Even the Metaverse is subject to the rules of the physical world

4 min readMay 1, 2022


Everyone and everything is under the law!

At every point, PrivacySwap ensures that everything it does is within the four corners of the law and that it does not indulge in activities and provide services that could potentially affect the ever-loyal PRV community at large.

With the launching of our PrivacySwap Decentralized Exchange, PrivacySwap will ensure that it follows regulations set by the law to avoid any possible legal repercussions that may arise from it.

The Gambling Apes NFT collection incident

“What occurs in the metaverse does not remain in the metaverse,” the Texas State Securities Board stated in suspending trade in the Gambling Apes NFT collection from Cyprus-based Sand Vegas Casino Club.

Despite the Sand Vegas team’s assurances that it will follow the law but is not subject to US regulations, jurisdiction shopping ultimately failed, and US regulations prevailed.

The project has been delisted from OpenSea, a company incorporated in the United States, and is now listed on LooksRare, a decentralized autonomous organization (DAO).

Also Read: Bitcoin technical analysis for beginners

The issue is not that the NFT promotes gambling; rather, the promise of profit sharing converts it to security and breaches the Howey test, which evaluates whether a transaction is an investment contract and has become increasingly significant when examining digital assets.

“The primary issue with the ‘Gambler’ NFTs is that there was an express expectation of profit sharing, which looks to violate the SEC’s Howey Test,” Christopher LaVigne, a partner in Withers’ litigation and arbitration practice, told CoinDesk via email. “There is little difference between NFT marketplaces and cryptocurrency exchanges in terms of the government’s attempts to regulate them.

According to LaVigne, if the SEC believes an NFT marketplace is offering a trading platform for securities, it will almost definitely see the marketplace as an unlicensed exchange. As a result, it appears as though OpenSea has halted trading in the Gambler tokens.”

Online gambling, which has existed since the dawn of the Web, also has its own set of laws that the Metaverse must follow, as US courts are adamant about the definition of gambling as “staking or putting something of value on the outcome of a fight of chance,” as LaVigne puts it.

However, the question is whether or not American courts have ruled on how this applies to video games. While US law does not recognize extraterritoriality, the wide variety of transactions that may occur in the United States or involve United States customers gives it a broad reach.

“State courts that have considered whether video game contests constitute gambling have generally determined that they do not,” LaVigne added. “The reasons behind this vary, but one common explanation is that the objects ‘win’ or ‘lost’ are fictitious or virtual ‘in-game’ incentives that cannot be swapped for something of worth.”

LaVigne cites a 2017 decision in Mason v. Machine Zone, which held that an in-app game was not gambling because it allowed players to win or lose virtual, rather than real, money or prizes, although a secondary market for selling or purchasing a player’s stats or level achieved within the game for real money may exist.

However, there is also a somewhat contradicting ruling from the United States Court of Appeals for the Ninth Circuit. According to LaVigne, the court determined that “virtual chips” or “virtual coins” that are used to play in the online casino games qualify as a thing of value under the state of Washington’s gambling statute, even if the games are possible to be downloaded for free and never required players to wager their own money because the games could only be played with virtual coins or chips.

“This ruling is rather restricted in scope because it does not address, for example, whether it applies to games in which players can access fundamental gameplay without using in-game currency,” LaVigne explained, adding that it is also related exclusively to Washington law.

Although the crypto sector operates on the principle of “move fast and break things,” the law is the law and can generate headwinds. The adoption of GameFi has been stymied in vast portions of Asia, including China, Japan, and South Korea, due to existing laws prohibiting the conversion of in-game tokens to currency.

While the Sand Vegas Casino Club idea is legal in terms of gambling, it violates securities regulations by guaranteeing profit sharing and returns. Hundreds, if not thousands, of projects have existed in this location previously, and this one may be Howey Test’s next victim.

Also Read: How to: Calculate your crypto taxes

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