On the run

Metaverse footwear

In late May Chinese venture capitalist Zhu Xiaohu – an early backer of Didi Chuxing, Ele.me, and Ofo – posted on WeChat that he had just purchased a pair of NFT sneakers from StepN, a lifestyle app.

“I finally bought a pair of BSC [blockchain] shoes after a busy day. I will try to run to make some money tomorrow,” he promised (for a profile of Zhu, see WiC396).

Founded by two Chinese entrepreneurs last December, StepN uses the Solana blockchain to sell customers virtual sneakers in the form of a nonfungible token (NFT).

It also operates as a ‘move-to-earn’ game – offering players the chance to earn tokens by walking or running in the real world.

Players must own a pair of digital running shoes (the NFTs) to join the game. Depending on how much activity there is during the day, they can earn in-game tokens called GST (or Green Satoshi Token). When their NFT sneakers have generated a certain level of these tokens they can then be traded into cryptocurrencies.

Players can choose to cash out but many try to earn more money each day by reinvesting back into the system, perhaps by paying to upgrade their shoes or by buying more of them, which allows them to earn for more minutes every day.

The digital shoes can also become investments themselves to be sold (or even hired out) to others.

Players need to be connected to the smartphone app, with a good GPS signal, for their movement to count. There is also a cap on how far they can travel with the app each day, limiting the potential for earnings.

According to StepN’s co-founder Yawn Rong, who was raised in Beijing before moving to Australia in 2002, the app turned a $20 million profit in the first quarter. It makes money from taking a cut from transactions on the app, he told the South China Morning Post.

The game boasts 200,000 to 300,000 monthly active users, with about 5% of them in China. One told Huxiu, a news portal, that he was one of earliest adopters there, when he began playing in February. After hitting the maximum limit for tokens almost every day, he recouped the money spent on his NFT sneakers within the first month. After that he increased his investment and bought dozens more pairs of shoes on the platform. He now keeps three pairs for himself and, like some other players, has partnered with a group of couriers and delivery people whose day jobs already generate the distances needed to earn tokens on the app using the NFT sneakers.

But StepN’s fans in China were shocked last month when the platform announced it would be blocking access to players whose IP addresses or GPS locations show they are in the country.

“StepN has always attached great importance to compliance obligations and always strictly abides by the relevant requirements of local regulatory agencies,” it wrote in its Chinese-language tweet, without addressing why regulators had requested the move.

In the past the authorities in China have banned the mining and trading of cryptocurrencies although they seem to be more lenient on trading in NFTs (as long as they are not directly connected to cryptocurrencies).

But critics of games like StepN have argued that they are little different from Ponzi schemes because existing players are motivated to cash out their winnings to other players, making the games reliant on a constant stream of newcomers, says the South China Morning Post.

Other theories for why StepN got banned in China range from regulators were concerned over data privacy to the idea that they don’t want to encourage outdoor exercise at a time when many cities are trying to restrict movement because of Covid outbreaks.

StepN’s retreat from China soon brought a steep drop in the value of its GST tokens, as well as an additional token available through the app called GMT that can also be traded on crypto exchanges.

Nevertheless StepN’s initial success has attracted other companies to try their luck with other move-to-earn formats like Bike Rush, which sells NFT bikes. “The product is expected to be launched next week,” an insider told Huxiu, adding that there are dozens of start-ups in China hunting for funding for similar apps – seemingly unconcerned by StepN’s pullback.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.