The impending sunset of The Walking Dead: Empires by Gala Games isn't just another game closure. Surprisingly, or rather not at all, it’s a blaring klaxon that Web3 gaming is the Wild West and we need regulatory guardrails ASAP. We’re not just talking about digital assets, NFTs, promised permanence, these are NOT DIGITAL ASSETS, this is REAL MONIIIEEEEEE. But when those promises fall apart, who is looking out for the players who sunk all their hard-earned cash?

NFT Promises Worth Less Than Paper?

Let's be clear: NFTs in The Walking Dead: Empires were pitched as more than just cosmetic upgrades. They were whatever they wanted them to be – deeds, supplies, weapons – the elements that build the gameplay experience. They weren’t simply purchasing pixels, they were investing in a dream, an expectation of what digital ownership would become. Remember those peak prices? $67,000 for a deed? $30,000 for a handgun during beta? These weren’t speculative investments, they were seen as direct investments with utility grounded in value within a live and flourishing game.

Now, Gala Games has begun providing compensation in the form of other game’s NFTs. That’s akin to your local grocery store shutting its doors and giving you coupons to a local hardware store instead. It simply doesn't equate! The value proposition is completely flipped upside down, and the usefulness evaporated. It’s an affront to anybody who had faith in the prior game and its metaverse. Are they being compensated in a way that accurately conveys the loss players faced?

The problem here isn't just Gala Games. It's the entire framework. Without a firm regulatory underpinning, we’re constructing palaces on the beach. We continue to market these dreams of digital ownership, all while not specifying what that looks like in legally enforceable terms.

Are Existing Laws enough?

This situation throws up some hard questions. How might current securities laws be enforced against NFTs used as in-game assets? Probably, but it's not cut and dry. The Howey Test is used to determine whether an asset is an investment contract. In Web3, using it takes a different but equally careful interpretation. Consumer protection laws? Misleading advertising and unfair trade practices are terminally dangerous problems. This is especially the case when you take into account the permanence that was promised for these NFTs.

The Web3 space moves at warp speed. Regulations are playing catch-up. By the time a legal precedent is established, the technology and the business models would have changed yet again. We need proactive, not reactive, regulations.

Consider this the equivalent of the very early internet. Initially, it was like the Wild West, hardly regulated at all. Over time, reforms followed with laws to rein in the excesses of the industrial revolution by protecting consumers and fair competition. I believe we’re at a parallel inflection point with Web3 right now.

The typical knee-jerk response to something like this is to demand strict regulation. That's not the answer. We must strike the right balance – protecting retail investors while not discouraging innovation. Too harsh of a regulatory hand may push Web3 innovation overseas, limiting our leadership in this emerging industry.

  • Securities Laws: Could apply if NFTs are deemed investment contracts.
  • Consumer Protection Laws: Relevant for misleading advertising and unfair practices.
  • Gaming Regulations: Could be extended to cover NFT-based games.

Investor Protection or Innovation Killer?

We need regulatory frameworks that:

The Gala Games situation should be a wake-up call. It’s time for regulators, developers, and industry players to come together. Combined, they have the opportunity to create a healthy and balanced framework that fosters innovation while protecting consumers. If we fail to take these actions, we will make the promise of Web3 a cautionary tale. Are we prepared for the Wild West to continue to prevail, or do we want to create a calmer, more sustainable digital world? Your answer will determine the course of Web3 for years to come.

  • Define NFT ownership rights: What does it actually mean to own an NFT in a game? What recourse do players have if the game shuts down or the NFT's utility changes?
  • Establish transparency requirements: How much information should game developers be required to disclose about the risks associated with NFTs?
  • Create dispute resolution mechanisms: How can players resolve disputes with game developers in a fair and efficient manner?

The Gala Games situation is a wake-up call. It's time for regulators, developers, and players to come together and create a framework that fosters innovation while protecting consumers. If we don't, we risk turning the promise of Web3 into a cautionary tale. Are we ready to let the Wild West reign, or will we build a safer, more sustainable digital future? The answer will define the trajectory of Web3 for years to come.