Emerging technology
privacy and the economic implications of these new spaces. There has been a great deal of speculation about how an acceptable balance between these aspects will be reached, what the Metaverse will look like, what that means for society and, in particular, for those responsible for regulating it to protect consumers. The legal challenges around the centralized Metaverse start as soon as the developers who created it launch it into the wild and relinquish control. If they have no control over the virtual environment, then they will be keen not to take responsibility for illegal activity that takes place within it. As it stands, developers of the centralized version of the Metaverse will be deemed to have some responsibility for activity like, for example, an unlicensed casino. In the decentralized Metaverse there is no one who can be held responsible. That is not to suggest criminality will go unrestrained. In the early days of the Internet, law enforcement quickly found ways to identify individuals behind criminal activity, and in time the same will happen for the Metaverse. Even at this early stage there are some offerings which are completely novel, and these are unlikely to be the last. The challenge may be particularly acute where they have some but not all the characteristics of gambling. Price/value at stake of NFTs can be very hard to determine, but as regulatory frameworks talk about “money’s worth” then this should be captured. The growth of gamification will see stakes increasingly locked into outcomes which are not traditional risks making licensability questionable and dependant on national laws. Licensability should also be looked at from a financial services perspective. The European Union’s recent preliminary agreement on the regulation of Markets in Crypto Assets (MiCA) says that, if you allow people to deposit crypto in a wallet, then you are a custodian and that requires a license. Liability may be an issue in the Metaverse, but so too is viability. Most companies
operating gamblified products in the decentralized Metaverse do not make money in the same way as traditional gambling operators. Their income often comes from selling NFTs which could be done through an entirely separate legal entity. Spectacular collapses where investors lose most or all of their value have already been seen and will not increase consumer confidence. As well as financial failure there will be new security concerns. Blockchain is more secure and transparent, but there are elements around it which are much less so. There have already been some high profile frauds and cyberthefts, and as the tide continues to go out on many digital financial assets, more will no doubt be revealed. When the markets were buoyant, cryptocurrenyc and NFTs seemed to be a one-way bet. However, holders of these assets have recently found to their cost that their value can go down as well as up: speculation is a big element even in so-called Stablecoin. Many projects are not providing a service like gambling. They are offering NFTs with other characteristics on which individuals can speculate. Gambling looks much more stable by contrast with standard payout percentages and mechanisms for resolving disputes. Metaverse products, whilst they may share characteristics with gambling, are often completely new and unrelated. As to whether more traditional forms of gambling will migrate rapidly to the Metaverse, only time will tell. But there are reasons to suspect it will not. The gambling industry, especially the land-based element has evolved onto the Internet then mobile, driven by business realities and consumer demand for easier access. Arguably, Web 3 and the Metaverse is less accessible, so whereas the evolution to mobile was a natural development, it will not be convenience that drives the latest evolution. For gambling to thrive in this new virtual world will require something genuinely innovative which provide a consumer experience which is better than what is currently on offer.
Frédéric Mancosu, General Counsel, Dacoco GmbH; Zachary King, General Counsel, Frontrunner; Joseph Borg, Partner / Head of Innovation, WH Partners; Andreas Glarner, Legal Partner, MME As reported by Phil Savage
26 • IMGL Magazine • November 2022
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