Last week it was announced that Singapore company Sky Mavis raised 152 million USD on a valuation of three billion from major players in the Venture Capital universe. While I am not privy to the full structure of Sky Mavis, it is owned and operated by Vietnamese developers living in Ho Chi Minh City. It is, in essence, a Vietnamese project, something that is contradictory to local legislation in a way that I’ll explain shortly.
The value in Sky Mavis is a game. Axie Infinity. It’s an online game that involves Pokemon-like creatures living and growing and fighting and doing all the things that online games do. Each of these characters is a created non-fungible token (NFT). When someone wants to play the game, they have to buy three NFT characters using actual currency. This has been estimated to cost upwards of four hundred USD. But once they buy in, the player owns the characters they have purchased. They can add to them or sell them to someone else or mate them with other characters using a love potion to create new characters that they will subsequently own.
Value is added as each player uses his character to build portions of the game world or to create new characters and is referred to as “Play-to-pay” by its founders. The game is built on the Ethereum blockchain and uses the open ledger technology to ensure that each transaction involving the characters is authenticated and unique. In this way the game is a blockchain technology.
But the game also involves digital currency and cryptocurrencies in the way players can buy and build characters. Players can also purchase parcels of the game itself, in effect becoming property owners within the game’s ecosystem. This allows players to accrue value by playing the game and once they own characters or property they can sell it to other players for a profit.
While the buy-in price is steep, there are even charity groups who help poor youth in developing countries to make the initial three-character purchase that allows them to get started in the game in a revolving fund. And because the game uses cryptocurrency, which can be purchased in many ways without necessarily controlling a bank account, many of the game’s players are among the unbanked in the developing world.
As a lawyer in the developing world, and in particular in a country that still prohibits the use of cryptocurrency as a legal form of tender, there are a few questions that come to mind.
First, are the NFT characters considered to be assets according to the law and as such, the use of cryptocurrency to buy or sell them a legally recognized transaction that would fall under Vietnam’s prohibition against using cryptocurrency?
Second, what jurisdiction does Vietnam possess over the game world created by Sky Mavis and the possible transactions occurring involving Vietnamese players?
And finally, because I have the kind of mind that thinks this, doesn’t the purchase and sale of characters encourage negative sentiments regarding personal free will and human rights?
1. Cryptocurrency use for purchasing NFT Gaming Characters
As I mentioned in my post Non-Fungible Tokens in Vietnam, the primary determinant of property applicable to NFTs is whether they can be valued in money. At first blush the Axies Infinity characters would seem to be valued in money as payment is required to purchase and sell them. But this is deceptive. Money, as defined by Vietnam, is not used to purchase the characters, cryptocurrency is. Because Vietnam does not recognize cryptocurrency as a legal means of tender, technically, then, the characters are not property.
This gives rise to a couple of implications. First, a transaction in the characters or elements of the game is not a recognized transaction in assets in Vietnam and thus does not give rise to the alteration of civil rights or obligations of citizens. It is outside the scope of the Civil Code as currently constituted and thus the transactions contemplated are not considered civil transactions. As they are not governed by law, there is no legislation governing the interaction between purchaser and seller of, essentially, non-existent ether (ones and zeros in the form of a character). This means that, second, the use of cryptocurrency to purchase and sell characters in Axies Infinity is not against the law of Vietnam because the law of Vietnam does not recognize that any transaction is taking place.
2. What jurisdiction does Vietnam have over the NFT game?
The second question is less clear. In 2018, Vietnam issued the law on cybersecurity which professed to expand its reach to any and all service providers who had any relation to Vietnam’s cyberspace. It purportedly required them to open a branch or representative office and to store data in Vietnam. A subsequent draft of an implementation decree that remains un-adopted softened this approach somewhat, but we have seen throughout the development of a number of draft decrees under consideration in the cyberspace and e-commerce sectors that the government is keen to expand its control over Vietnam’s internet users.
If Axies Infinity has a geographical jurisdiction it is in Sky Mavis’ home country of Singapore and thus Vietnam cannot claim control over the governance of the game. But what about the players themselves. While cryptocurrency is used to sell and purchase characters, players must come by cryptocurrency somehow. There are two methods for obtaining cryptocurrency as of this moment: (1) mining, which is an unregulated activity in Vietnam, or (2) purchase using fiat currency. If the players make their initial buy-in to Axies Infinity with mined cryptocurrency there is little Vietnam’s government can do about it, but for Vietnamese players who use fiat currency to purchase their cryptocurrency, the prohibitions against the use and acceptance of cryptocurrency as a form of legal tender applies.
I discussed this in multiple blogs, but most relevantly in El-Salvador, Cryptocurrency, and Vietnam. Not only are individuals prohibited from using cryptocurrency to buy and sell in Vietnam, but Vietnamese banks have been advised not to allow their accounts to be used for the purchase of cryptocurrency either. This means that players of Axies Infinity in Vietnam must transfer fiat currency to an account outside of Vietnam, then use that account to purchase cryptocurrency and then use that cryptocurrency to purchase characters in Axies Infinity. This may not seem as difficult as it sounds, however, as Vietnam Leads Cryptocurrency Adoption globally and there must therefore be a large number of Vietnamese citizens with offshore cryptocurrency assets.
3. The ethical question of buying and selling characters
While it is true that the characters in Axies Infinity are essentially ones and zeroes, they are imbued with characteristics that suggest they are avatars, or at least in the form of avatars that have been long recognized as representing players or other individuals. That the game promotes the breeding and selling of characters strikes me as a somewhat questionable activity. Is this not a digital form of slaveholding? That a player must first buy three characters who he can then breed, or he can use them to capture more characters. He can sell and buy characters at whim and it matters not that these characters are similar to characters that the player has been playing as avatars for years prior.
While I have no answer to this question as I am not an ethicist, I think it is a worthy one. Slavery cut an ugly swath across the history of many a nation and for such a popular game, one which encourages play by poor youth, to involve a digital form of the evil suggests that there are other questions which must be asked. Obviously the characters are not sentient, but the representation and actions which are involved are too close to those that chained millions of people across the ages for me to find comfort in the distinction. I think investors must be careful in their choices when looking at Axies Infinity and other play-to-pay game models as the lessons taught to players are all too close to lessons taught by white slave masters.
Regardless of whether Axies Infinity is ethically sound, it has successfully completed a major funding round. And though its holding company is incorporated in Singapore, it is essentially a Vietnamese company and Vietnam has the rightful claim on its spiritual success. Congratulations to Sky Mavis, then, on a successful funding round.