Federal Watchdog Takes Aim at Crypto Gaming

The U.S. Consumer Financial Protection Bureau (CFPB) is monitoring online gaming and, in particular, transactions on gaming platforms, the government watchdog said in a report on Thursday. The agency says its regulatory work is part of its broader mission of protecting consumers in financial markets.

“In some of today's most popular video games, players generally earn or purchase in-game currency, essentially converting fiat currency into in-game currency,” CFBB said. “In-game currency is used to purchase goods and services as part of the game, including virtual items.”

Whether it's buying extra lives or special powers in a casual game, or earning “virtual currencies” or tokens in a game, CFBB calls it all “banking in video games and virtual worlds.” Gaming assets are comparable to banking and payment services where goods and services are exchanged or peer-to-peer transfers.

“Although these crypto-value virtual worlds are much smaller than virtual game worlds such as Roblox, Second Life or Fortnite, they should be aware that due to the proliferation of third-party crypto-value trading platforms, users can exchange virtual worlds. Native crypto-asset to fiat currency, which makes them more porous than traditional gaming markets, the agency said.

The increased scrutiny comes as the crypto game has seen increased interest and activity. last month, Game symbolsIncluding Gala (Gala), Immutable (IMX), Floki (Floki) and Ronin (Ron), it rose in the first quarter of 2024, surpassing $26.9 billion in market capitalization. CoinGecko.

Even AI developers are looking to enter the blockchain gaming scene. Last week, AI Analytics firm Helix Launches $50 Million Crypto Game Accelerator

CFBB highlighted its research on “issues” such as fraud, theft and other criminal activities. The agency said it paid attention to whether the platforms provide solutions to users for lost assets.

“Game companies take a ‘buyer beware' approach, placing the burden on individual players to avoid these scams and phishing attempts,” the agency said. “They can lock or ban the accounts of players suspected of cheating and phishing, but do little to provide redress to the victim.”

CFBB stated that some third-party websites allow in-game items and currencies to be traded for Bitcoin, calling Second Life “Linden Dollars”, players can buy fiat currency on Second Life's official Linden Exchange (Lindex). Third parties using PayPal and Skrill.

“Between 2011 and 2013, third-party websites allowed trading between the linden dollar and Bitcoin,” the agency said. By 2021, Second Life reports an average number of daily users in 200 countries of 200,000 and a gross domestic product of more than $600 million, which is larger than some smaller countries.

In addition to Bitcoin, the CFPB report also highlighted Blockchain-based games and platforms, including Ethereum-based Axie Infinity, Decentraland, Sandbox's MANA and SAND tokens, and NFTs that can be traded and sold in USD.

There are also DeFi lending platforms like MetaLend, a cryptocurrency finance services company that has enabled AXE Infinity players to take out loans on in-game NFTs.

“At the height of its success, Axie Infinity had more than 2.7 million daily active users, but as the number of users increased, the NFTs needed to play became more expensive, leading to a hierarchy of users—investors, managers, and employees,” the CFPB said. “While the crypto-asset industry and its investors have hailed the game as a viable way to make money, reports have revealed ways in which the gaming system exploits workers.”

In 2010, the CFPB A March 2022 hack of Axie Infinity's Ethereum sidechain saw Ronin use stolen private keys to invest more than 173,600 ETH and 25.5 million USDC, totaling $622 million.

The report did not include definitive action, but CFBB said it would continue to work with other agencies to monitor the site. Future attention will likely focus on companies that collect and sell consumer data — such as consumer payment history — especially when that data is collected and monetized without the consumer's knowledge.

The CFPB did not immediately respond to Decrypt's request for comment.

Edited by Ryan Ozawa.