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Web3 Gaming Is Entering the Mainstream but Will Regulation Stifle Its Success?

Published
Kurt Robson
Published
By Kurt Robson
Edited by Samantha Dunn

Key Takeaways

  • Web3 gaming platform Immutable was recently hit with a Wells notice by the SEC.
  • The notice came just weeks after blockchain gaming saw mainstream success with the release of Gunzilla’s Off the Grid.
  • As traditional gaming companies continue to face tough regulatory scrutiny, is Web3 gaming destined to follow suit?

Just weeks after Web3 gaming saw mainstream success with the hit release of ‘Off the Grid’ on PlayStation 5, the SEC made the landmark move of handing a Wells notice to Immutable, a popular Ethereum-based web3 gaming platform.

The SEC’s legal warning on Immutable raised concerns that the future of blockchain gaming could be plagued with regulation hurdles, possibly mirroring the challenges currently being faced by traditional game publishers.

Blockchain Gaming Enters Mainstream

Off the Grid, developed by Gunzilla, was met with a massive initial player count and critical acclaim when it was released on PlayStation 5 in October.

The free-to-play battle royale shooter, developed on Unreal Engine 5 and the Avalanche blockchain, highlighted the future possibilities of targeting mainstream audiences with Web3 gaming.

Although its actual crypto applications are missing from the game, the continued success of Off the Grid may result in a wave of new Web3 interest when blockchain functionality is added.

In the near future, users will be able to mint rare in-game items such as weapons and armor as non-fungible tokens (NFTs).

Despite the development team’s claim that the blockchain trading element will remain optional for players, the SEC’s targeting of a Web3 gaming platform has raised questions about the industry’s future.

SEC Targets Web3 Gaming

The Australian Web3 gaming platform Immutable recently became the first blockchain gaming company to receive a Wells notice from the SEC.

The SEC has been on a mission to crack down on crypto firms, issuing numerous Wells notices and lawsuits to companies across the ecosystem.

In recent months, the SEC has scrutinized high-profile crypto companies, including Coinbase, Consensys, and Ripple.

Immutable fought back against the notice, claiming it had a “well-capitalized with a large war chest to build for the future of gaming.”

“If needed, we will stand up and fight to defend digital ownership for gamers. But the SEC’s approach hinders every startup trying to innovate in an already difficult industry,” the company said  in a post on X.

The company claimed the Wells notice related to the listing and private sales of its token, IMX, in 2021. The SEC implied there was no exchange of value between the parties.

“Once again, the SEC is incorrect: there was real consideration, which they would have learned through a constructive dialogue with the company,” the company said  in a statement.

Traditional Gaming and Web3 Could Face Similar Scrutiny

In September, the EU filed a complaint  against seven gaming companies, including Epic Games, Roblox, and Electronic Arts.

The complaint alleged the companies, whose games have hundreds of millions of players, were misleading gamers into spending money on in-game purchases.

“Today, premium in-game currencies are purposefully tricking consumers and take a big toll on children. Companies are well aware of children’s vulnerability and use tricks to lure younger consumers into spending more,” European Consumer Organisation Director General Agustin Reyna said in a statement .

Video game publishers have been under intense scrutiny from global regulators for years.

The release of EA’s Battlefront 2 in 2017 brought loot box controversy  and its ethical and legal ramifications into mainstream discussion. Since then, Belgium and several other countries have ruled that the sale of loot boxes is a form of gambling – with many other countries currently in discussion to do the same.

Web3 gaming also risks these criticisms, especially around token-based economies, which can blur the lines between gaming and investment. Token value fluctuations can lead to speculative behavior, which could lead to players effectively gambling on asset values within the game.

Eva Porras, lead researcher at blockchain distributor SmartLedger, told CCN that the regulation of assets in gaming is still in its early stages, and strict measures on how assets are created, exchanged, and sold are likely to emerge.

“While this may introduce more structure into the industry, it could ultimately foster trust among new users and institutions, as a defined legal framework provides greater security and legitimacy for all stakeholders,” she added.

Could Web3 Help Traditional Gaming’s Challenges?

Despite housing the potential for recent scrutiny, Web3 gaming could offer potential solutions to some of the issues being scrutinized in traditional game development.

Decentralization, for example, could give players more control over their digital assets and reduce their dependence on potential exploitative practices from game corporations.

Blockchain technology has the chance to prioritize “a healthier, fairer system—where players are genuinely rewarded for their investment and participation rather than being enticed to spend uncontrollably,” Porras said.

Smart contracts and transparent transaction histories could also allow for more ethical systems around in-game spending, providing players with better tools for managing expenses.

This approach could potentially shift the gaming industry away from a model based on microtransactions, which appease both gamers and regulators.

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Kurt Robson

Kurt Robson is a London-based reporter at CCN with a diverse background across several prominent news outlets. Having transitioned into the world of technology journalism several years ago, Kurt has developed a keen fascination with all things AI. Kurt’s reporting blends a passion for innovation with a commitment to delivering insightful, accurate and engaging stories on the cutting edge of technology.
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