IOSG Weekly Report: How Web3 Games Dance on the Edge of SEC

For web3 games, the addition of more financial elements and SEC regulation intervention means that practitioners will have to deal with more regulatory requirements. IOSG discusses the points that need to be noted in the US regulatory system from the perspective of web3 game design, business model construction, operation, and distribution.

Howey Test is a test used by the SEC to determine whether a cryptocurrency should be classified as a security. The Howey Test is mainly based on four factors: 1) investment of money, 2) in a common enterprise, 3) with an expectation of profits, 4) solely from the efforts of the promoter or a third party.

Here are some strategies that game teams can use:

1) Require users to put in more personal effort before they can profit, such as participating in “staking” or completing certain tasks/growth goals in the game before earning profits.

2) Avoid issuing tokens too early and wait until the game is more mature.

3) Increase the utility of assets in other cases, such as being useful in other games of the company. This can reduce the dependence of asset buyers on the issuer to some extent.

4) A fully on-chain game with enough decentralization is also a potential solution.

Pitfalls to avoid when designing tokenomics: 1) Homogeneous tokens (FT) – the project team needs to reconsider the necessity of each token and whether the purchasers of these tokens are game consumers/real players. 2) Non-homogeneous tokens (NFT) – the non-homogeneous nature of NFT gives them a certain degree of resistance to Howey Test. Instead of using NFT as a threshold, it is more advisable to make the game more free-to-play/free-mint like limitbreak. Another feasible design is to make NFT in the game have a lifespan – with time/usage, the value will wear off, or periodically reset the game’s economic system.


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