IOSG Research | X to Earn: A Formal Challenge to the Death Spiral

Original Title: "X to Earn: Official Challenge to the Death Spiral"

Original Author: Andy, IOSG Ventures

Original Editor: Elaine, IOSG Ventures

Written in front

Since the Axie Infinity fire, Axie-like Play to Earn games have sprung up like mushrooms It popped up one after another, but after Axie performed a wonderful death spiral roller coaster for the currency circle and the game circle, there has not yet been a P2E game that can truly match the wonderful story of Axie: the market value is not enough, Not enough enthusiasm, not enough creativity, or simply not done yet

The result is that Axie’s P2E not only taught other chain games a lesson, but also gave an inspiration to the equally smart non-chain game market: If Play to Earn can become popular like this, then is the other X to Earn (X2E) There is also an opportunity to take advantage of? So in the past two months, the market has finally seen the wonderful X2E product after Axie: STEPN.

I will summarize the product introductions that have been reported many times by other research reports: STEPN is a Move to Earn game. Users buy running shoes NFT to run and earn money. Take Token- At present, STEPN has 1 million users and 300,000 DAU, and the market value of governance Token has increased from 8 million in IEO to 20 billion in less than two months.

Because STEPN was still on the rise when this article was published, many entrepreneurs who have entered or watched from the sidelines, and even other X2E entrepreneurs are paying close attention to a problem: When did STEPN peak and start its death spiral? It is very understandable that under Ponzinomics (Ponzi economics), the death spiral is an inescapable topic in the market. However, when the market tends towards X2E and continues to develop wildly, we should not only avoid the death spiral, but should take the initiative to understand what the death spiral represents, and challenge how to make the project last for a long time under the shadow of the death spiral. Only with advanced operations and concepts can users, project parties and investors simultaneously maximize long-term value under the shadow of the death spiral. So at the time when STEPN is currently gaining great popularity and before more X2E products arrive, the author will borrow the cases of Axie and STEPN in this article to put forward a few hopes for the death spiral itself, which will help the market the opinion of.

Not much nonsense, let’s start with the conclusion:

Although the death spiral is for Ponzinomics It is inevitable, but this article wants to explain the following points:

First of all, the result of the death spiral is not death, nor does it represent the failure of the product, but the result of X2E's The process of madly returning to the fair value of the product itself, and the incubation period before this process occurs may be long or short, the rate of decline may be fast or slow when it occurs, and the returned fair value may be high or low after the process occurs.

As the first popular X2E project, Axie experienced a lot of trials and errors, showing the possibilities, limitations, and long-term prospects of X2E for subsequent products The challenges that will be encountered under the time operation, so that we can see that projects such as STEPN take the essence and strive to innovate in the learning process - X2E is evolving.

The evolution of X2E we are looking forward to is a more restrained crazy period, a slower fever-reducing period, and a higher fair value regression line-this is also my Think STEPN has the potential to do it.

In addition to this, it is more important to be able to finally achieve it, so that users who recognize the fair value of the project itself become the mainstream, and make utility value investors rather than speculators obtain most of the profits. (Being able to educate the market to participate in such an X2E project is not simply investing 10 yuan to earn 20 yuan, but investing 10 yuan is not only worth the value of the utility brought by the project itself, but also returns an additional 3 yuan; and additional rewards for users who persist , can reach the possibility of returning 10 or even 20 yuan.)

In the future story, economic sources other than Ponzinomics are what I am looking forward to for X2E. Because it has more stories and space than the current P2E of chain games: for example, we just recently talked about an early Bike to Earn project (MOTE by Sweetgum Labs, interested investors are welcome to communicate with each other) and mentioned the realization of carbon emissions back to the economy, So for example, if a person who used to drive 10 kilometers to and from work every day changes to cycling every day, he can save 4 tons of carbon emissions a year, and one ton of carbon emissions can currently be worth 80 euros in Europe, which means that the theoretical A person can realize more than 300 euros a year to flow back into the economic system, and the increase in the price of carbon emissions in the future will increase the potential of this mechanism. Although there will be great feasibility challenges (such as whether the carbon emission exchange recognizes its carbon emission qualifications), X2E products are working hard in the direction of returning to the external economy, which is what I am most looking forward to seeing.

Silent Costs and Unexpected Returns

1. Sunk Cost Acceptance of Investment Loss

h4>

Let's start with an example: I believe everyone is familiar with the fitness card; The story of practicing once is probably not unfamiliar; in the end, if you rekindle your fighting spirit after a period of time after the card expires, and go through the above cycle again, then you and I are family. Why do we allow ourselves to invest a lot of money again and again, but surrender to low self-control over and over again, so that this cycle keeps happening? Those who failed in one cycle, do they swear "it will be next time" as if they forgot the lesson, and set foot on this road again?

A key mentality is tolerance for sunk costs: applying for a card is an investment in your body shape and health (utility), but after the excitement period The cobwebs on the fitness card are a reconciliation of willpower declaring the investment a failure and silence about the cost.

It may not sound like much, so let’s roughly quantify it: the original purpose of purchasing the fitness annual card of more than 5,000 RMB is to urge you to run 3 times a week for 5 times each time Kilometers, and you only lasted for the first two months in the end, then the return on investment of 5,000 yuan approved at the time of purchase is 13 kilograms, and the final return is 2.3 kilograms, which is 15% of the original ROI. It is "I'm sorry, dare to do it next time", and then apply for a card. However, if this is the ROI of everyone investing in the stock market and blockchain, will you continue to "dare to do it next time"? It is also an investment loss, and it is easy to see Everyone has a low tolerance for sunk cost of financial investment, but compared with it, the tolerance for sunk cost of utility (body shape/health/happiness, etc.) investment is much higher.

Second, STEPN: Is it your financial investment software or utility investment (fitness) software?

STEPN investors’ unexpected returns: give one An example that many Stepn players may resonate to some extent: A friend who has experienced Axie entered the game almost a month ago. The original purpose of entering the game is the same as playing axie at the beginning, and the additional form of running is less brain-intensive than games. , and there is less resistance such as "playing games to waste time", so I chose Stepn at the same time cost; but as I ran downstairs on time every day to earn GST this month, I discovered the meaning and self that Stepn brought to me The original expectations have changed: the most important thing is how long to pay back, and how much money I can earn by running once a day on average (financial return), but then I was shocked by the non-financial return that I didn’t care much about before: exercising every day The change of mental state brought about by 40 minutes, the change of being lazy at home after work, the change of going out to exercise with family members around me, the change of losing weight for many years but this time I lost two catties in January, and I am more concerned about my health change.

For this friend, Stepn is originally a running + money-making project. Of course, users will naturally expect both sides when they enter the venue, but from a micro perspective There is also a key mentality change in the participation process: from holding the goal of the best financial returns, but after a long period of persistence, a mentality change has occurred. I recognize and appreciate the benefits that STEPN has brought to him beyond financial returns. Income, that is, the income on the utility. And that's exactly what Axie Infinity is missing. We all say that the ending of Ponzigames (Pon’s game) is a death spiral and the song ends, but the above-mentioned STEPN extra mentality change may become an important factor in rewriting the results.

The inevitable death spiral does not mean death

1. First define three types of players :

Lucky A players, worried B players and wait-and-see C players: The friend mentioned in the example above was a month ago Those who have entered are about to pay back at this time - we might as well call this type of players who have already paid back (or are about to pay back smoothly) the lucky A-type players- Since the game mechanism does not set a life cycle for shoes, then A-type players After paying back, as long as you are willing to persist, you will make money forever. Then, after reading the cost-returning users of category A, there are two soul questions for Ponzinomic (Ponzi economics) products:

 1)  ; Can/how long will people who have bought shoes and haven't paid back their money pay back? We call this type of player the worrying B type player for the time being.

 2) Can friends who have not entered the venue to buy shoes but are waiting to enter? We call this type of players the wait-and-see C-type players for the time being.

Here to clarify that the A, B, and C players here are not fixed users, but a classification of user groups under a time node. Convertible: B-type players will become A-type after spending a certain amount of time to pay back, and C-type players will become B-type after entering the game.

Second, what is the difference between STEPN's death spiral and Axie Infinity?

One thing that cannot be argued is that Ponzinomics cannot avoid the death spiral, but I think it is the same death spiral, the experience and results of STEPN and Axie will have 3 interesting Differences (again non-investment advice): 1) STEPN’s death spiral may have a longer incubation period; 2) STEPN’s death spiral may have a slower chain reaction; 3) STEPN’s death spiral may have a greater prospect in the flat period after the death spiral. Let's discuss it in detail below.

1) STEPN’s death spiral incubation period may be longer (Warning! Theoretical analysis is not investment advice):

Axie:

a. Axie who embraced the guild Experienced crazy unnatural growth - only 15% of players are individual users, and 85% are guild users who don't need to own Axie to participate in SLP output. The guild provides step-by-step tutorials to attract newcomers to join. Players can quickly get started and start making gold in a short period of time. The guild management can directly arrange the optimal yield strategy so that a large number of guild players who join quickly can produce the largest amount of SLP. .

b. A large number of guilds and mercenaries maintain a far greater efficiency than natural players in extracting the economic system: the guild players at this time do not belong to the aforementioned STEPN analysis The A, B, and C types of players that are acquired are pure mercenaries, used to maximize the benefits of Axie infinity, and such extraction efficiency is much higher than the same number of natural growth of individual players. The rapid extraction speed allows guilds and mercenaries to taste the sweetness and continue to expand, and sky mavis, which enjoys rapid growth, has not interfered with such efficient value extraction, or the momentum of the guild (momentum) has not allowed sky Mavis stepped on the brakes, so high-efficiency value extraction and high-speed unnatural growth represent a shorter Ponzi product life cycle. In the end, what we saw was AXS, which started to work hard in early July 21. After 4 months, in 11 At the beginning of the month, I came to my highest point and officially entered the death spiral.

c. The guild and mercenaries may be the slow poison that Axie must swallow: What if there was no guild? Can Axie stretch those 4 months to 6 months with natural growth? Even 10 months? Or if there is no trade union, will Axie not grow fast enough to attract new blood, which will lead to an earlier abrupt stop? I don't have a definite conclusion, but I tend to believe that Axie cannot rely on natural growth, and can only swallow the life-saving poison of the guild. Traditional gamers are not willing to actively spend high prices on such a dry and simple game. However, developing countries such as the Philippines do not have the help of guilds, and the natural barriers of the complex encrypted Token system will keep a large number of users with low learning ability and economic ability at a distance. Therefore, guilds are almost an inevitable choice for Axie. Maybe Knowing that it may bring economic consequences, it is still a slow poison that must be swallowed.     

STEPN:  

< /p>

a. Resolutely maintain natural growth, crack down on cheating, reject guilds, and have no leases: when writing this article, the official has just announced that it has reached 300K DAU. The big difference from Axie is that these 300K DAU are basically real The real players of "one person, one machine, one number" - no union, no lease, need to enter the field, need to learn how to use encrypted Token, need to pay out of your own pocket, it is difficult to cheat - in STEPN official multiple strict monitoring and It is extremely difficult to achieve unnatural growth under the blow. The two founders, Jerry and Yawn, have expressed their insistence on natural growth in many sharings, and the only lease function related to non-natural growth in the white paper, Jerry also confirmed in my special question that it will only be opened later, And confirmed that it will not be available within half a year.

b. The project party is also very restrained in the operation of the Token economy: STEPN’s invitation code mechanism alleviates the speed of entering the market to a certain extent. The GST is being consumed more and more with the unboxing gameplay. The demand points that have recently been added to the governance TokenGMT are also indirectly sharing the pressure of the GST, and more functions will be given to the GMT in the future. Project parties who can see the background of the game have borrowed and innovated a number of methods in traditional games and P2E cases to strive to maintain the stability of the Token economy, so as to prolong the short path of Axie as much as possible.

c. Real players who are rich and love to learn, and high-quality new players outside the circle brought by breaking the circle: such persistence and restraint lead to The user group is screened in two layers: rich (the admission fee is indeed not cheap, and they have to pay out of pocket), with learning ability/knowledge (there is no lengthy introduction to new user gameplay in the STEPN software, players need to learn to do it themselves Clear wallet usage and logic - Jerry mentioned that surveys show that 30% of users are using decentralized wallets for the first time).

d. If the project side wants to, they can choose to open the unnatural growth valve at any time to delay the death spiral (although it will not be in the short term): although our naked eyes I have seen the rapid growth of user data, but such data are real users who have grown under the restraint of the project party. The value extraction efficiency of the economic system is far inferior to that of the Axie guild. Even if it slowly grows in the later stage, if STEPN wants To open the valve and lower the user screening threshold, I believe that the unnatural growth in the later stage can also continue to delay the start of the death spiral to a certain extent.

2) The chain reaction of STEPN's death spiral may be slower:

Axie:

a. Although the death spiral is a chain reaction, Axie's The rapid decline is not a cliff-like decline: In fact, when we look at the market value of AXS after the death spiral begins, although it is a chain reaction, it is not a cliff-like decline. The original payback speed has been lengthened during the decline, but if users are willing, they can still stick to the liver (grind) to pay back slowly, but this is a painful process, because the game itself has an enjoyable gameplay (enjoyable gameplay) duration It is limited, and slowly recovering costs for financial returns in the later stage is torture and suffering.

b. Since the asset does not provide much utility other than financial investment, selling is a simple and clear choice: for most users In other words, if you, as a real user, really invest your own money to play Axie, the enjoyment/utility brought by the game itself is too low except for the purpose of returning the money. As a result, you are only left with the annoyance of reduced financial investment returns during the death spiral, so the most rational approach is to run away early, and you will choose this rational approach with a high probability. Because there are many people who think like you in the game, this is also the speed of the crash caused by the death spiral. Although it will not be a cliff, it will not be a gentle slope.

STEPN:

a. The user is in Recognition of utility returns other than financial returns during the participation process: reviewing the story of my friend at the beginning of the article-mainly participated in STEPN for the purpose of financial investment, but gradually realized the utility (body shape/health/happiness) aspect in the process ROI. Then go back to the part I mentioned at the beginning of the article: it is also an investment loss. It is easy to see that everyone has a low tolerance for the sunk cost of financial investment in real life. Compared with it, the utility (body shape/health/ Happiness, etc.) investment sunk cost tolerance is much higher - so in the STEPN scene, how does this extra tolerance reflect? Let's analyze it in detail below:

b. Unlike Axie, STEPN gives some users who recognize the utility return a choice not to sell: so a key question Here it comes: Suppose you invested $1,000 at the peak of the death spiral, insisted on running every day for a month, and found that the previous goal of 50 days to pay back was stretched to a year or even longer, but suddenly found that you have gained so much What will you do with utility returns other than financial returns?

Hurry up and sell all your properties to stop losses, and return to the lazy life of staying at home and not exercising every day?

Affirming my persistence and utility returns during this period of time, and realizing that the desire to pay back has gradually changed from an investment expectation to a promise to help myself persevere, Therefore, it is decided not to sell/sell less, and to stretch the original two-month payback front for a year or more, and slowly run back the cost?

In other words, as long as you are willing to stay and keep exercising, you will become healthier, get back your money sooner or later, and start making a net profit sooner or later; Let you have direct financial loss, and slowly give up a very good living habit without the external driving force. I think you have already started to consider your own choice when you see this problem, instead of a single and fast choice like the Axie user’s choice above, then the decline of STEPN’s death spiral may be slower than Axie.

c. The questionnaire shows that 83% of users expect that they will not run away in the death spiral: let's look at another example, which is my post on STEPN reddit A user survey (pictured below): When STEPN enters a death spiral like Axie, what will you do with your property? I originally expected that most people would choose to sell all their properties and leave, but the final result is that 60% chose not to sell GMT and shoes and are ready to continue running, and 23% chose to keep key shoes (such as 1 gray, or 1 green and 8 gray), and only 17% chose to sell them all:

This Of course, the set of questionnaires has no legal effect, so although the final price starts to fall, it may still be sold when the price is not sold now, but I believe that such survey results are definitely not available on Axie. That is to say, I think that the selling pressure after the death spiral has a higher probability will be lower than that of Axie, and the downward slope will be slower. Compared with ordinary chain games, the negative impact on the payback cycle will be smaller, because some users will A certain change will be made to utility investment, resulting in less sensitivity to the original return on investment, and more focus on the return on utility.

3) The plateau after STEPN’s death spiral may be more promising:

Axie:

a. The result of the death spiral is not death, but Slowly revealing the fair value of the product to the market: After experiencing a sharp decline in the death spiral, the market value of AXS has stabilized at 3 billion for nearly three months, and the price of Axie has been reduced to more people Accessible ones cost around $50 each. At this time, the investment threshold for entry is low, but the payback period is still long. However, because the game itself brings players limited utility returns (game fun), players who aim to pay back and make a net profit will still feel tortured.

And for the 85% of the guild mercenaries in the total players, Axie's output (yield) has been lower than the real work, the participation rate On the contrary, the real players who were interested in trying Axie but thought the tickets were too expensive, that is, "wait-and-see C-type players" have the opportunity to come in and try, which means that the death spiral made Axie pass the rapid expansion promotion period, and finally has a welcome reality Opportunities for players to enter the market. Guilds with prolonged payback cycles and mercenaries with reduced income are not happy, but the decline caused by the death spiral still brings opportunities to the majority of real players who most need to enjoy the fun of the game. I will watch it with you My game colleague Alex believes that P2E is not the goal, but the way to acquire customers (UA) - Axie’s story indirectly confirms this theory in an immature way: the P2E carnival allows Axie to save the step of cold start buying volume, and can achieve early The opportunity to quickly obtain a large amount of funds, users, and polished products. After experiencing the death spiral, the entry threshold has returned to the fair value of the game itself, and players who really want to play this game (rather than speculators) will participate and replace them. .

STEPN:

a.STEPN After the death spiral, it will also stabilize at a higher plateau value than Axie, and there will be more users and a larger market than the current one: when the price of the cheapest gray shoes drops from 1000 knives to, say, 100 knives, although it will return This cycle is very long (for example, one year), and the investment of players who cannot persist becomes sunk costs to pay players who persist, but as long as you persist, the system will reward you to pay back, because when the investment starts from 1000 knives When it is reduced to 100 knives, players will be more tolerant of their own sunk costs, resulting in more people who cannot persist and collect more sunk costs. At this time, a relatively stable balance will be formed, which is currently stabilized by AXS above The price is similar. At this time, STEPN has transformed from a money-making project into a gambling agreement: spend 100 dollars to buy a project that monitors your own running, and when you persist, you can not only recover the 100 dollars, but even continue to make money steadily. how does that sound?

b. The imitation disk can last for a while but can’t achieve anything, it will not affect the long-term value of STEPN: so smart friends Maybe I have to ask, then as a player, I can earn more by finding a fake game and continuing to run. Why should I continue to stay on STEPN? I think we can look at Axie in this regard: the number of fake games can’t be compared to anyone Axie, what are the results of Axie’s imitation games? Although some people can make money, but their cycle is shorter, the market value is smaller, and the requirements for players who really make money are not generally high: you need to learn deeply what are the high Yield projects, who is making the market, whether the entry is early enough, when to run - indeed there will be a wave of STEPN users who are sensitive to financial investment returns to try to make money by imitating the market, but in the end the imitation market It will die down, which will make these people return to the time-proven STEPN with a low yield but stable STEPN after they are injured and exercise habits; and this is only for users who are sensitive to financial return on investment, so those who pay more attention to utility return on investment Users are not willing to spend so much energy and time to take the risk of counterfeit disks, and this is the biggest difference between STEPN users and Axie users-Axie guild players need to use this money to live, how can they not use their best efforts to maximize returns ? Coupled with the social attributes and other narratives (narrative) behind STEPN, as well as the ability to develop resources and capital inflows beyond the Ponzi economy (such as e-commerce, carbon emissions, brand cooperation, etc.) and the narratives of the founders (narrative) ability, user authenticity and high quality, I believe STEPN may become a brand that can stand to the end better than Axie.

Summary

While death spirals are inevitable for Ponzinomics, I write this The purpose of this article is to illustrate the following points:

First of all, the result of the death spiral is not death, nor does it represent the failure of the product, but the return from the madness of X2E to The process of the fair value of the product itself, and the incubation period before this process occurs may be long or short, the rate of decline may be fast or slow when it occurs, and the fair value returned after the process may be high or low.

As the first popular XXX money-making project (or called X2E), Axie has gone through a lot of trials and errors, showing the possibility of X2E for subsequent products , limitations, and challenges that will be encountered in long-term operation, so that we can see that projects such as STEPN take the essence and strive to innovate in the learning process - X2E is evolving.

The evolution of X2E we are looking forward to is a more restrained crazy period, a slower fever-reducing period, and a higher fair value regression line-this is also my Think STEPN has the potential to do it.

In addition to this, it is more important to be able to finally achieve it, so that users who recognize the fair value of the project itself become the mainstream, and make utility value investors rather than speculators obtain most of the profits. (It is recognized that participating in such a project is not simply investing 10 yuan to earn 20 yuan, but investing 10 yuan is not only worth the value of the utility brought by the project itself, but also returns an additional 3 yuan; and additional rewards for users who persist can reach The possibility of returning 10 or even 20 yuan.)

In the future story, economic sources other than Ponzinomics are what I am looking forward to for X2E, because it is more than the current The P2E of chain games has more stories and space: For example, I just talked about a Bike to Earn project recently (MOTE by Sweetgum Labs, interested investors are welcome to communicate with each other) and mentioned the realization of carbon emissions back to the economy, so let me give you an example , a person who used to drive 10 kilometers to and from work every day instead of cycling every day can save 4 tons of carbon emissions a year, and a ton of carbon emissions in Europe can currently be worth 80 euros, which means that a person can realize cash in a year More than 300 euros flowed back and forth into the economic system, and the increase in carbon prices in the future will increase the potential of this mechanism. Although there will definitely be many operational and price challenges, I am very much looking forward to seeing the X2E products working hard in the direction of returning to the external economy.

Written at the end

Having said so much, I think STEPN has advantages over Axie Again, this is not an investment recommendation, because the operation of the project depends to a large extent on those in power and large players in addition to the fundamentals-STEPN can get the three major exchanges to cooperate in the first place, and the generosity of whale when it pulls the market Both have demonstrated some of STEPN's strengths beyond the fundamentals. In the end, the development direction of STEPN still depends on the balance of pros and cons among various important elements in the project and the volatile market. The above analysis is based on the various information obtained so far to speculate on some nodes and potentials that STEPN may experience in the future. Let us wait and see what will happen in the end.

Original link

a>

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia