Federal Watchdog Targets Cryptocurrency Games

The U.S. Consumer Financial Protection Bureau (CFPB) is monitoring online gaming, particularly financial transactions that occur on gaming platforms, the government watchdog said in a new report Thursday. The agency said its oversight is part of a broader mission to protect consumers wherever financial markets exist.

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

Whether it’s buying extra lives or special abilities in casual games or earning “virtual currency” or tokens in peer-to-peer games, the CFPB classifies all of this as “banking in video games and virtual worlds.” If gaming assets are a medium for exchange of goods and services or peer-to-peer transmission, they are similar to banking and payment services.

“These crypto-asset virtual worlds are much less popular compared to virtual gaming worlds like Roblox, Second Life, or Fortnite, but the prevalence of third-party crypto-asset trading platforms allows users to trade virtual worlds in virtual worlds. You can switch to the world. Converting native crypto assets to fiat makes it much more porous than the typical gaming market,” the agency said.

Increased interest and activity in cryptocurrency gaming has led to increased scrutiny. last month, game tokenGALA, Immutable (IMX), FLOKI, and Ronin (RON) soared in the first quarter of 2024, exceeding $26.9 billion in market capitalization. CoinGecko.

AI developers are also trying to enter the blockchain gaming field. Last week, an AI analytics company spiral Launched $50 million cryptocurrency game accelerator.

The CFPB also emphasized research on “related issues” such as fraud, theft and other criminal activity. The agency said it is also paying attention to whether platforms provide users with remedies for lost assets.

“Gaming companies often take a ‘buyer beware’ approach, putting the burden on individual players to avoid these scams and phishing attempts,” the company said. “It may lock or ban the accounts of players suspected of fraud and phishing, but it does little to provide relief to victims.”

The CFPB notes that some third-party websites allow in-game items and currency to be traded for Bitcoin, and that Second Life allows gamers to purchase using fiat currency through Second Life’s official Linden Exchange (LindeX). You mentioned “Linden Dollars”. Third parties using PayPal and Skrill.

“Between 2011 and 2013, third-party websites permitted transactions between Linden Dollars and Bitcoin,” the agency said. “In 2021, Second Life reported an average daily user base of 200,000 across 200 countries and a GDP of more than $600 million – more than some small countries.”

In addition to Bitcoin, the CFPB’s 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 for USD.

Also in the crosshairs are DeFi lending platforms like MetaLend, a cryptocurrency financial services company that allows Axie Infinity players to use in-game NFTs to take out loans while they play.

“At the peak of its success, Axie Infinity had over 2.7 million daily active users, but as the number of users grew, the NFTs needed to play became very expensive, creating a class of users that included investors, managers, and workers.” the CFPB said. “While the crypto asset industry and its investors have praised gaming as a viable way to earn revenue, the report documents how gaming systems exploit workers.”

The CFPB noted the hack of Axie Infinity’s Ethereum sidechain Ronin in March 2022, which used stolen private keys to leak 173,600 ETH and 25.5 million USDC (a total of $622 million at the time).

The report did not prescribe definitive action, but the CFPB said it would continue to work with other agencies to monitor the space. Going forward, the focus will be on companies that collect and sell sensitive consumer data, such as consumers’ payment history, especially when this data is collected and monetized without the user’s knowledge, he added.

The CFPB did not immediately respond. detoxification Request for comment.

Edited by Ryan Ozawa.