Paris offers shelter from crypto winter. The City of Lights has welcomed Binance and more recently Crypto.com (of Matt Damon cringe fame) with regulatory licenses; an “NFT Factory” showcasing digital artworks has also opened its doors opposite the Center Pompidou.
Macron’s crypto dream may be a chance
But hopes for a French “exception” from the wreckage of the broader crypto market run into the need for tougher rules.
An example of this is Sorare, the NFT-based fantasy football game that was valued at $4.3 billion last year in a funding round led by SoftBank. It has been an undeniable success, in the top 20 NFT collections by sales volume of all time, according to CryptoSlam data, although average prices seem to have cooled. Like regular sports cards, it has a collectible appeal; and like fantasy football, there is a game involved, where performance is scored.
Still, the risky speculative appeal has become impossible to ignore as the cards can be bought and sold using cryptocurrency, creating hype-driven stories of players taking out loans or quitting their jobs to win big, and as the top prizes and Ethereum- the rewards are offered for rarer, more expensive cards. “What we have with the likes of Sorare is a blurring of the lines, deliberately, between gambling and gambling,” says Kieran Maguire, author of The Price of Football.
And now regulators keen to clean up crypto are looking at Sorare. These are not the financial market watchdogs seen in the US, where Bloomberg News reports that the Securities and Exchange Commission is taking a look at Bored Apes, another NFT collection. Rather, the attention comes from gambling regulators in various jurisdictions who are nervous about addiction and money laundering.
Last year, the UK Gambling Commission began “conducting investigations” into Sorare and Switzerland’s Gespa watchdog blacklisted Sorare. Scrutiny has now reached fever pitch with France’s own regulator asking Sorare for information. Christine Lavarde, a senator for the Republicains party, has asked the government to explain why Sorare is not placed under the supervision of the country’s gambling regulator, with all the subsequent taxes and bureaucracy that would entail.
The reaction from Sorare and to some extent the Macron administration has been that this is a new type of business model that should not be suffocated at birth. Sorare chief of staff Thibaut Predhomme says the game is not gambling, that players will not see their cards disappear like a regular financial bet might, and that free cards are available. France’s digital minister Jean-Noel Barrot reiterated the idea that regulation should be “flexible” while still monitoring money laundering and addiction risks.
However, just as the SEC must adhere to current rules, Sorare’s arguments are unlikely to deter regulators. In France, if a game brings together a financial sacrifice, an offer to the public and the hope of reward, it counts as gambling. When cards change hands for six-figure sums in hopes of earning better tournament prizes or a higher resale value, it seems to fit the criteria squarely, gambling experts say. Waving this away by saying Sorare is a brand new “model” looks too much like wanting it both ways as the startup expands into areas like the NBA.
A way out of this impasse will be messy. Gambling law expert Matthieu Escande says special exemptions require legislation, which in the current political environment is unlikely to be something the French government will find easy to do. Or it could require Sorare to seek an existing regulatory classification under the gambling authority’s supervision, which could affect the use of Sorare and its ability to sign lucrative deals with sports clubs that keep a wary eye on crypto.
Still, if Paris wants to be a crypto hub, it should recognize that more oversight, more consumer protection and more digital literacy are a small price to pay to avoid the potential social costs of “gamblification.” Britain’s reputation remains tarnished by the 2021 Football Index scandal, which left people financially and mentally worried after the stock market-style trading game collapsed. If innovation becomes mainly a means of getting ahead of regulation rather than creating sustainable businesses, this particular technology dream will not be pleasant.
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This column does not necessarily reflect the opinion of the editors or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the EU and France. Previously, he was a reporter for Reuters and Forbes.
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