The Future of Sustainable Move-to-Earn Models: Sweat Economy

This is part 2 of a 2-part report that is authored by Derek Lim and Gabriel Foo of Spartan Labs Research.

Preface

In part 1 of this 2-part article series, we discussed the problems currently faced by existing X-to-Earn tokenomic designs in terms of sustainability. We extensively talked about the flaws of a few existing designs and also proposed a few potential solutions to these issues.

In this part 2 article, we attempt to deep-dive into a more sustainable Move-to-Earn model, built on the successes of predecessors as well as bringing in improvements. We are fully aware that there is no perfect model but the best approach is constant learning and improvements. Before we go further, if you haven’t yet read part 1 (where we discussed the issues with existing X-to-Earn models), please do so here for some crucial context.

Sweat Economy is the Web3 platform of Sweatcoin. Sweatcoin, founded in 2015, is a Web2 app with over 110 million users which has been previously ranked as the №1 app overall in over 60 countries. Sweatcoin’s vision is to inspire and incentivize users to continually improve their health and fitness by staying active. In the process of doing so, users will earn points that can be exchanged for products, services and charitable donations through the app. The team had successfully designed an innovative value loop through a well-functioning reward program, acquiring a large user base efficiently while commercializing itself through advertising.

However, the benefits that Sweatcoin can pass through to their users are currently limited to their existing commercial partners, and because the points are centralized, the Coins are restricted to Sweatcoin’s platform resulting in their value not being fully realized.

We believe there is a lot of unrealized value embedded in the health data and user engagement of Sweatcoin’s user base. And we believe only when these points become fungible tokens, and there is an external market with liquidity for price discovery, will we be able to see the true value of this international user base who seek a healthy lifestyle, enjoy gamification and love rewards.

In its transition into the Web3 industry, the Sweat Economy has recently teamed up with Near Protocol to launch its native token, SWEAT. Leveraging on its large community of Web2 users who love to earn, the Sweat Economy has successfully onboarded a significant part of its user base into a crypto native experience with over 13 million non-custodial crypto wallets being created on the Near Protocol. Facilitating the transition of Web2 users into Web3 through a non-custodial wallet experience is an impressive feat to behold.

To further developed its ecosystem, the Sweat Economy has aligned itself with leading Web3 builders including Spartan Group, NEAR Foundation, Electric Capital, OKX Blockdream Ventures, Goodwater Capital and GSR Ventures which have supported the project in various domains such as token economics, go-to-market strategy, ecosystem development and community building.

Sweat Economy is also advised by Spartan Labs, a Web3 venture studio backed by The Spartan Group, who jointly developed SWEAT’s tokenomics and NFT strategies with the Sweatcoin team.

How Exactly is Sweat Economy Different From Other X-to-Earn Models?

The team behind Sweat Economy who built their first Web2 product based on bringing in external value immediately recognized the unsustainable and inward-by-design reflexive game economies that have come to define the first wave of X-to-Earn models which took 2021 and 2022 by storm.

To explain — for projects like Axie, the game’s NFTs’ main value accrual mechanism was designed to enable users to earn more and more tokens, wherein said earned tokens are then reinvested internally back into the game itself (if the user chooses to do so) to upgrade said native NFTs to continue to earn even more tokens. In other words, circulating value will likely be disincentivized to seep out to flow back into the game, from external points of value accrual. In theory, while this positive flywheel effect may sound plausible and effective, the design itself is unsustainable as value is continually extracted from the game’s ecosystem.

During times of hypergrowth, the aforementioned model will likely thrive as it experiences a positive feedback loop. However, once user growth dwindles for the protocol, and the native NFTs are no longer in demand, prices will inevitably be negatively affected. This results in a negative feedback loop that will crush the internally-driven positive flywheel if no preventive action is taken to counteract this effect.

Essentially, in times of hardship (negative price actions), any given form of game theory in such inward-by-design game economies will unlikely hold, leading to a death spiral in most instances, even for the largest projects regardless of scale.

This is where we think the Sweat Economy is designed differently.

The Sweat Economy aims to be a full-fledged thriving ecosystem of rewards, applications and use cases created to accrue value back to its token, SWEAT. Backing this ecosystem is the Sweat Foundation, whose role is to develop and maintain this economy through various means such as partnerships, technological development and community building.

SWEAT (the native token of the Sweat Economy app) has value accrual mechanisms that exist outside of the game itself. This imbues SWEAT with real-world off-chain “hard” value vis-a-vis interactions like third-party collaborations, real-world vouchers, and token trading just to name a few.

Additionally, SWEAT will allow for Sweat Economy users to have real fun with a game that the team is developing, as well as a grant which allows users access to a myriad of platform benefits.

Furthermore, Sweat Economy has several effective revenue-generation streams and engines that will keep the entire ecosystem (and by extension, SWEAT) continually sustainable and value-laden.

Finally, Sweat Economy also has its own platform-specific solutions to achieve its long-term mission of making the world more physically active by creating an asset that (over the long term) becomes synonymous with the value of physical activity. This creates a positive flywheel that will consistently and sustainably draw value back to SWEAT and Sweat Economy users.

All the above will be explained in greater detail in the next section, but as a summation of what has already been discussed, there are two main drivers of demand for SWEAT which are:

1. Utility
2. Buy & Burn

In order to achieve a more complementary token design, both of SWEAT’s demand drivers are fueled by fundamental and inherent value rather than internally-driven reflexive mechanics.

Substantive Value Accrued to SWEAT Via Sweat Economy’s Effective Rewards-System

As an example of the external and “hard” substantive value that is accrued to the SWEAT token, stakers of SWEAT will receive both on-chain as well as off-chain rewards, wherein the latter comprises goods and services that users truly value in their daily lives.

Sweat Economy achieves this by delivering items from global world-class brands, for example vouchers and discounts for blue-chip brands including Adidas, Amazon and Nike, as well as tickets to major events (Sweat Foundation recently purchased tickets to the Football World Cup in Qatar) just to name a few.

In order to further develop its ecosystem, the Sweat Economy has also declared that the Sweat Foundation will be funding at least $300,000 per month into on-chain and off-chain rewards for the first 6 months after their Token Generation Event (TGE), and will aim to increase the reward as they grow. This commitment to the derivation of substantive value for SWEAT is a lesson they have learned from the many issues faced by closed-loop reflexive economies that, as mentioned above, have come to define the first wave of X-to-Earn protocols, and is an approach that is radically different from most other projects within this space.

SWEAT will Allow For Sweat Economy Users to Have Real Fun

On top of the rewards system, another avenue of value accrual that the Sweat Economy team has viewed as extremely important with regard to a sustainable X-to-Earn model is the actual fun and enjoyment that users experience when using the Sweat Economy app.

Sweat Economy is developing LegZ, a hyper-casual and dynamic NFT game that will be launched within the Sweat Wallet.

LegZ is a game that is carefully crafted and designed around true user enjoyment. From the Sweat Economy team’s perspective, enjoyment should always be the most fundamental element of any given game or app; earning potential should always only be a secondary driver and bonus of sorts. This will set the game or app up for a more sustainable future and position them for long-term success, as they will be less likely to attract mercenary capital and users that are merely there to farm, dump and earn a quick profit for themselves.

With LegZ, users will engage in P2P battles/competitions that incorporate an amalgamation of their daily steps, NFT level and gameplay skill. LegZ is also net-deflationary, as users will stake SWEAT when competing against each other. The winner will claim the staked SWEAT and the Sweat Foundation will take and burn a fee.

SWEAT is a Platform Token

On the Sweat Economy app, users will be able to stake their SWEAT tokens to access a range of added benefits other than earning more SWEAT tokens. SWEAT stakers will benefit from lower transaction fees, premium features and exclusive access.

This will become increasingly valuable as Sweat Wallet features increase. In the future, the Sweat Economy team plans to introduce Sweat Wallet features for its app and SWEAT token such as crypto-to-crypto trading fee discounts, priority access to NFT drops, as well as exclusive access to community channels.

Effective Revenue Generation

Sweat Economy has two main revenue drivers: User engagement (B2B) and transaction fees (B2C).

Both revenue streams are synergistic to SWEAT, rather than reflexive like other engage-2-earn products.

Monetization of User-Engagement

By facilitating the creation of over 13 million non-custodial wallets, the Sweat Foundation has one of the largest on-chain user bases in crypto, even before formally entering into the crypto space!

Access to this user base is valuable to a large range of third-party institutions, and Sweat Foundation will monetise access to this user base through the development of products and services that will deliver value through channels of advertising, distribution and engagement.

To elaborate, Sweat Economy will be monetising on-chain wallet creation. In fact, Sweat Foundation has already secured a collaboration worth $50m in revenue. They will also be pushing out a Learn and Earn campaign to their user base. On this, over 815k users have already completed their beta Learn and Earn campaign.

Additionally, and as a medium-term play, Sweat Economy will also be monetising the movement data that they will collect from their users. In essence, they will be allowing their users to sell and monetize their own movement data.

Transaction Fees

On top of the abovementioned monetization of their user base, Sweat Economy’s revenue-generation mechanism also includes a transaction-fee stream.

The Sweat Wallet will include features like crypto-to-crypto trading, as well as NFT primary and secondary markets.

Blockchain Research Lab recently completed an independent analysis of Sweat Economy’s token economics and revenue, with some key highlights of this report including:

With all these effective revenue-generation streams and engines, Sweat Foundation will be allocating a portion of its revenue to grow the Sweat Economy, wherein main expenses will include those for the sub-verticals of marketing and PR, liquidity and ecosystem growth, as well as rewards.

These design philosophies will create a positive feedback loop and flywheel effect with a key focus on sustainability and supporting the Sweat Economy to thrive for many years to come.

Sweat Economy’s Unique Long-Term Vision and Mission

Sweat Economy is not looking to create and/or drive value ‘just’ for the sake of creating and/or driving value. They have a clear and ambitious end goal in mind: to make the world more physically active by creating an asset that (over the long term) becomes synonymous with the value of physical activity. This end goal was also the main driver with regard to their crafting and designing of SWEAT’s unique tokenomics model.

For example, the Sweat Economy team has spent a lot of time and effort on the verification of movement. In essence, they are not issuing crypto (SWEAT) for movement as a “hook”; they are capturing verified activity in every given token.

The minting difficulty is constantly increasing to make sure that whilst physical activity is rewarded even in 20 years’ time, the inflation rate will approach zero. When this is viewed in tandem with their burn mechanisms, this renders their overall token economics design to be inherently deflationary.

The combination of all of the above-mentioned mechanisms will result in a positive flywheel that will consistently and sustainably draw value back to SWEAT and Sweat Economy users.

In addition, the Sweat Economy team has put in place certain structures and measures that will ensure that the project will be incentivized to empower the long-term success, viability and sustainability of the project. These include:

1. Sweat Foundation has no equity, and the team is incentivised by the success of the SWEAT token only. Equity is not competing for value capture, which means that the team’s incentives are aligned with its community of SWEAT holders.
2. Team tokens all have a 12-month cliff followed by a 36-month linear unlock (48 months to full liquidity).
3. Much of the team has been working on Sweatcoin for several years at this point.

Final Thoughts

One of Spartan’s investment thesis is leveraging the existing Web2 user base to drive the adoption of Web3. We have recognized the majority of the world’s current crypto investors/owners have only interacted with crypto on centralized platforms — the biggest problem we need to solve in our current state of the industry. Sweat Economy has committed to delivering a non-custodian and web3 native product to millions and billions of people, and it’s not a small task.

We have seen reward programs are highly effective in shaping user behaviour, and if designed well are long-term sustainable for both bringing in new users as well as enhancing existing user engagement. The early attempts of X-to-Earn models have flaws and left us with many lessons to learn, but more importantly, they showed us that consumers love it and they want it.

Sweat Economy’s ability to design a more sustainable game economy and ecosystem as a foundation to grow has relied on their previous experience in building a sustainable Web2 value loop, and for the future, it’ll be how fast they can learn and adapt to a decentralized and much more open economics playground. The SWEAT token is finally live and the engine of growth has been ignited! We are excited about all the possibilities SWEAT can bring to billions of users worldwide who’ve never owned or interacted with crypto.

The future of X-to-Earn is exciting indeed.

Legal Disclosure: This document, and the information contained herein, has been provided to you by the Spartan Group solely for informational purposes. This document may not be reproduced or redistributed in whole or in part, in any format, without the express written approval of Spartan Group. Members of the Spartan Group (including Spartan Labs Research) may own digital assets or have investments in some or all of the projects mentioned within this article. This statement discloses any conflict of interest and is not a recommendation to purchase any token or participate in any of the aforementioned ecosystems. For full disclosures by team members, please contact Spartan Group at labs_admin@spartangroup.io. Neither the information, nor any opinion contained in this document, constitutes an offer to buy or sell, or a solicitation of an offer to buy or sell, any advisory services, securities, futures, options or other financial instruments or to participate in any advisory services or trading strategy. This content is purely for informational purposes, and should not in any way be construed as investment, legal or tax advice. Please exercise caution and practice your own due diligence if you are planning to partake in any of these projects in any way. Any decisions based on information contained in this document are the sole responsibility of the reader. None of the Spartan Group nor any of its affiliates, shareholders, partners, members, directors, officers, management, employees or representatives makes any representation or warranty, expressed or implied, as to the accuracy or completeness of any of the information or any other information (whether communicated in written or oral form) transmitted or made available to you. Each of the aforementioned parties expressly disclaims any and all liability relating to or resulting from the use of this information.

About the Author

As The Spartan Group’s Web3 strategic research arm, Spartan Labs Research comprises a team of experienced analysts hailing from the likes of Delphi Digital, Signum Capital, Bybit and Mirana Ventures. Having launched various projects ranging from NFT collections to DEXes and AMMs first-hand, many of them are also seasoned builders within the space.

Spartan Labs Research is a specialized unit that advises and aids projects with tokenomics design/review to empower them with the most optimal and effective token models at launch and beyond. It also produces research reports and articles that are aimed at helping web3 users gain insightful perspectives with regard to the developments and issues within the space.