Remember, these revenue figures are final state figures. The 2 main issues are:

What is the probability that STEPN will achieve these revenue per user goals?

More importantly – how long will they take?

The second question is critical because STEPN is a ticking time bomb. The longer it takes STEPN to achieve these revenue goals, the more likely it is a Ponzi scheme , as STEPN will struggle to attract new capital inflows while competitors will offer better returns.

in conclusion

STEPN could be a good brand as it has built a strong brand awareness, but we don’t think that justifies GMT’s worth over $6 billion as STEPN is currently running an unsustainable Ponzi scheme that will compete with GST, GMT collapsed along with sneaker prices. Also, ownership of GST, GMT and sneakers may not allow the potential developer company or STEPN brand to succeed in the future.

Bear market case: In a bear market context, we believe that STEPN’s Ponzi scheme has a 99.95% chance of collapsing, v

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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