Sweatcoin Deep Dive

<strong>Sweatcoin Deep Dive</strong>

Source: Sweatcoin

Sweatcoin has been gaining lots of traction ever since it announced its web3 product. I discovered the app three weeks ago. Here is my extensive review of the app in its current existence and an overview of the upcoming sweat token economy.

Note: All the crypto native terms are hyperlinked.

What is Sweatcoin?

Sweatcoin is an app that pays you in virtual currency to walk (Move-to Earn). It is currently available on your smartphone (Android or iPhone) and Apple Watch with over 90 million total users.

The company SweatCo Ltd, a company founded by Oleg Fomenko, Anton Derlyatka, Danil Perushev and Egor Khmelev in 2014, developed it.

In its current iteration, it takes in your physical activity data and maybe GPS (contradicting information available) data on a daily basis and gives out Sweatcoins.

Current features and user experience

Once you download the app from the respective app store, sign up using either your Google account or phone number, give it a few permissions (physical activity and Google Fit) and voilà, you are all set to go.

Unfortunately, it hasn’t been issuing me sweatcoins for my steps. I have made sure that the app has no background restrictions but it’s still not functional. My phone is recognized as a smartwatch on the app might be the issue.

It has been working just fine for people around me though. But, how prevalent is this problem? Well, I visited a sub-reddit for Sweatcoin with over 12,000 members (unofficial Sub-reddit) and I came across a few posts highlighting the same issue. I haven’t tried reaching out to customer support yet but honestly, I expect it to work for all phones from the get-go.

The app has four tabs:

  1. Home Tab

You can check your Sweatcoin balance, number of steps you have walked on that day, invite a friend, enroll for the 20 minute daily 2X boost and earn up to 3 daily rewards.

Now coming to the conversion rate for your steps: For every 1000 verified (more on the verification process later) steps, it converts to 1 Sweatcoin. A 5% commission fee exists, hence you receive 0.95 Sweatcoin. Here is their justification for the commission fee:


Source: Sweatcoin Blog

I quite like the sustainable concept of the commission fee and minting only though physical movement, very unlike a generic Web2 company back in 2018.

You get rewarded up to 10 Sweatcoins/day on the free tier, 2x sweatcoins for the same number of steps on the Premium tier up to 95 Sweatcoins (50000 steps). The premium subscription costs INR 3050 (~$40)/year.

When you invite someone to download and use the app, you earn 5 Sweatcoins. It’s a hit and miss on the first try. You need to request the referee to click on the invitation link again after downloading the app to receive the five Sweatcoins.

Regarding the 2X boost, you get an opportunity to earn double the Sweatcoins that you normally would for 20 minutes every day. Since I personally couldn’t verify this, I asked my friends to test the 2X Boost. Out of the 4 days they tried the feature, it worked 3 out of 4 days.

There are three daily rewards you can receive. Each can give you anything between 0 and 1000 Sweatcoins. You need to watch an ad to receive these rewards. The ads that I came across redirects you to the Play Store, which is slightly annoying.

2. Marketplace

The marketplace is where you can claim your Sweatcoins. There are four options:

  • Shop: You can avail discount coupons, products and gift cards. There are hardly any options listed and out of those most are out of stock. The only thing currently available is an Apple Airtag, which costs around 4000 Sweatcoins. The retail price of Apple Airtag is INR 3190 (~41 USD).

Just considering this, one Sweatcoin is valued to be around INR 0.80 (~0.01 USD).

You get more choices if you opt for a country like the USA.

  • Donate: Pledge your Sweatcoins for various ‘for good’ campaigns. If you have a premium subscription and you choose to donate your Sweatcoins, they match your donations.
  • Bid: An auction takes place every alternate day where you can bid for a product/gift card.

I went through the last 15 products that were up for auction and here are some stats:

Average price of a product listed = $406

Average highest bid = 30349.6 Sweatcoins

Average Sweatcoin price = $0.013

So you most likely have to pool in your Sweatcoins to even place a bid (You can send and receive Sweatcoins via the app).

  • Crypto: This just displays a banner for the Sweat crypto token (more on that later).

3. Wallet

This tab is for registering for the Sweat tokens and to check out your earning summary.

4. Challenges, Friends and Events

Participate in various challenges to stand a chance to win prizes or donate your Sweatcoins for a charitable cause. You can also follow your friends and you will be able to see their steps.

Step Verification Process

A trademarked algorithm is used to filter out the shakes and bumps and they claim they can recognise cheating by looking at the patterns of the movement.

As per their analysis, an average user converts 65% of the total steps registered by the phone into Sweatcoins.

Sweat Token

Sweat token will be the web3/crypto token that will co-exist with the web2 token, Sweatcoin. I was curious to know what’s the reasoning behind the co-existence. Luckily I caught Henry Child, the Chief Crypto Officer of the Sweat Economy in an AMA (Ask Me Anything) session. His answer was they prefer a bigger TAM (Total Addressable Market) for the product. The team understands they won’t be able to onboard everybody on the crypto train from the get go and they don’t want anyone to miss out on the product. While it makes sense, I hope the team will work on making their web3 offering just as easy to manage so that an average Joe doesn’t need to know the nitty gritty of crypto but can reek in the benefits of an open currency.

Let’s see the differences between both the offerings:

Source: Sweat Economy

The SWEAT token is being built on the NEAR Protocol, a leading Layer-1 blockchain.

You need to opt-in to claim 1 SWEAT for every Sweatcoin in their wallet, without burning your Sweatcoins. The Token Generation Event (TGE) will occur in Q3 2022. At TGE, the Sweat Foundation will mint enough SWEAT to match the sweatcoins of users who opted-in.

As of 2nd June 2022, over 8 million users have created a non-custodial Sweat wallet.

Token Allocation

To put it simply:

  • 63% of tokens will belong to insiders.
  • 7% dedicated to ecosystem incubation.
  • 30% for retail folks.

It won’t be a ‘fair launch’ by any stretch of the imagination, but hey they aren’t claiming to be one. There isn’t a cap on the Sweat token supply.

After TGE, the only way to mint new SWEAT similar to Sweatcoin is by movement, verified by a Movement Validator. Movement validators are the entities that will verify the validity of movement and update the blockchain. At the start, SweatCo Ltd will be the sole validator. The fee is 0.5% instead of the 5% in case of Sweatcoin.

It will get harder and harder to mint SWEAT token as the years pass.

After TGE, only the first 5000 steps will convert to Sweat token, rest will convert to Sweatcoin.

An inactivity fee is stated to be introduced that will be charged if your physical activity will consistently fall below a threshold value. Similarly, burn mechanisms should also be introduced to counter the inflationary pressures.

Valuation

Let’s try to come up with a valuation using the previously calculated average price of one Sweatcoin and the token unlock schedule graph:

As per the graph at TGE there will be around 4 billion unlocked tokens, each priced at $0.013.

Circulating Market cap = Number of unlocked tokens x Price of one Sweatcoin = $52 million

This might be a fair valuation for an internal currency like Sweatcoin. When you bring the currency into the cryptoverse, the valuation game changes drastically.

The Sweat Economy team has also provided data wrt the monthly value of goods and services exchanged on their marketplace (can be equated to Gross Merchandise Value):

The Gross Merchandise Value (GMV) for Q1 2022 is 70.76 million dollars.

Axie Infinity’s (Play-to-Earn NFT game) GMV for Q1 2022 is 481 million dollars. The circulating market cap for Axie Infinity at the end of Q1 2022 was 6.5 billion dollars.

Price/GMV for Axie Infinity =13.5

Using the same ratio, the circulating market cap for Sweat token will be $956.4 million.

Price of one Sweat token = $0.24

Close to a billion dollar market cap would be a bit too rich in a bear market. There has been a 73% decline in market cap for Axie Infinity since the end of Q1 2022.

SWEAT has a major competitor in the G2E space i.e Stepn . Stepn’s GMT token was valued at 1.54 billion dollars. It’s down by almost 50% since then.

There are several factors that may increase or decrease valuation:

  • The market has tumbled down further after the end of Q1 2022.
  • Sweatcoin app downloads are going through the roof lately. They are estimating a minimum of 137 million total users around the TGE.
  • It is a tried and tested product for over 5 years now.
  • No cap on supply will not be very attractive to investors, given the current market condition.
  • The Sweat token is planned to have utility in several forms (more on this in the next section).

Demand Drivers for Sweat token

I recently discovered a Twitter thread on tokenomics. You should definitely check it out.

The thread creator mentioned three key drivers for token demand:

  1. Utility(What’s the token used for?)
  • NFTs: NFT providers will have to pay SWEAT to sell NFTs to users. Users will be able to purchase and upgrade NFTs with SWEAT.
  • Advertising: Advertisers must pay in SWEAT to access the customer base.
  • Premium subscription services: Users must pay in SWEAT to access the premium subscription.
  • Governance: Locked SWEAT(veSWEAT) will be used for governance in the SWEAT DAO.

2. Value Accrual (What’s the benefit of HODLing the token?)

  • Users can get NFTs by staking considerable amounts of SWEAT.
  • Alternative Movement Validators will have to stake a substantial amount of SWEAT to operate as a Movement Validator.
  • Users will earn an attractive % return on SWEAT by staking.
  • Users who stake/accumulate more SWEAT will have higher minting limits.
  • On-chain and off-chain rewards will be given to holders depending on the amount of SWEAT they hold/stake.
  • Higher referral fees for larger holders of SWEAT.

3. Marketing

Marketing is about how well you leverage various social media platforms to reach out to your existing and potential customers. In the cryptoverse, Twitter and Discord are huge.

Here are their social media stats:

Twitter: 170K Followers

Discord: 56K Members

The stats are not too bad for a crypto project that hasn’t launched yet. Frequent marketing campaigns like giveaways, keeping the members engaged through various challenges etc. are very essential.

I came across a slightly misleading marketing ploy, though.

These 4 billion Sweatcoins don’t reduce the circulating supply because people who aren’t active for the last 12 months wouldn’t have opted in for SWEAT token.

Accessible founders are an instant hit among the crypto peeps in the form of regular AMAs on Twitter and Discord. The team has been conducting AMAs regularly.

All thriving crypto projects have a cult-like following. While I spent some time on their Discord server attending one of the AMAs, I could see very enthusiastic member participation. Whether or not this turns into a cult-like following, time will tell.

For more information on the Sweat token, refer to the litepaper.

Ending Thoughts

The competitive advantage that Sweatcoin has over Stepn is that Sweatcoin has no entry barrier. Owning or renting a NFT to start earning is just too much hassle. A dApp to become mainstream has to be perceived not as a web3 project but as a project that happens to utilize web3 technology.

The Sweat Economy has a very ambitious roadmap. Hopefully, they will be able to deliver on it.

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