What Is FitFi/Move-to-Earn?
Fitness Finance, short FitFi, is an upcoming trend in the fast-moving world of crypto innovations. It rewards players with cryptocurrencies for physical activity. The goal is to help users to live a healthy lifestyle by letting them earn crypto while working out.
The concept of Fitness Finance has taken off the moment it hit the market. The possibility to earn crypto while working out blew people’s minds and attracted a large number of users to the space. Many FitFi apps include a playful element and are designed to keep players engaged. This also involves strong incentives to reinvest the earned tokens, so players can earn even more tokens in the future with their locked tokens. However, caution is advised when investing in FitFi applications as some of them have Ponzi scheme-like incentive structures (also referred to as Ponzinomics) that might collapse should no new users enter the ecosystem.
The Story of Move-to-Earn (M2E)
FitFi, also known as move-to-earn (M2E), is the newest development in a long list of projects that rewards users for interacting with a blockchain protocol. The idea was first pioneered by decentralized protocols like SushiSwap and Compound, which incentivized investors to provide liquidity on their platforms by distributing their native token to them free of charge in addition to the earned fees.
In 2018, Sky Mavis took this concept one step further and introduced the world to play-to-earn (P2E) by allowing players to earn cryptocurrencies in return for playing their game Axie Infinity. The game was a huge success and made headlines around the world. Players could make thousands of dollars by simply playing the game, trading bred Axies, and selling earned crypto tokens against Ether, Bitcoin, or fiat currencies. In 2021, within 6 months, the price of the Axie Infinity token (AXS) exploded and rose 40x.
Other projects like Polychain Monsters picked up on the trend and further developed the concept. Not only could players earn crypto by playing the game but also by collecting and staking in-game NFTs. Thus, collect-to-earn (C2E) was born. Soon, dozens of crypto projects used the C2E concept to lure players to their platforms.
But the crypto space doesn’t stand still and new projects are continuously looking for innovative concepts to build protocols around. In the fall of 2021, StepN announced the world’s first move-to-earn (M2E) game. Instead of players getting rewarded for their participation in a project or game, M2E pays users for walking, jogging, or running in the real world. StepN was an instant success and multiple other projects have already copied the concept. Dotmoovs rewards users for juggling a football or dancing a choreography; Genopets lets players develop their game character through real-world activity; and Step App is building a decentralized version of StepN.
How does move-to-earn (M2E) work?
Even though each FitFi application is unique, there are several key attributes that most move-to-earn games have in common. M2E apps create a native cryptocurrency, use NFTs, include gaming elements to level up their NFTs, and provide a marketplace to trade their currency and NFTs. The goal is to create an incentive structure that encourages active and new players to participate in an in-game economy.
Native cryptocurrency: M2E apps launch their own cryptocurrency. This currency is then used to reward players for their activities. The creation of a new cryptocurrency can be done by the project at negligible costs. To give the currency an initial value, it is often sold in an ICO. Should the app become a success, then the currency is expected to surge in price. This makes it attractive for investors to buy it in the first place. In most cases, the currency is needed to participate in the M2E ecosystem.
NFTs: To participate in the M2E game, players have to buy an NFT. The price of the NFTs is the initial cost players are facing when entering the ecosystem. Without an NFT, players are not getting rewarded for their activities. The more successful an M2E ecosystem is, the more expensive these NFTs tend to get. Most M2E games let players level up their NFTs by reinvesting their earned tokens. Higher-level NFTs allow players to earn even more tokens for their activities.
Gaming Elements: Players get rewarded for moving their bodies in the real world. To make sure movement is recognized, a smartphone’s GPS tracker is used or a live video feed needs to be provided, which gets analyzed by artificial intelligence. Once the activity is completed, players get rewarded tokens in the in-game currency. Players can now use these rewards to upgrade their NFTs, mint new NFTs, or buy other perks, which provide them future benefits. The goal is to keep players from selling the currency on the open market and instead encourage spending within the game economy. The prospect of even more future profit lures many players into reinvesting their earned tokens instead of cashing them out. This prevents the in-game currency from being devalued and drives NFT prices up.
Marketplace: The marketplace allows players to trade NFTs as well as the game’s currency. New players can purchase the NFT to participate in the ecosystem. Seasoned players get to sell their earned tokens and newly minted NFTs. Often, a percentage of every trade goes back to the platform or is burned. In most cases, items can only be bought using the in-game currency.
What are the opportunities of move-to-earn (M2E)?
The concept of Fitness Finance and M2E sounds almost too good to be true. It promises to help users get into shape by paying them for their efforts. Instead of users paying a fitness coach, FitFi apps reward users for participating in workout activities. A new world turned upside down?
In the case of StepN and Dotmoovs, the concept seems to work so far. Users are getting paid for their activities and are able to cash out their earnings at will. Early participants have easily made up for their initial investment and can monetize their real-world activities. For newcomers, it will, ceteris paribus (“all other things being equal”), take several weeks or months to earn back their initial investment, but after that, they also have the chance to eventually benefit from M2E applications.
Players wanting to take less risk also have the opportunity to participate in one of the younger M2E projects, which require a lower initial investment. Examples are Genopets, Step App, and OliveX, among many others.
What are the dangers of move-to-earn (M2E)?
Even though the M2E concept sounds tempting, investors should be cautious when participating in M2E projects. As always if something sounds too good to be true, one should take a closer look. Most M2E applications have at least two design flaws that should concern every investor.
1st Flaw: Value Creation
How does new value enter an M2E ecosystem? New value, and therefore new money, only enters the system through new players. The application itself does not create any value of its own as it hardly provides any useful service. If the inflow of new players dries up, then the in-game economy is doomed to collapse as it is dependent on steady demand from new users.
2nd Flaw: Value Extraction
Why do players use the application? Other than monetary benefits, most M2E projects only provide limited value to their users. Therefore, most users only participate to extract as much monetary value as possible. Once no more value can be extracted, they will sell their assets and leave the ecosystem. Should no more value enter the system through new users, no more value can be extracted and users will abandon the application.
Both flaws will eventually lead to the collapse of the M2E economy. Once this happens, the current holders of in-game NFTs and tokens will be left with massive losses.
Putting it all together
Fitness Finance and move-to-earn can be seen as an innovative concept that has the potential to spread all over the crypto universe. Similar to play-to-earn games, it attracts players that are looking for an easy way to make money. And wherever money can be made, people will show up and participate. Thus, the FitFi boom can be expected to continue for a while.
But caution is advised. Many M2E projects have pyramid-scheme-like structures that could collapse anytime. The losers will be the latecomers that bought high and have to sell low. A prime example is the much-hyped play-to-earn game Axie Infinity. After its vastly successful 2021, the prices for Axie Infinity NFTs collapsed by as much as 95%. Losers are the current holders of Axie NFTs, who likely will never be able to recover their losses. The same fate could very well befall many M2E projects at a later stage in their hype cycle.