Reflections on ‘Earn’

Investing in the web3 earn category

Pioneered by Axie Infinity, the play-to-earn category exploded onto the scene in 2021. At its apex, Axie had 2.7M daily active users and, at the time of publication, has a $1.38B market cap. While Axie was not the first, a new economy has emerged in what we call earn.

We define earn as an incentive mechanism that drives member acquisition and retention with networks, and we are seeing growing adoption of this earn model in the form of move to earn, learn to earn, spend to earn, and the list goes on.

What's most interesting is that both crypto natives and mainstream consumers - who don't know or care what blockchain is - are engaging with these businesses. One example in the move to earn space is M13 portfolio company StepN, which was prelaunch when we invested in early 2022 and is now a top iOS fitness app with more than 3M monthly active users and 800K daily active users.

The throughline in earn businesses is that a user accrues value in the form of tokens for completing an action of behavior. We have broadly invested into this space, and we wanted to outline our thoughts on what is driving this space forward and what attributes to look for in an earn business.

M13 Earn Portfolio Companies (as of May 2022)
M13 Earn Portfolio Companies (as of May 2022)

Why earn matters

We see three fundamental unlocks that earn businesses can provide when done correctly:


Providing transportable economic value


Incentivizing users for existing behaviors


Incentivizing users on the margin

1. Transportable economic value

Reward businesses are commonplace in our daily lives: airline points, credit card rewards, Fortnite V-bucks are all familiar earn mechanisms. Their value is typically not transferable and limited to the environment in which they exist. This is by design as they serve as an engagement tool to retain users.

Crypto is different in that crypto assets are generally redeemable outside their native ecosystem. Want to trade your Axie AXS tokens? Simply head to any whitelisted exchange or DEX and swap them for another token, provided there is sufficient liquidity.

Transportability matters as it provides users the means to monetize the value that they earned internally on any external market. This trait has been a driver in the rise of play to earn (P2E) as a means of earning income.

While the transportability of earn allows users to actually monetize their behaviors, this property is a double edged sword. Users can vote with their wallets and cash out, draining liquidity and impairing the ecosystem’s health along the way. This must be counteracted by compelling user experiences or financial incentives (e.g., yield through liquidity pool contributions) that keep users engaged. More on this below.

2. Incentivizing existing behaviors

Earn businesses can incentivize behaviors that consumers have already adopted. Rewards and loyalty programs are massively successful and have conditioned our expectations to earn for spending, but we have seen the expansion beyond just spending. Today's consumers and developers are increasingly educating themselves on web3 and being rewarded for learning and becoming active in crypto ecosystems. Coinbase Earn, Rabbithole, and Layer3 are examples of businesses helping users - from casual retail investors to professional financial analysts - upskill via earn mechanics.

Another example is M13 portfolio company Flipside Crypto. Protocols that are in need of third party analytics post bounties to the Flipside site. Using Flipside’s querying tools, analysts can complete bounties and submit them for a payment reward in the protocol’s native token. The outputs range from simple queries to detailed dashboards and are opportunities for analysts of all levels to earn by auditing protocol health. An eventual extension of this is the opportunity for analysts to build an ownership stake in the protocols that they are building in or even in a platform like Flipside.

Flipside Bounties
Source: Flipside bounties

3. Incentivizing users on the margin

While earn businesses reward people who are already in crypto, we are most excited about the ability of the earn category to onboard net new consumers into the space.

For example, let’s look at StepN. The app has brought thousands of walkers, joggers, and runners into crypto, many for the first time. More importantly, StepN has motivated people to begin exercising: a quick glance of StepN’s Subreddit shows its positive health effects. And consumers are lacing up their running shoes (both physical and digital) in droves, making it one of the largest web3 apps to date.

StepN - user tweet - @kailase24
Source: @kalaise24 via Twitter

It's early days for StepN, and there is much to prove out and much discussion on its token model. The cost of entry remains high, and the game will need to continue to innovate on price stabilization. As the debate continues about what it is -- a game or a financial tool -- the behavior we are seeing is that consumers are getting off their couches, stepping, and improving their health.

How earn companies succeed

The earn space is in its infancy and, like most things in crypto these days, growing quickly. To evaluate the models that we are seeing, we ask ourselves three questions:

What is the long term utility?

Community engagement is a key sign that there is something beyond pure token economic incentives. Consumers want and deserve compelling products and experiences, and we look for product durability by trying to understand if consumers will continue to love the experience long after the honeymoon period wears off. For example, will Flipside's incentives drive more analysts to build in these emerging networks, leading to new and meaningful applications that generate further engagement? Will StepN address both screen saturation and immobility and usher in a global fitness movement? This will only happen if consumers extract value beyond economic incentives such as the community, local meet-ups, and innovation in the game design that keeps them engaged and moving.

Are the tokenomics sustainable?

When done right, tokens amplify traditional network effects for all stakeholders: users, developers, validators, and the insiders. A value prop of crypto is its ability to enable owned governance in a network, meaning that projects with aligned long term incentives should be able to both financially succeed while providing a positive experience to users. Are consumer and investor incentives aligned, or will the marginal user be left holding the bag? This is where critical details like token allocation, vesting, burn mechanisms, and unlocking schedules and liquidity are essential. These are still such early days for this market, and we are learning along the way with our portfolio companies. The bootstrapping of a network has been proven out but it will be many years before we can truly answer the question on sustainability.

Would this business succeed if it were a web2 company?

The answer is not always clear. While web3 is filled with jargon, the same business fundamentals that matter in web2 (i.e., user growth, revenue, DAUs, MAUs, engagement, retention, NPS, etc.) still matter here. Copying a web2 model and incorporating a token is generally not a recipe for success, so it is important to think through the fundamental unlock that a web3 company is providing.

We at M13 will be doubling down, spending more of our mindshare, and deploying more of our capital into crypto and its impact on the future of consumer behavior. If you are building, investing, writing about, or just curious about the space, we hope you’ll join us on the journey.

How to get in touch

Contact Mark Grace at, and follow him on Twitter at @markwgrace.

Contact Latif Peracha at, and follow him on Twitter at @latifperacha.