Sweatcoin & Sweat Economy: Walking Into Crypto
Now that Sweat Economy has successfully completed its token launch, we wanted to flash back to September 2021 — our first meeting with the Sweatcoin team: Anton, Oleg and Henry. To be honest, before the meeting we didn’t have very high expectations of how a step-counting app could become a successful Web3 app. However, we immediately changed our minds after speaking to the team and after downloading and using the Sweatcoin app. (Keep in mind that this was before Move-2-Earn was popularized in the Web3 space by a new startup called StepN.)
Since Spartan Group entered the crypto space in early 2017, we have advised dozens of crypto projects and invested in hundreds of projects. They span the entire Web3 universe: Layer 1s, Layer 2s, Dapps, Defi, wallets, exchanges, gaming, NFTs, metaverse, etc. We have been introduced to and screened thousands of projects, so the conversion ratio is low and our skepticism ahead of the meeting was probably understandable.
Over the past 5 years, our Advisory business has developed a strong screening process to assess which projects and founders to work with. This screening is critical for us, as we don’t work with many projects at a time and we make the vast majority of our advisory fees on a success basis — so if we don’t pick the right clients the opportunity cost for us is massive. Our screening mechanism becomes increasingly stringent in the heat of bull markets as “everybody” wants to launch a token during these times.
Source: Spartan Group
Our thesis around crypto is influenced by our decades of Web2 and TradFi experience. One of the key tenets of our thesis is that sooner or later we will see mass adoption of crypto by non-crypto-native users. These users will not see crypto as a trading asset. They will also not focus on the fact that this new technology transform how data is stored, how assets and value are recorded and owned, how transactions are secured and processed, how social interactions and social value is measured and transacted, etc. The driver for the Web2 masses to enter Web3 will be the same driver that pushed Web1 users into Web2: a superior user experience that gives users a step-change in how they interact with content and information, and with each other.
Crypto will only ever gain real traction via “real” user-owned non-custodial wallets. Centralized exchanges, custodial wallets, and innovative DeFi protocols have their role to play, but users need to be able to experience — to be empowered by — a native Web3 interaction to get really hooked and convinced that Web3 is the future.
We think that the next “billion users” will enter Web3 standing on the shoulders of Web2. The timeline for this mass adoption can be accelerated by a large, existing Web2 company going all-in on Web3. There is no shortage of Web2 companies coming out with a Web3 strategy — none more high profile than Facebook changing its name to Meta and committing $10 billion to its metaverse effort, and recently Starbucks has also made its intentions clear. Many of these pivots towards Web3 felt forced, insincere, and gimmicky.. we felt we were still not quite there, something else was needed. Enter Sweatcoin.
At first glance, Sweatcoin looks like a typical health-related fitness app, but it is so much more than that: we saw a user reward system that looks and functions like a wallet with balances and an embedded marketplace. Sound familiar?
In addition, their stats were simply incredible: Launched in 2016, Sweatcoin has more than 110 million registered users, with over 25 million monthly active users, and the app has been #1 in the App Store in 66 countries (that’s nearly a third of the countries in the world!).
Unlike games, which often claim the #1 position in the App Store, and which rely on unique IPs or on rich features, Sweatcoin’s simple rewards App relies only on UI/UX, economics design, a viral growth mechanism and value provided to commercial partners. Putting numbers like this on the board requires world-class operational, technical and marketing capabilities (and a healthy dose of persistence!). Sweatcoin has also managed to keep Customer Acquisition Cost (CAC) extremely low, a key tenet of building a successful and sustainable consumer-focused Web 2 app.
Source: Sweat Economy Litepaper
We saw a clear path for Sweatcoin’s Web2 (aka “Sweatcoin”) to Web3 migration (aka “Sweat Economy”); a path that didn’t feel forced, didn’t feel gimmicky; a path that could significantly enhance Sweatcoin’s user acquisition and user retention, while simultaneously enhancing their users’ experience.
After that fateful first meeting with the Sweatcoin team, we had multiple hours-long discussions on how we could create the most frictionless Web3 onramp experience for EVERYONE in the world. Sweatcoin had what we perceived to be the 3 key ingredients:
Simple. Nearly everyone in the world walks. There is literally zero learning curve (unless you’re less than 12 months old). Most of us do it every day for most of our lives.
Mobile. By now, the majority of the world’s population has access to a smartphone. The playing field has been leveled: a billionaire and a farmer in a 3rd world country can both carry a smartphone with the Sweatcoin app, allowing them to earn Sweatcoin with the same action and effort.
Free. Not only is the app free, but so are the rewards in the app. The next billion users will not enter Web3 by buying crypto. Instead the user journey will be: Earn >> Play >> Pay.
Despite the inherent potential in Sweatcoin, there were still a lot of challenges to overcome. Even the most successful companies risk alienating their loyal user base when undertaking a fundamental transition. The questions we set out to answer together with the Sweatcoin team included:
- How do you move Sweatcoin’s more than 110 million Web2 users into Web3 in a seamless manner?
- How do you design a token with a sophisticated token model and economy while keeping it simple for users?
- Should NFTs be integrated into the Web3 strategy, and if so, how do we ensure that it does not become overhyped and end up pricing out the vast majority of our user base?
In the end, we opted for a gradual introduction of a fully non-custodial wallet, so as to abstract away the initial adoption hurdle for private key storage (self-custody will gradually be introduced to users). We also developed a comprehensive roadmap that gradually allows users to be introduced to and interact with various Defi and NFT experiences including staking, swapping, transfers, marketplace, digital avatars, etc. (see Sweatcoin’s roadmap here).
After much discussion amongst the Spartan and Sweatcoin teams, we decided on another important feature: Sweatcoin users are given an opt-in to the Web3 Sweat Economy. This ensures that Sweat Economy can focus its energy and efforts on the segment of its users who are truly interested in Web3 products. So far, a few months after launching the opt-in, more than 10 million Sweatcoin users have opted to join the Web3 Sweat Economy and created their Web3 wallets on Near Protocol. Sweat Economy is seeing this trajectory continue with millions of new wallets added; the Sweat Economy is — as anticipated — serving as an ongoing funnel for new users to move into Web3.
Not only that, but the extremely low CAC that Sweatcoin has in Web2, is directly transferable to the Web3 Sweat Economy, and as a result, while many crypto platforms spend hundreds of dollars to acquire a new Web3 user, Sweat Economy achieves this at a mere fraction of the cost.
When designing the token’s utility and value accrual mechanism, we opted for a token model where all value accrued in the Sweat Economy platform goes to the token holders. We mentioned StepN earlier — the newcomer to Move-2-Earn, but the first mover for M2E in the Web3 space — and when designing Sweatcoin’s token and NFT model, we garnered whatever lessons we could from observing StepN’s successes and challenges.
For those who want to deep-dive into Sweat Economy’s token and NFT model, Spartan Labs Research (Spartan Group’s Web3 strategic research arm) will soon be publishing a detailed piece on this (this piece will be Part 2, following on their Part 1 piece on “X-to-Earn’). The Spartan Labs team also continues to work closely with the Sweat Economy team on their NFT mechanics strategy.
We owe a huge thanks to Anton, Oleg, Henry, and the Sweatcoin team for trusting us to be part of this fundamental transformation of their company and product. We learned and reinforced many important lessons from working with them:
- Understand what your Unique Value Proposition is and be fanatical about never straying from that.
- Trust your expertise and instinct; after building and growing for 6 years, Sweatcoin did not rush to launch a token despite the Mover-2-Earn sector going ballistic.
- Stay true to your roots, keep the faith, be patient, keep executing, keep BUIDLing.
Step by step, Sweatcoin will help 1 billion users walk into crypto #walkintocrypto.
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About Spartan Group
Spartan Group: Founded in 2017, The Spartan Group is a crypto-native digital asset investment bank, asset manager and Web3 venture studio built by industry veterans. We advise, invest, and build with the best founders in Web3.
