Play-to-Earn Model - Gold Standard or “Guilded” Cage?

By David Hoppe
Managing Partner
Gamma Law

Blockchain technology is finding increasingly broad application across a variety of industries from finance to art to video games. NFTs form the primary basis of value creation through blockchain technology in play-to-earn games and represent claims of ownership for unique, non-transferable digital assets. NFTs can take many shapes within the gaming world including characters, weapons, magic spells, land, decorative customization features, and clothing, or skins.

As players engage in play-to-earn games, they can earn valuable items that they may be able to sell for real-world money. Axie Infinity is a notable example among many startups that have emerged that use play-to-earn games to build new economies.

The Role of the Guilds

A guild is a group of gamers that plays together to achieve a common goal. They are common in massive multiplayer online role-playing games (MMORPGs). By forming guilds, players can pool their resources and create alliances to divide labor, defend themselves, and conquer foes. Players that operate as guilds can reach higher levels of achievement faster, progress through the game and increase their chance for success.

Guilds can be large or small. Depending on the platform, a gaming guild may include real-life friends or strangers from different countries playing together as teams of convenience. A common motive ties the players together: leveraging on- and off-game abilities, strengths, possessions to win battles and accrue assets. Allowing guilds in a play-to-earn game increases players’ odds of completing quest assignments and earning compensation.

While earnings today may be tiny by Western standards, some guilds, such as Yooshi's game guild alliance, have made it their mission to increase the income of low-income people globally through play-to-earn. Play-to-earn is proving to be a particularly attractive proposition for players in the Global South. Axie Infinity, for example, has gained popularity among Filipinos and Venezuelans over the last few months and now boasts rising to over 2 million daily active users.

Legal Issues

There are many challenges to overcome beyond the hardware, software, and integration issues before the metaverse can realize its potential to connect current gaming and communications platforms and other new technologies into a massive new online career destination. One of the most significant issues revolves around the resolution of gray or entirely new legal matters. The metaverse presents more legal questions than the Bar exam. The internet we know today, Web 2.0, offers many legal issues that are still not fully settled. The metaverse will undoubtedly complicate things even further.

Much of the confusion deals with the shape and scope of the legal framework required to legally, ethically, and fairly operate a play-to-earn gaming guild. A codified infrastructure will allow disparate developers, studios, e-commerce marketplaces, and service providers to collaborate within a single virtual world. A more immersive experience, enhanced features, and interactions result in more complex legal issues:

• Privacy and Cybersecurity- Adding to the global concern over personal privacy and data security arising from sophisticated deep fakes, wallet hacks, avatar impersonation, stolen biometrics, ransomware, and the lack of comprehensive international regulations, the volume of collected data online will continue to increase as the trade in game assets expands. As we spend more and more of our lives in connected environments, extended reality, and the metaverse, we disclose, expose, and put our personal information in greater jeopardy to facilitate transactions and enable cross-platform and inter-game access. The threat of data theft and misuse will be far greater if gaming guilds in the metaverse live up to their hype and become a hub for everyday life without developing more robust security measures. They must protect their users from identity theft and themselves from legal action by conducting due diligence, requiring end-user licensing agreements, and carefully considering which data to collect, how to safeguard it, how they will use it, and how they can guarantee compliance with GDPR or other international regulations.

• Open-source and Antitrust - Open-source could play an important role in gaming guild development by allowing developers to improve existing games and platforms. The technical details of implementation will determine whether common open-source licenses will incur additional obligations such as creating and regulating open-source permits to address the metaverse's unique challenges and operational nuances. Similarly, gaming guilds rely on collaboration to succeed because they are, by definition, multi-tenant environments. Antitrust laws may apply to cooperation between competitors. There may also be concerns if larger technology companies leverage their position in any virtual world to assert unfair control.

• Digital Ownership and Smart Contracts - With gaming guilds often planned and organized as unified accounts with multiple operators and users, the blockchain (or blockchains) may assume a greater role thanks to its immutability. A metaverse rife with smart contracts will need a trusted ledger of virtual goods transactions. Investors, developers, and guild members may also decide that decentralized autonomous organizations (DAOs) offer the best option to facilitate crowdsourcing or crowdfunding opportunities within that environment. A decentralized metaverse with its discrete economy might allow the creation, sale, and holding of sovereign digital assets (as well as their free use, display, and exchange via a blockchain-based payment network). This should allow NFTs to go beyond mere digital collectibles and speculative investments to assume roles similar to those played by other forms of digital currency such as cryptocurrency, utility tokens, stablecoins, e-money, virtual money in video games, and micropayment scrip for virtual services, goods, and experiences.

• Intellectual Property - In real-world IP licensing, it is relatively easy to limit a licensee's rights to certain geographies and territories. But pay-to-play models, online guilds, and the metaverse transcend traditional borders, increasing their scope and reach. How will platform owners guarantee IP rights and police their virtual worlds? What is their liability for failing to do so? How will safe harbor laws, DMCA takedowns, and other cease-and-desist orders be managed? Will rights of publicity be extended to cyberspace? These questions must be answered satisfactorily in order to guarantee protection in such areas as anti-piracy, patents, co-ownership, fair use, trademark and copyright, and advertising.

• Quantum Computing - Computers will gain dramatically more robust capabilities with the advent of quantum computing. Guilds will undoubtedly benefit as the technology filters into the gaming space, increasing computing speed, communications, and collaboration. However, quantum computing also threatens some of the legacy security measures we use today. Developing post-quantum cryptography that is secure against both quantum and traditional computers will replace passwords and conventional security protocols. New rules may need to be promulgated to prevent a bad actor from exploiting raw, uncontrolled quantum computing to manipulate and misuse the metaverse.

• Third-party Content Management - While Section 230 of the Communications Decency Act has been subject to bipartisan criticism for several years now, it remains in effect despite some arguably dubious applications (see, for example, Jones v. Dirty World Entertainment Recordings; Fields v. Twitter). This act applies to the gaming guild metaverse, which is likely to exchange content with third parties more aggressively even than what we already see on social media. How will sites monitor and mediate the content their users generate? Will Section 230 have to be amended or a new regulation formulated altogether to govern speech in virtual environments?

NFTs and other gaming crypto assets provide play-to-earn users with an exciting experience by offering incentives and opportunities to generate income within their ecosystems. Anyone exploring opportunities in the play-to-earn industry also should educate themselves on the pitfall by consulting an attorney knowledgeable in digital law and video gaming.

Gamma Law is a San Francisco-based firm supporting select clients in cutting-edge business sectors. We provide our clients with the support required to succeed in complex and dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.

This article does not necessarily reflect the opinions of the editors or the management of EconoTimes