Web3 App Uses Crypto-Fueled Rewards to Get People to Exercise

All you could do is walk. That was what Yawn Rong realized in Adelaide, Australia, during the summer of 2021. Thanks to the COVID-19 restrictions, you were not allowed to drive anywhere. You were not allowed in bars. Just about the only thing you could do was walk. So Rong’s neighbors were walking more than he had ever seen in his life – walking dogs, walking babies, walking just to clear their heads.

Maybe he could turn this into a game? By then Rong, 38, was an entrepreneur with a wacky resume. He once worked a McDonald’s night shift, he worked at an Australian mining company (digging for zinc and gold, not bitcoin), he launched a Vietnamese restaurant franchise and he co-founded a crypto investment and trading fund. So why not create a walking-based game?

Along with his neighbor and friend Jerry Huang, who ran a computer game company, Rong had the idea of creating a kind of Super Mario Brothers game that incorporates real-life walking. Instead of moving Mario from left to right on the screen, you would see the game from a first-person perspective and you would actually walk through the game’s levels. And this would all be done outside to make it COVID-friendly.

They wrote a white paper. They called friends and investors. As Rong now describes it, the feedback was clear: “It’s a stupid idea.”

So they streamlined it. Rong and Huang scuttled the game’s storyline and focused on the core concept: Just walk. Get rewarded. Move to earn.

The idea would evolve into Stepn, which the founders now describe as a “Web3 lifestyle app,” that uses crypto-fueled rewards to get people to exercise. Stepn hit Apple’s App Store in early 2022. To make this happen, Rong says he and the team worked “seven days a week, around 15 to 20 hours a day.” And over the next year, while it seemed like most of crypto languished and lurched from one embarrassment to another, Stepn quietly found a massive audience. At its peak, the company claims to have had over 4 million monthly active users. The company reported $122.5 million in second-quarter profits. Rong and Huang now lead a team of over 100 employees, and they’re still hiring.

“Humans were not evolved to run on the beach, they were evolved to sit by the beach and read a book,” says Shiti Rastogi Manghani, Stepn’s chief operating officer. “We were not evolved to eat salads. We were evolved to eat a burger and watch TV.” What we need to combat the reality of our lazy evolution, says Manghani, is “accountability systems.”

This is what one of Stepn’s super-users and brand ambassadors, James Werk, realized after trying the app. Werk, 47, lives in northern Georgia by the Appalachian Trail. He loves to hike. And he had a goal of strapping on a 75-pound pack and hoofing it from one section of the trail to another but he knew he couldn’t pull it off. When going uphill and lugging the pack, Werk couldn’t last a mile.

“It takes a lot of time and effort to build the stamina,” says Werk, a former account rep for Pfizer, who then pivoted to playing video games full time and streaming them on Twitch, as one does. Werk knew that he needed to spend less time playing games and more time hitting the trails. But he found it tough to stay motivated. When he learned about Stepn, he viewed it as an “accountability partner,” like the friend who insists you meet at the gym at 8 a.m.

This accountability partner isn’t cheap. Here’s how Stepn works: You buy a non-fungible token (NFT) of a virtual sneaker, and then this NFT – by synching to your phone – will dole out rewards when you walk, jog or run. (Various levels of sneakers will grant different rewards.) When Werk bought his first sneaker-NFT, he paid $1,200. This is a lot of money for imaginary sneakers. As one skeptic tweeted, “Who the hell is gonna pay thousands of pounds or dollars for NFT sneakers…???” (The prices have since tumbled; as of publication, the cheapest sneaker NFT is now around $50.)

Werk made good use of the splurge. “Stepn became that reinforcement to not take two or three days off,” he says. “To actually go out and walk every morning and do my hikes.” Werk began to obsess over optimizing the rewards – taking multiple walks per day to max out his winnings. He tracked his fitness progress with a heart monitor. “I could see that as I exercised consistently every day, my sleep was improving,” he says. “My resting heart rate and my max heart rate was improving.”

Meanwhile, the gamer side of Werk’s personality was geeking out on the Stepn rewards system. It’s not as simple as “buy a digital sneaker, walk and earn rewards.” That’s the general idea, but the game has a complicated framework of level-ups, mini-rewards, random prizes and decisions you can make to optimize your loot. (The game also, to the chagrin of many, entices you to pour more money into Stepn, a feature that caused thousands of users to quit. More on that later.) “You can gamify every part of it,” says Werk with excitement, speaking quickly. He explains that you can win “mystery boxes” that might contain digital goodies like “gems” (used to upgrade the sneaker) or perhaps “minting scrolls.”

To many, this will sound like gobbledygook. But this is the kind of intricate system that millions of gamers crave. Half the fun of any RPG (role-playing game) is to level-up your character – deciding where to allocate resources and how to unlock the most power. For the nerds among us (raises hand), this taps into the warm nostalgia of Dungeons and Dragons. Do you max out your wizard’s Intelligence or also sprinkle in points for Strength and Wisdom? Or, will all of this minimize your chance of finding a girlfriend?

Werk clarifies that he’s not getting rich playing Stepn. But he likes that he’s “stacking up my Solana” (Stepn runs on the Solana blockchain) and that each week he’s “putting a little something aside.” And after several months of using Stepn every day, Werk says that he can now throw on a 75-pound pack and reach more sections of the Appalachian Trail. “It gives me the freedom to do a three-day hike, 10 miles a day,” says Werk, which now lets him “get to waterfalls or camping shelters I couldn’t get to before.”

There are stories like Werk’s all over Stepn Twitter. In something of a Web3 version of the Peloton cult, where the community (loudly) encourages each other to keep cycling. The “Stepineers” broadcast their results and cheer each other on. One woman shared the story of how, after she battled cancer, Stepn helped her go from using crutches to walking with confidence. Another user proudly tweeted, “Lost 20 pounds since February.” Another gushed that he had lost 40 pounds of fat and that “Stepn helped me quit smoking. Nicotine free, baby! Can you put a price on that?” Although someone cheekily responded that yes, actually, you can put a price on that – the price is what you spent on all those sneaker NFTs. “That is true,” the smoking-quitter replied, acknowledging that he’d invested $25,000 to that point, but was “completely happy with the returns.”

Or take a woman named Blair, who described her age as “in the 44 to 52 range.” She’s an e-commerce entrepreneur who’s originally from Central America and now lives in Florida. “All of my life I’ve been very sedentary. Reading and staying indoors and driving around,” says Blair. She knew about fitness tracking apps like MyFitnessPal, but those never did much for her. Stepn struck her as different.

The virtual sneakers cost $1,000 at the time, but Blair viewed the price tag, in a sense, as an investment in the overall Stepn company. “I thought the company was like a unicorn,” she says. “It sounded like a project that had the runway to become really successful.” This is, after all, why many people buy tokens or NFTs or other crypto assets – they speculate that the project will appreciate in value. Sometimes they do, often they do not.

Blair bought a second sneaker, then a third, then a fourth and then she eventually bought a total of 30. (At 30 sneakers, the rewards are maxed out.) She acknowledges the NFTs are now worth far less than what she paid, but she expects the market to eventually recover, and says, “You only lose if you sell.”

The real value of these virtual sneakers, to Blair, is not the money, it’s the motivation to sweat. “It really has changed my life,” she says. “I never thought I would be walking 5 kilometers every day.” (That’s about 3.5 miles.) If she skips a day she earns less income, so she walks every day no matter how hot or humid the Florida weather. She says this brings in around $8 per day (it used to be $20), and that thanks to Stepn she has lost 30 pounds.

Then there’s Shan Taylor, 35, who lives in the Sunshine Coast in Queensland, Australia. (Taylor, like Blair, is now an official Stepn ambassador.) He describes himself as once being “morbidly obese.” Taylor is now fit and trim. It’s not accurate to say that Stepn helped him drop the weight; five years ago he had bariatric (weight loss) surgery and lost 110 pounds, then he started running marathons and ultra-marathons. This was all pre-Stepn. But in early 2022, after a string of injuries, Taylor found himself once again demotivated, lacking the willpower to resume his training.

By now you can see where this is going. Taylor, who had already dabbled in crypto (he owned bitcoin and ether), spent roughly $1,000 on his first Stepn sneaker. He joined the Stepn Discord. He began running a bit each day, he bought more Stepn sneakers; he then ran even more, and then he ran faster.

Stepn’s secret sauce? Taylor points to the power of ingraining regular habits, and for this he cites the book “Atomic Habits” by James Clear, which (in a complete coincidence) I had just finished reading. Clear argues the best way to make a habit stick is to start with a tiny, bite-size chunk and then do just a little bit each day. “Read one page of a book every day” is more likely to stick than “Read 20 pages every day.” Stepn uses that playbook. The early goals and rewards are modest – just a few minutes per day – which then gets you rolling and thirsty for more.

“Do a little bit each day,” says Taylor, who was surprised to find that by consistently running every day he eventually beat his PB (personal best) in a half-marathon. “I don’t have to go to the gym and smash myself,” says Taylor. “Sometimes the best thing is just consistency and low intensity.”

If all of this seems too good to be true, well, there’s another virtual shoe to drop. Manghani says that at its peak, Stepn had nearly 1 million active daily users. Today it has 150,000. One reason is that the price of GMT (Stepn’s token) crashed from $4 in April 2022 to 33 cents as of this writing, which means the rewards are lower and the incentives weaker. Another reason could be the macro struggles of crypto winter. But the root cause might be the very nature of Stepn’s model.

Stepn is a move-to-earn game, and this is cut from the same cloth as play-to-earn games like Axie Infinity and ICE Poker. Play-to-earn models have one devastating liability: They might not be sustainable. The critique is that at a certain point, after the growth phase when new users pour cash into the game, eventually the music will stop and the value of the tokens will plummet, like a Ponzi scheme. You can’t indefinitely shower users with money – something has to give. “The more users you have, the more rewards are given out. The more rewards you give out, the more inflation you’re creating. It’s just simple economics,” explained the YouTuber (and one-time Stepn ambassador) who goes by the alias “Bitcoin Daily.”

Rong and team know this is a problem. So to make the game as viable as possible, they tinkered with the tokenomics to add “deflationary” pressures that would slash the supply of tokens, which in theory should stabilize the prices. For example, in August they introduced a “Rainbow” sneaker, and the only way to score the Rainbow is to burn (destroy) your other sneakers. Some users found this outrageous. Bitcoin Daily said it “completely over-complicates the game” and posted a two-hour video detailing why he is leaving Stepn.

Then there’s the concept of “decay.” In July 2022, Stepn announced a fun new wrinkle to the game: Each shoe would now have a certain amount of “Health Points,” and whenever you went out and walked or ran with the sneaker, those HPs would gradually be depleted, or “decay.” You could replenish your sneaker’s HPs by burning tokens or other assets.

As the Australian company cheerfully described in an open letter, “The way nature restores its balance on Earth is through its cycle of life and death – imagine all the species on this planet not dying! That system would never be sustainable.” But it wasn’t hard to read between the lines: Users would now, suddenly, need to pay a fee to maintain their $1,000 virtual shoes.

The Stepineers were not pleased. “So this increases the cost for users, without introducing any benefit,” one user grumbled on Twitter. “So we have to spend more resources. Yay. Way to motivate us,” tweeted another. Others pointed out the contradiction between the game’s spirit – rewarding you for moving – and the new economic model, which triggers a penalty for moving. As one user put it, “This game is designed for better health by keeping moving. And now, the health points will be reduced just because of moving???” Many agreed with the top user comment on Stepn’s open letter: “One of the … stupidest and tone deaf thing[s] ever. Go tax your loyal users whose diminished returns have dropped 90%. You f**king made $120 million. How much of a rug pull is this?”

Rong concedes it was unpopular. He acknowledges the update became a “permanent tax on users” and that it led to a “huge backlash.” He says Stepn lost a “chunk of users” and heard complaint after complaint. (It deserves credit, at the very least, for actually listening to the complaints. Stepn is the rare crypto company that has a customer service department; Rong says the team received 20,000 email inquiries per day and they wanted to reply to them all. At one point the company recruited 30 customer service reps per day to keep up with the demand.)

Health Points were hated, but Rong insists this was a necessary evil for the long-term viability of the project. “There are no perpetual machines in this world,” says Rong. “We can’t allow NFTs to have unlimited life without any repercussions” because that would lead to “ultimate inflation.” His larger point: When you buy the kind of real-life sneakers that you actually put on your feet, these do not last forever. The soles wear down and you need to buy new shoes. So the decaying model, in a sense, matches the dynamics of the real world.

But optimizing the tokenomics will only get you so far. I’m surprised when both Rong and Manghani concede that, yes, the economics of Stepn might not be sustainable … at least not without some external help. “As long as there are external revenue sources, it should be sustainable,” says Manghani.

Stepn is not the only product for Rong and team. They created a parent company, Find Satoshi Labs, that is an umbrella for other ventures including a decentralized exchange (DOOAR) and NFT marketplace (MOOAR), which bring in additional revenue. They also have revenue-generating partnerships, such as a deal with the Spanish soccer club Atlético de Madrid. “To expand the use cases, we have to create additional apps,” says Rong. “To not rely on Stepn as one product but to create a range of products.”

Rong is tight-lipped about what exactly the laboratory is cooking, but he hints there will be a social component, and they are “thinking about focusing on blockchain AI.” Manghani envisions a future where Stepn is not just a fitness app but also used as a sort of decentralized log-in that could be easily used across the internet. (In other words, a type of self-sovereign identity – here’s my deep-dive into SSID.) “Fitness is the biggest onboarding mechanism from Web2 to Web3,” says Manghani. And the hope is that once users have used Stepn to enter Web3, they’ll stick around to use adjacent products.

So the irony, in the end, is that even though Rong turned “all you can do is walk” into a successful project with millions of users, ultimately, in terms of long-term viability, the company will perhaps only be as successful as the next products it releases. What have you done for me lately?

Rong is no longer working seven days a week and 15 to 20 hours a day – he has scaled back to six days a week and 10 hours a day. But he knows he needs to deliver. “We feel the pressure like we did on day one,” says Rong. He cites one of his favorite business maxims: “You live if you are extremely worried. You die if you are too comfortable.”