On August 28th, the Securities and Exchange Commission issued a Wells Notice to OpenSea, notifying the largest NFT marketplace that it is under investigation for operating as an unlicensed exchange, labeling the NFTs traded on the platform as securities. Founder & CEO of OpenSea, Devin Finzer, posted that “[t]his is a move into uncharted territory. By targeting NFTs, the SEC would stifle innovation on an even broader scale: hundreds of thousands of online artists and creatives are at risk, and many do not have the resources to defend themselves. NFTs are fundamentally creative goods: art, collectibles, video game items, domain names, event tickets, and more.” 

In this very first Naavik Gaming emergency podcast, your host, Niko Vuori, sits down with Naavik web3 analyst Devin Becker and web3 operator Steven Wade to digest the news and discuss what this might mean for web3 gaming. 

Here's Devin Finzer’s post announcing the Wells Notice. You can find Niko, Devin and Steven on LinkedIn.

We’d also like to thank Overwolf for making this episode possible! Whether you're a gamer, creator, or game studio, Overwolf is the ultimate destination for integrating UGC in games! You can check out all Overwolf has to offer at https://www.overwolf.com/.

This transcript is machine-generated, and we apologize for any errors.

Niko: Hello and welcome to the Naavik Gaming Podcast. I'm your host, Niko Vuori. I always say we have a special episode and they always are special. But today is really special because this is our first emergency podcast here at the Naavik Gaming Podcast.

We are responding to the news that the sec is going after open sea the NFT marketplace, the leader in that space and is calling NFTs potentially securities. Which is a very big deal and has fairly major implications for the entire Web3 space if it actually files an action. It has filed a Wells Notice, and a Wells Notice is essentially a warning that the SEC is looking into you.

But about 70 to 80 percent of Wells Notices result in regulatory action. So this is not a minor thing, this is actually a pretty big deal. So we wanted to get together some folks who know the space, who've been covering Web3 for a really long time, understand NFTs, have worked. In them, I actually produce collections and analyze the space for years now.

So I wanted to introduce Devin Becker, who's the Naavik web3 gaming analyst. He's been covering the space for as long as it's been around. And Steven Wade, who is the founder and CEO of Midnight. He's been on the pod before with me, and he works in web3 with a very real business with very real revenues and very real funding.

So we, collectively, hopefully, have a pretty good grasp on what's going on. We are not lawyers. So up the top of our podcast here, we're going to say we're not lawyers. This is not legal opinion, but we are going to do our best to unpackage what's going on in this space right now. What is the SEC doing?

What are the implications for OpenSea and other marketplaces, NFT marketplaces, like Magic Eden or Blur. And of course, more broadly, what does it mean for web three and web three gaming in particular? So with that out of the way, let's get right into the episode. Devin, welcome.

Devin: Always a pleasure, Niko.

Niko: Steve, welcome.

Steven: Yeah, really good to be here. I like being the first emergency.

Niko: Yes, first emergency.

Steven: On your contact list.

Niko: There you go. Yes, I'm going to put you into my my speed dial here. Okay. So why don't we start from the very top? So start with Devin here. So Devin, what is going on here? What is the SCC doing?

What is the SCC charging OpenSea with? What is a Wells Notice?

Devin: So I think the important thing to understand is we didn't actually get to see the Wells Notice, right? So this was basically a tweet that came out from someone at OpenSea announcing that they received a Wells Notice. And the way that they specified it was that basically they're being targeted for potentially like their marketplace having NFTs that could be construed as securities.

One important clarification, I think on that, just to be like the set the This was conversation is that I don't think they were necessarily saying all NFTs or NFTs broadly, but the NFTs on OpenSea, or at least some subset of them. And I think that's going to be important nuance, but because we didn't see the Wells notice, all we have to go off of is pretty much what we heard back.

I believe they can probably share the Wells notice is my understanding. It's not a private matter. And in fact, some public companies have to, but I believe this is something where they definitely could share it. And I hope we get to see the full thing. But basically it's this is okay. We're going to get to do this.

We're investigating you now. This actually starts a process where they could basically send something back to the seco called a well submission. That then is basically their sort of appeal to it, which, and sometimes that just leads into settlements, which is that's part of like almost the negotiation, but it's kind of a one time like, here's our, and this is my understanding, of course, I'm not a lawyer, but basically they send it back and then they could consider that.

And maybe they can consider, okay, maybe we won't investigate you because you explained yourself and we understand your position, but that is their next step is to be able to communicate formally. So we'll see if they do that. They said they're going to fight it.

Niko: So yeah, I think it's important to note that 70 to 80 percent of wells notices result in action in actual formal charges.

So it's not, it's likelier than not that this is going to lead. to something fairly major. And of course, because OpenSea is such a big player in the space, it is the largest NFT marketplace still by trading volume and has obviously ungodly amounts of funding and valued at very significant multi billion dollar valuations.

It is unlikely that the SEC would file as Wells notice and then pull it back. Hey, JK, just kidding. So this is probably going to lead to, to enforcement action. Obviously we don't have a crystal ball but it's a pretty real deal. So Steve they're basically saying some NFTs or maybe all of the NFTs.

We don't know exactly because we don't have the wells as Devon said our securities. So I think it's important to, to set the tone here. What is, what actually is a security? Great. I know you're not a securities lawyer. None of us are lawyers of any kind, quite frankly. But let's look at what a security is.

I think there is a formal definition and I think we should understand what the SEC means when it's calling NFTs. Potential securities.

Steven: That's right. I'll try to use my investment banking background. But yeah the Wells notice primarily is saying again, we don't have their charges but that these entities are financial assets.

They're generously considered investments. Because there's expecting profit. I think profit is the key word. There's various other things that we look for. How easy it is to trade NFTs, the utility, the NFT is there a fixed value or not a fixed value? And if there's ongoing sales of those NFT, I think those would be some things that we would look at.

But the relevance and, the sex case, the rise, what we just, we don't know what they're saying and we don't know if it's. The platform itself. We don't know if it's individual entities that didn't pass. But there is a thing called a how we test, right? So it's investments of money. So entities do involve buyers investing money.

And a lot of cases and open seat blur magic, even there is expectations of profit for these entities. And I think the frequency of which they are traded and tied to the platform is probably going to be an issue.

Niko: Yeah. Guys, I think that's right. And you mentioned the Howie test there.

So the Howie test is essentially a four pronged test that the SEC considers it's been around since I think 1934. So the very long time definitely predates the internet predates JPEGs of monkeys trading for hundreds of thousands of dollars, that's for sure. So TBD, how relevant it is, but that is the test that the SEC uses.

And the four prongs of the Howie test to determine if something is a security Is there an investment of money? Is there an expectation of profit? And this is the one, by the way, this is the one prong that most Of the cases when they apply the Howard test. This is where most companies who are falling on the foul side of this, that's where they usually fail.

It's on the expectation of profit piece. So that's important to know. And number three, is it a common enterprise? So in a company that's very obvious, like the company's working towards a common goal of producing profits. And if you're investing in the company and a security in the company, that's pretty obvious what that means.

It's less obvious here. Again, not a lawyer, but I think that's important to note. And then number four, is there a reliance on the efforts of others? So you are putting in money with an expectation of profit into a common enterprise that other people professionally are managing. You're relying on the efforts for that profit.

So those are the four prongs of the test, and that is a very basic level kind of understanding. I think we need here. Obviously, there's a ton of nuance around all of those. And so it'll be interesting to see on the highway test, because usually when you actually have one of these actions that the SEC is taking.

You actually have them going through the four pronged Howie test and they actually lay out like, here's why you are failing, or here's why you are. We think that you are a security based on the Howie test. So that's the level setting here. Devin, back to you. So the SEC obviously has a checkered history of going after securities.

And he has a mixed history. As in, it's not always clear why they're going after some companies and others in the Web3 space. Does the SEC actually have a history of going after NFTs specifically? Obviously, they've gone after exchanges like Kraken and that type of thing. But have they actually gone after NFTs?

Devin: Yeah, there's three cases that I think are the most relevant. First one I'd actually say is Coinbase, because this is really almost like a sequel to that. And I think their victory there is what led them to, This point, although I imagine there was a bunch of other time where they were spent, collecting evidence, true, looking for gotchas that they felt confident enough going to this.

Cause they have had some losses and they're trying to make sure they have mostly wins. And then the other ones is there's two NFT related specific cases around impact theories and cool cats, NFTs that Stoner cats. Feel for different reasons. Stoner cats. Yeah. Stoner cats was a different one.

Niko: All these cats. There's a lot of cats. There's a lot of monkeys.

Devin: There’s a lot of cool cats had its own thing too. I don't know. But but yeah these cats. The stoner cats are the less cool cats because they're just stoned, but fortunately, yeah they both resulted in like settlements and sort of judgments against them, as did Coinbase for the most part.

There was a very small exception, but for the most part Coinbase also got ahead with it. And that's the big thing here is all of these pretty much set this up right now. It was basically Coinbase was acting in a similar sense, where they were facilitating the same sort of thing, but with Tokens and now there's because they didn't sit.

That's why I don't think this is about all nfts because that wasn't about all tokens It was about the tokens they consider to be like securities and therefore coinbase was facilitating that and they're looking I imagine at opensea the same way you guys are facilitating Some of these that we consider securities because we make a profit off that you guys are running this As a business or a broker or whatever the legal, specific pigeonhole they put them in is but I think that's really where it's going That case again, but combined with what they pulled off From the the stoner cats and the impact theory when, where they found like the other parts of the Howie test that you're talking about around the expectation of profits, the promotions, the and I think a lot of it really was more about the utility.

Aspect of it, which is like if they're promoting this as like a business or a common enterprise kind of investment as opposed to Something where it's oh this, you buy this but you could also sell it too that's Not quite the same thing and I think that's where this is going to lean towards So I think looking at the coinbase one because there was some great detail in there that that the judges You know came up with as well as scc and I think I agree with some of them as much as I hate to side with the SEC, but I think it was worth looking at the details, like the actual quotes of what they said, like they supported for the SEC, how they were rebuffing Coinbase was like super specific about what they were doing specifically, and I think same with the other two cases where basically you had the judges like laying out why these are failing the Howey test, and then you actually, that was even more interesting because you had dissenting judges on both cases.

To actually say these are this is where we think this might be a slippery slope is where we think the sec The main argument was just basically that they are being too selective potentially and I think that is probably true

Niko: Yeah. Interesting. I think the, yeah, the impact theory and Sterner Katz both resulted in settlements.

I think Sterner Katz, they agreed to pay a 1 million fine and then to cease and desist. But what's interesting about those is that those were settlements and were not appealed. And none of these have actually been appealed yet, right? There is an argument to be made that you could appeal these if you wanted to go up against the SEC.

So what is the counter argument then, Steve? So Devin Dinser, who's the founder and CEO of OpenSea, put out a a response on X Twitter. And he basically defends NFTs as essentially art, art collectibles. What's the counter argument to the SEC here? Why should we not consider NFTs as security?

Steven: And the blog posts from open sea and then the X or the Twitter reply I think they're trying to combine the art and the NFT technology. I think that maybe a bit of a spoke screen there because I think the the underlying art is still art. And I think what they're trying to lead into is the creator economy allowing artists to essentially, profit make a living from this.

But the lines are definitely more. There's a gray area. And I think the gray area is which, the counterargument. I don't think you can, with certainty say that, hey, NFTs are art. They're not securities. I think it's a bit blurred. The fact that we don't have regulation for the SEC.

I think there's a lot of things it's we're doing the best we can. Even at midnight, we have multiple legal teams vault around the world to make sure that we're as compliant as we can for the SEC's regulations of the day. So I think that, the best case would be, it's hopefully not every T NFT project is looking at security to Brian's point.

It's probably just a few bad actors in the group that, it's like this gotcha moments. But I would say that the best argument is, it's, it's a gray area. People are trying to be as compliant as they can in the current regulatory environment we have.

Niko: I looked at Devin, Devin Denzer post, and I know that Devin Becker, I know you, you're specifically saying that it looks like it might just be certain.

Specific NFTs, Steve, you're mentioning it might be a certain bad actors, Devin is certainly painting it with a fairly broad brush. I know, behooves him to do because, he's talking on behalf of all the creatives, all the creators of NFTs on his marketplace, but let me just read out a quote from his, it's longer and you can go check it out online, of course, and search for it.

But this is the money quote in my mind. So I'm just going to read it out here. So it's a few sentences long. This is a move into uncharted territory. It's a move into uncharted territory. By targeting NFTs, the SEC would stifle innovation on an even broader scale. Hundreds of thousands of online artists and creatives are at risk, and many do not have the resources to defend themselves.

NFTs are fundamentally creative goods. Art, collectibles, video game items, we'll get to that in a second, domain names, event tickets, and more. And then he also pledged 5 million to help cover legal fees for NFT creators who might also be getting these Wells notices. So that's what he's saying that it seems like the NFTs and anything is fair game.

Video game items, Web3, games, Steve, obviously you're in that space. Yes, it behooves Devin to paint it with a broad brush. But Devin Becker, are you saying that It's actually more nuanced than that.

Devin: Yeah. I don't necessarily have anything fully against OpenSea.

They've made some mad decisions over time, but this feels a little bit like trying to use the baby in the crowd to shield yourself by trying to, We' re trying to appeal to everyone's sympathy. And I think at the end of the day I honestly think it's just going to result in a settlement where they basically just have to delist a certain number of them and have to be stricter about what they accept and how they market them and all that stuff.

But I think the example that. Was actually made in the Coinbase case around beating babies as trying to be trotted out again around collectibles. I think it's a great example. If the Pokemon company came out and said, buy Pokemon cards because you can make a profit from making Pokemon cards more popular and then selling them on the secondary market, and that's the main use of these, you don't actually need to play the game, just flip these on the market, they would be slapped down, and rightly that's really the defense. That's the hard part to justify. If you were saying, this is art then it needs to stand alone as art. It doesn't need to be a property key enterprise. There doesn't need to be this whole thing built around it. Now, when I went to OpenSea earlier the first thing I see on the page, floor prices, market volume I'm sorry, but it looks like stock tickers to me.

At the end of the day it's hard to make that case. And I love NFTs. I think they're fantastic. That's what really got me into Web3, especially around games. I love NFTs. But you need to market them as nfts and not as securities if you don't want to be treated as a security like The how we test like I know everyone says we have no guidance and stuff like that but I think the guidance is really simple in the sense of Don't put it out there like it's a security and there's less likely to come at you like it's a security and I think The marketing angle has really been used against a lot of these companies.

You look at the stutter cats one in the impact theory That's exactly what they quoted the marketing the user marketing and I imagine The reason this took a while to get to this point both off of the back of the Coinbase as well as the previous ones is them collecting all that stuff to present that in court and go, look, you said this, you used, you presented it this way, you set this up as essentially some kind of securities market rather than just an inventory of secondhand goods like Craigslist or something.

And I think, like this is not eBay. Like eBay is not hey, buy stuff just to sell it on eBay for profit. And I think Blur especially would be really guilty of this.

Niko: Yeah, counterpoint. Steve, I know you want to jump in there. Yeah, go for it. No, go for it. I'll do my counterpoint.

Steven: Oh, no, I just like the simplification, especially of using Pokémon cards.

I think any conversation, any podcast we're on, we're talking about Pokémon cards. It's going to be a good Rest of the day. The art versus security. I don't think we're arguing and I, it seems like we're all an alignment. The art itself is, and the reply from obscene is a little misleading because it's not the art that the SEC is security.

It's the underlying contracts. It's the speculative nature is the marketing that brings scrutiny from the SEC. And with the analogy of Pokemon cards, I think what OpenSea does like, hey, we can sell Pokemon cards, we can sell them on eBay, there's no issues. But if we have to, attach a golden frame that had to be sold with this golden frame.

And the goal and frame is what's going to drive value up.

Devin: I think that's basically during COVID.

Steven: Yeah, that's true. Oh, there is a, I don't want to get too far topic, but there's a service now for a hundred bucks where you can send a pack of unopened cards and they X ray it and they'll tell you all the cards in it.

I'm like, Oh, it's just ruined it for me.

Niko: Oh, there's a service for everything. I'm going to throw my counterpoint in here, which is just because you market something as Hey, you could make money off this. That doesn't make it a security, right? Again, I'm not a lawyer, so I'm not going to, pine on the Howie test here or how exactly Stoner Cats marketed their NFTs.

But I fine art has been traded. Wine, fine wine has been traded for the longest time as something that will potentially appreciate in value. And we have had art markets long before the SEC existed and they've never gone after them either. We don't have a lot of legal opinion in this, so I'm just gonna read one opinion piece.

This is one guy that I've vetted for a grand total of 15 minutes, but he is a Professor called, law professor called Brian L. Frye, R Y E. He is himself an NFT artist. He's put out collections. He's actually sued the SEC like prior to this because he wanted to get a no action from the SEC.

For this entire space. He's not been successful so far, obviously, but he authored an op ed piece in Coindesk just this morning. It literally published like less than an hour ago. And he says that the SEC wanting to regulate entities exposes the incoherence of the SEC's understanding of what it's authorized to regulate.

And then he continues the SEC is wrong. No, it's worse. The SEC is nuts. Now I'm going to pause here and editorialize a little bit. Rarely does it behoove your point to call somebody nuts. But anyway, be that as it may, he continues, the NFT market is identical to the art market or rather the NFT market is an art market.

If the SEC can regulate the NFT market, then it can also regulate the art market. But the art market existed long before the 1934 and the SEC has never regulated the art market or even contemplated regulating the art market. It can't, and it shouldn't end quote. That is but one law professor's opinion but it is a law professor who is steeped in securities law and on NFTs, he has his own collections, kudos to him for putting it out there by the way, one of his NFTs was a redacted filing, legal filing, where he issued his laws, I don't know if you guys saw that, but it's really funny.

Devin: Yeah, I know, I remember this guy.

Niko: Yeah, so he's he puts his money where his mouth is let's put it that way. So Steve, like that's the counterpoint there. Like it's an art market. It's nothing different than a Sotheby's or Christie's auction house. We've always invested in invested.

We use the term invest. I'm investing in art. I'm diversifying my portfolio. I'm getting into fine wines. Hey, like surely NFTs can be treated the same way.

Steven: The first thing that comes to mind is, our. com, one of the tech bubble losers where essentially if you guys remember our. com, but it was some artists.

I cannot remember his name, but he had shops and all malls across America. And it's you buy this art and it's always going to go up in value. And obviously. Tanked. The art market to the T market I don't think it's a, yeah, I don't think it's one for one, right?

You take a remand or you take your, your rare rated Charles art card not a security, right? 'cause it's art card. You can divide that Rembrandt or that Pokemon card into a thousand pieces and then sell ownership to, of those pieces. So to people then, it's not still, not security, but if you say, now that ownership.

Is connected with the business where by distributing those art pieces, we're going to fund a business now that you're security, right? So I could take that brand, the Pokemon card, cut it up, trade it, it's just an empty, no issues, but the time where Oh, okay. You have to you're making future promises where the value is going to go up and you already need the money to build a studio.

There's a lot of companies Magician, Blur, OpenSea, they'll launch NFT projects first to fund their games, which makes it a security. So I think there is some issues there. Just with what point do you go from, I'm selling arts to, fund my lifestyle to now this art is funding a business and you're expecting the value of the art that you're buying to, to increase.

Niko: Yeah. And I think that's the point there. It's a fine line.

Steven: Again, I'm going to get back to where it is.

Niko: I'm going to keep taking this position here. Because apparently this is, I'm the only one on this side in this conversation here, but I thought I was going to play devil's actor. I'm not excited.

Just behave. Okay. Just behave. Oh, certainly they're a bad thing. Nobody disagrees that there are bad actors in the Web3 space, right? We would be the first ones to admit it is full of crypto scams and pump and dumps, and buy this and it'll go up in value forever. Those should be flushed out, for sure.

But I would argue that the majority I don't know if it's the vast majority, but the majority of NFT projects, whether they be games or pure art, or, people selling his, early thing for 60 something million dollars and whatever that, there may be an expectation that goes up in value, but that does not make it a security in and of itself.

Yes. If you market it like, Hey, invest in this and you're a part owner in this. Company or in this bow, decentralized autonomous organization, and you will have, voting rights and ownership. Yes, that is quite clearly a security, right? That is quite clearly security. But I think since the early days, like most NFT projects have tried to avoid that, like the plague, right?

And if anybody has You know, I worked at web three and we consulted with lawyers. Steve, you have six different law firms representing you. And I had really hoped that you would be able to talk to at least one of them before this podcast, but you haven't yet. But nonetheless, most NFT projects that are legit and try are trying to do something, just something interesting with this new technology, which is blockchain technology, which allows ownership and allows for interesting things to be done, interesting new game designs or interesting new business models That does not make it a security in and of itself.

It is a piece of digital art or piece of digital, video game asset. And if you own it and it happens to go up in price and you're even hoping it goes up in price, that doesn't make it a security. So I'm just going to, I'm going to stick to that point here. So Devin counterpoint back we can go back and forth on this a long time.

We're not lawyers but it just, it feels so cut and dry that the he would be going after. And if we also agreed that like tokens and fungible tokens, right? Fungible tokens. There's a difference, right? Fungible tokens pure, like purely is there for making money. There has no other purpose other than speculation, right?

Tokens, pump and dumps, what have you, but NFTs are, if you take it at face value, are pieces of digital ownership. Like they are unique in the sense that they can be tracked to the blockchain and their provenance can be confirmed just like we track provenance, which you don't

Devin: get profit sharing from the Pokemon company for owning that Charizard.

Niko: Yes, but not all NFTs give you if you're staking them, for example, like the whole staking mechanism, yes, I'm 100 percent in agreement, like when you're staking NFTs for an expectation of some return in fungible tokens or like extra ownership or whatever, yes, that is quite blatantly a security, but I would argue the majority are not doing that.

Devin: I would absolutely agree that. Fundamentally, NFTs are not a security, right? Fundamentally, but they absolutely can't. And in my experience in doing a lot of consulting with a lot of different companies is everyone's trying to tip toe up to that line and the complaint about sec guidance, so much isn't necessarily about guidance.

It's about where's that line. So we could tiptoe right up to it because we need to know where it's at. Cause if it's, if we're just not sure where that's at, we might accidentally cross the toe over it. And then you could come after us partially because that's selective enforcement, but I think that.

The area to focus on and one of the dissenting judges pointed this out is the risk of slippery slope towards fundraising as a crowdfunding. So meaning if you were to take Kickstarter projects and approach it the same way a lot of these NFT projects. It'd be very obvious that you're engaging in security fraud, but because we have all this technology that this, we're building the future and I'm a huge futurist.

So I'm like, please do whatever you want. I don't care. Break the law. Just go crazy. But at the same time, you do got to realize like people are going to come after you. So it is, that's where the area gets tricky. And we have all these terms like aligning incentives and all that stuff, but really you're just double speaking around.

Securities fraud to some extent when you're talking about incending the lines, you're basically saying, Hey, you're going to be a shareholder which is very clearly, securities. And that's why I say the way they talk about it is important because they're framing it. They're framing the expectations.

And a lot of the, how we test is about expectations and it's about expectations for something that you don't control. And I think that's the reason that it's treated as investment contracts and those sort of things. You're not investing in your own business. You're investing in someone else's business.

I think it was your own business. Then it's fine. You're investing in your business. That's a normal thing to do. That's not security. But because it's a common enterprise where someone else is responsible, you're investing in someone else's business, essentially, or a bigger business or a common business.

And in doing so, there should be protections attached because it's not your business. You don't control it. So that's the SEC's job to say, Hey, people are investing in things they don't control. We should protect them from investing in the wrong things and fraud. Now, do they go wrong and go in wrong directions and use selective enforcement?

Yeah, all government agencies do. It sucks and I hate it. But here we are needing to be a little more careful in how we present things. And again, Kickstarter is a great example. If you were to figure out where those lines are on Kickstarter, I think it becomes very obvious very quick. What makes sense for crowdfunding or not, or what makes sense for shareholder type.

Investments are not. And I think investors being involved really helps buddy the water because you're talking about, especially around tokens, things like staking, like a lot of that stuff, investors really skew towards looking at ways where it starts becoming securities and they're really, the VCs are often, trying to tip toe up to that line, I think even more than game developers are and game developers are just like, dude, I need money to make a game.

What do you want me to do? Okay. I'll do that. And it's again, like Kickstarter, where Kickstarter is a little more transparent and clear. You're basically buying a product early. And you're getting a discount for that. And that's helping fund this thing. And it's very clear. It's not some expectation, but you're not expecting Hey, I'm buying this Kickstarter thing so that I can flip it later and then other people flip it and the profit will go up forever and I'll get.

Royalties or whatever like that's I think if you like, present it and arguments that are not like swimming in technology And we just talk about kickstarter or pokemon cards and you start like taking analogies that aren't perfect analogies But it starts making a little more obvious Why maybe don't go that direction so much If we want to push this technology forward from an honest perspective, you're saying most projects Or like an honest, I was like let's keep them like that.

And then they probably won't be targeted. I'm not the whole if you're innocent, everything's fine. Obviously that's not true all the time, but I think in this case, they can only prosecute so many cases. They're just trying to make examples. Don't be one of those examples. Try and focus on the technology and doing like the Kickstarter kind of stuff where you're like, Hey, we're trying to build a common game together, but it's not a financialized enterprise.

It's a game. You don't see people pitching, I'm going to make a bunch of art as a project for financing this whole thing and like all that. Yeah, maybe Banksy does some weird stuff like that. But overall, you don't see Sotheby's trading in art. That's the same kind of concept as OpenSea and NFTs or Coinbase and crypto, partially because we like to pretend art isn't that we're like, Oh, we fight for to look at it.

Obviously obviously, there's a little bit of deception in there, but it's all one we've agreed to. At this point, I just accept and I think maybe entities get to that.

Niko: Okay. All right. I believe we have staked our positions, our non legalese positions. So let's shift over now for the rest of the pod to talk a little bit more about what this means for web three and gaming in particular.

Again, I called out Devin Dinser's quote there where, he calls out art collectibles, video game items, domain names, event tickets, and more. So video game items, of course there's a, Massive, industry, at least in terms of VC dollars, yet to be proven in terms of obviously sustainable many sustainable businesses, Web3 gaming but, many business models and many interesting things are going on there.

Steve, as somebody who works in web three and incorporates NFTs in your products and your games, what do you think this means for developers? Does it, are you worried about this? Is this something?

Steven: I think it means less for developers than it does for the projects. Just, flipping art entities.

Cause as we shot about the profit and then also all the use proceeds I think, Devin's Kickstarter analogy is perfect. For that if it's NFTs where, some creators promise future benefits and so utilities, I, I could see where it gets the stuff first though, but if you're essentially not distributing any profits essentially people are donating or buying stuff for you to build a certain thing.

I think that's a little safer, right? I don't think there's been issues with Kickstarter and people pre purchasing items. Essentially build that game. But games themselves. We've been dealing with remote transactions for a while at least all the companies I deal with in the u.

s Are taking things fairly serious, they're focused on utility of that token inside of an ecosystem I think you know that's pretty good One of the larger key areas everyone always talks about utility. What does that actually mean for games and the companies that focus for real use cases for the NFT, for the token inside of an ecosystem?

I don't think the game companies are going to be that affected, right? Cause they've already thought out most things, the use of proceeds, the profit is all focused on the game studio themselves. Some go a little farther and try to do the decentralized stuff and Wyoming and offshore foundations. I think if everyone's doing that together, it's going to be, it's going to be hard for the SEC to sue everyone.

Gotta go after big players. You don't want to be one of the companies to get caught doing something wrong. So I'd say, most of the game companies, I don't think they'll be too affected by this because they've already, at least all the ones that I've worked with, have been trying to find out where that line is, walk up to it.

Niko: Yeah, I think so. And as did I when I was working in Web three, but counterpoint here and again, I'm saying I believe this, but I'm going to do the counterpoint here, which is a very common model in Web three gaming is to do a mint pre game pre launch and sometimes multiple minutes and That mint is essentially a kind of promise of future utility, which hint, hint, nudge, nudge might mean that it trades for higher prices, in the secondary, it's in the future, right?

This is a super rare one. This is like your golden sword that's going to beat everybody, all the monsters, right? That is an expectation of profit. It's no different to the art piece and then many games, not all, but many games have fungible tokens as well as in game currencies and entire economies built on top of crypto and fungible tokens, which again, trade on secondary markets, which there is an expectation of profit it's a common enterprise.

We're building a game together. I own this asset. I'm part of this community. They talk a lot about community. Community is just another word for common enterprise. And you're relying those investors, and they call themselves investors who buy the NFTs and invest in the tokens and gaming companies or gaming studios.

They are relying on the efforts of the game developers. Build that studio up and make that game successful. Yes, of course, there are very altruistic versions of this and fully on chain stuff that's going on that's, good intentions. And I don't think any or most game developers don't go into Web 3 thinking bad intentions, but there is.

Absolutely. The case to be made and the SEC may very well make it that these NFTs and fungible tokens that are part of, in game economies are also securities. Now we haven't seen that happen yet. And obviously to everybody's point here, they can only do so many enforcement actions. So they're going to go after the exchanges first.

That's where you start, right? Like the big boys and then slap them down. And then there is that layer below. We saw it with the stoner cats and impact theory. They may very well make an example of something like Axie Infinity, for example, I know from a couple of years ago from Legal Insiders that they were being looked at.

They were being looked at by the SEC. And I would not be surprised if there's others that have had big splashy, economies and play to earn in particular economies where there's truly an expectation that this thing is going to go up. That's the whole point of playing. You're playing to earn.

So that's the counterpoint I'm going to make there. Devin, your thoughts on that?

Devin: Yes, lots of thoughts. First, just quickly on the Axie thing, I think, the Sky Mavis was good about promoting the fact that people just wanted to play a game, first and foremost, and I think that was a good idea on their part.

Not that they were necessarily right, otherwise everyone would still be playing it, but, It was definitely a good way to be like, hey, like no people love this game. They're so excited They want to spend a thousand dollars on an axie. That's how much they love this game and everyone like just loves axes They're so cute.

They want plushies of them and all that so like they've clearly managed to dodge that bullet to some extent and I think Even the play to earn thing, it's like you're doing something, in theory, a value to earn, it's not dependent on others in that sense of the common enterprise. So it's like a little bit on the edge of the Howey test, I think, which I'm sure you could make the argument either way, but I think that's where they're like, hey, you're playing to do that earning, you are not.

Earning just from having bought something.

Steven: So something we got a lot of feedback from various law firms, when it comes to NFTs midnight as a company primary sale, we have fixed prices for any NFT we would sell. So if we, as a company would sell something on magicating blur, OpenSea that was a key thing for us as having a fixed price.

Now on the secondary market, if it, people are speculating and it goes up and down, that's, not on us. And I think that's key for game developers as well.

Niko: I would, I think the art, I think the art guys would argue the same thing. They would argue the same thing. Like they were going to mint this art out at a certain price.

We'll charge whatever we think the market will bear. That's the logical thing to do. And then it's not up to them what happens on the secondary market. So I think the argument is exactly the same. Again, I'm playing devil's advocate here. I'm I want to use these technologies for interesting things.

I think that, game developers in particular. Near and dear to my heart, of course. We just want to use new technologies to do interesting new things, right? Create interesting new game economies, create digital ownership that, you can transfer from game to game or ecosystem to ecosystem.

That's what we want. We want to create exciting, interesting experiences for gamers, for our players, right? But the archives are going to say exactly the same thing. They're going to be like we minted it as our buys. Who's it's not up to us. What happens in the secondary market?

And people are speculating on it. Cool. Like they make some money, all we get is like that little secondary royalty 2%, 5%, whatever it is. So I don't know. I feel like, yes, I'm with you. And of course, Steve, you're you're in it, you're in the thick of it. So I understand your perspective here but I'm just going to make the point here.

If the sec can say that art projects. And our NFT projects can be securities, can be treated as securities under the Howey test, then absolutely video game, Web3 gaming NFTs, and certainly the fungible token economies can be treated as securities as well. So that's my kind of point there.

Devin: The SEC doesn't care about interesting technology.

They just care about, are you trying to make money with this whole thing in a way that could potentially be fraudulent and falls under their jurisdiction? They obviously can make mistakes with that judgment, but that's basically what they're going after is people that are trying to make money off the internet.

People just doing interesting technology stuff. If that doesn't involve money, they don't care. They're not participating in that. It's just, if you're trying to make money off of it in a way that maybe is more blatantly falling under the Howie test and trying to set that sort of stuff up, then yeah, you're going to be setting up a situation where It's going to at least look like you could potentially be a fraudulent enterprise or an enterprise where investors might need some protection.

But again, I'm not arguing for the SEC because I don't think they necessarily do the best job and I'm not a big fan against there. With that being said, there is at least some reason why there win some of these cases, which is if you're looking at it from a law perspective, this is about jurisdiction and whether or not it falls into them.

And if it falls into the Howey test, then it falls into the jurisdiction, how they enforce that, what kind of fines, settlements and all that stuff. That could be all over the place, but I think when we're talking about how we test and whether or not the SCC has a say, I think that's really what we're talking about is are they checking those boxes, maybe knowingly or unknowingly, or are they just trying to do cool stuff?

And if they're doing cool stuff, That's probably someone else's problem to come harass them and deal with that. Probably people that are anti encryption and all the other fun things we have going on with government agencies that aren't the sec, it's just the money part that sec cares about.

Niko: Yeah. And then by definition, if you have an NFT in your game, It is a money part to use your terminology.

Devin: It's just secondary market. If you're just like the valve example, I was going to try and get to do where if it's just CS go skins, you're not investing in valve to get CS go skins, to have those go up in profit. That being said, there is interesting dynamics with pre ordered items and that you could but you're not buying them for the expectation that you're buying them to have them in the game.

And I think the game argument actually helps like art is a little trickier. Cause it's Oh, I just look at it. But GameObjects, if there is a, if there is a game utility, I think there's an argument to be made that people bought it for that reason, and it went up in value because it was fun or useful in the game.

That's different than buying it for the expectation of flipping it. If you're buying it for that's your own individual decision. But if the company's marketing it for that's the company's decision. That's where the SEC steps in. If I just want to flip stuff, if I want to flip Bill's hat, which I was sent to do many times, or I think I might've even meant for pre ordering left for dead.

I'm not sure, but that's a case where that's my individual decision. And yeah, sure. Valve does make a small marketplace fee off that, but they didn't promote it for that. They didn't set it up for that. Artifact maybe have been a little bit different argument there. They actually might've. Started treading towards sec water in some ways because my unfortunately, my cards are now worthless and I would have loved for them to protect me as an investor.

My artifact card collection, because there's no interoperability, unfortunately, but that's, I think the important distinction for games is if you make just stuff that's useful and people could sell it on a secondary market, but people aren't buying it for the secondary market, or at least you're not promoting that as the main reason.

I think you're probably okay. And where we get the MapleStory stuff could be a little interesting if you've seen some of the stuff that's come out about that. That's interesting dynamic. I think they're probably fine, but South Korea did very recently. I think it was either the last month or the month before pass a thing saying NFTs could be considered securities.

So they actually laid this line in the sand a bit more than Gensler did, but said, we will, if they act as securities, we will consider them on a case by case basis. So it wasn't like a, just everything's out there, but they work their government a bit differently like that.

Niko: Okay, so Steve you mentioned that before we actually started the pod that you've got six different law firms that you work with.

Tell me a little bit about what they have been telling you. You have presumably consulted with them, every step of the way as a responsible game developer and web three. And with a long track record in there as well. Tell me a little bit about what they've told you. They're the. None of us.

None of the three of us are legal experts. It's just the armchair legal easy. But your lawyers presumably know what they're talking about. So what have they told you with regards to what we're just debating here, like NFTs inside games, if you sell them before the game launches is that a crowd funder with an expectation of profit?

Therefore, that's a security or it's okay, if you just give it away for free, then clearly you're not making any money. And then if the secondary market Does the trading that's on them. That's, not your problem. There's so much gray area, so much nuance here. You've got six firms.

You've been navigating the space for years now. What have they been telling you to stay clean and clear of the SEC?

Steven: Stay clean and compliant. Law firms I think we're one of the only game companies that has Deloitte on their logo. So we, our, their white paper yeah, we took it fairly serious. Even so we were doing tokens.

Our token was delayed, but it's on its way. We looked at tokens and NFTs the same way. It's if there's an opportunity to be declared a security we're going to expect it. So let's do everything in our power to make sure that. Is not. And some of the themes that come back, utility is always at the top.

I think with NFTs you can expect things, right? Um, NFTs are, I think you can definitely mention the word interoperability a couple times. People expect NFTs to flow and go here and there. We never want to market or promise anything. Other than what we can control, right?

If we're making a game, it's going to do X, Y, and Z in those games, and it's good. Whereas, some of these projects, they, they appear, and I think these fall into the bad actors where we're making this opossum NFT collection, and it's, it's going to be in Fortnite.

It's going to be in, a Marvel contest. I think there's promises with some of these things that just, That one, they're not gonna be able to live up to expectations. And so makes their utility kind of zero. And that course, I wouldn't say they're security but the no expection of profit, I think for us selling items to users, that's key.

I think we all agreed that people shouldn't be buying things just it's individual, but us as a company, we're not gonna say like the art.com you buy this, it's gonna go up in value. We said you sell this, you use it, it's gonna be a lot of fun in our games because it's gonna have X, Y and Z utilities.

Another thing that came up with law firms is always about transferability or limiting transferability. So if you have a project that's openly, on OpenSea where people can just trade it all around transferability actually makes things a little more in that gray area. So I think If you allowed in our case, we do take things in the market, but we kinda wanna have the Chuck e Cheese model where you come to us, you buy your arcade, you buy your pizza, and you stay within the ecosystem.

I think that's ideal. The markets where it's just, you're trading for the period trading what we've seen is like the NFT at the game product they don't correlate, like the value of the game is far less than, the trading speculation on things. So the League of Teams did, make that a kind of a 0. 3, a 0. 4, which we can talk about was fixed value, right? If midnight or artist want to sell an item we sell for a flat fee we don't go to auction houses or something that we sell this item. Now, if it trades on a secondary because that's what market kitchen is demand the fluctuating nature I think could be seen as a security, but us as midnight, we're not taking benefits for that.

We don't have royalties on that. Or, we're not trading on our own NFTs. Essentially, once they're sold they're users. Another issue I think particularly for NFTs is there's always new ones coming, right? The same company can launch multiple projects. And that's okay.

You're an artist, you're doing that. But just because they're being constantly traded, sold, resold the sellers are, promising. These are valuable assets, and then they create new ones. I think that was an issue that they wanted us to look at. And then the use of proceeds we chatted about.

I think that's a big one, right? Brian's Kickstarter analogy, I think, makes perfect sense, because it's, people are essentially buying into this. They're not expecting to be distributed profits because we're building a platform with NFT is a lot of times it's just future benefits.

There's no utility. If you're you have to use token sales to build something or then you don't build it. The kind of expectation of profits there.

Niko: Yeah. But that, that, that's just plain fraud, right?

Steven: Like I think it's pretty funny.

Niko: Yeah. Okay. A lot of Kickstarter things.

They apparently, yeah, a lot of Kickstarter. Yeah. Yeah. So I think we can. We could all agree that the cases of plain fraud, the pump and dumps are like, I'm going to go and build this cool thing. And then, you just take the money and run, right? Uh, that's not, I don't think any of us are talking about that and defending that.

And I think there are very few people on the planet who would defend that kind of behavior.

Devin: I think, can we have the sec come after all these preorder games that turned out to be crap?

Niko: Yeah, exactly. Yeah. Yeah. Yeah, no, I yeah. Points taken Steve but I do, yeah, I just want to call out like things that are obviously fraud.

We should call them out as obviously fraud. And that is just, that's not what we're talking about. We're talking about the SEC coming after, I think they're going to sweep up. I think, I don't know for a fact, again, we don't, none of us know what's actually in the Wells notice. We don't know exactly which NFT projects, if you know any, they're specifically coming after is it all of them?

Devin Dinser, again, seems to paint a very broad brush and he's saying Oh, it's all up for grabs now by the SEC.

Niko: Yeah, exactly. Like you're not doing it for the goodness of your heart. Like you're not putting art out there with the expectation that nobody's going to buy it. Or you don't adopt it.

Steven: You haven't seen my art.

Niko: Okay. So I'm gonna, I'm gonna shift gears now. And let's talk a little bit about what do you, so we've talked a little bit about what we think it's going to do for Web3 gaming, Steve, you think it's going to be okay, Devin, you seem to think it's okay I'm a little more skeptical, let's see what happens but investors so indirectly Web3 gaming or Web3, this entire ecosystem more broadly, it has relied heavily on investment in order to get projects to market Web3, I don't know what the latest numbers are, Web3 investment, There has been billions and tens of billions of dollars invested into Web3 gaming TBD, what the return on that is going to be over the years, nonetheless, a lot of money has gone in there.

What do you think this is going to do to investors? Are they going to start to get a little Ooh, I don't know what's going to happen here. I'm going to pull back my money's at risk.

Steven: I think that's already been happening, right? I think Web3 gaming has not had a lot of great returns.

With the first wave of companies that, raised a couple of years ago, their games were a bit of a flop. The, some companies that did well, like they had a token offering and token offerings quite well, they're seeing that. Even though they have a token that has decent value, the cost of operating games is quite expensive.

And, so they're losing money on the game side, but they're making money on the token side. And so that's awkward. But I still think that's a benefit to VCs. That a token, they would, I think they would much rather invest at least the ones I talked to. Maybe I'm just in the bubble.

Um, I had been on the investment side of the VC side for a couple large companies, a couple of them that was raised, a billion dollars in fundings. The company had done sitting for revenue, right? A billion dollar in revenue for a billion dollar in funding, but the investor saw zero, right?

The company shut down because with things time that, games lose their hype and their inflation, they can only run for maybe seven, eight years. Not everything lasts forever. All games die at some point had there been a token associated with those things. That's just going to solve some liquidity.

And I think that would be a good place for investors. So I think if someone's launching a game and there is a token, but I think that's got to be far more attractive than a game that doesn't have a token associated with it.

Niko: But then it's a security, then it's a security. That's the, it's quite clearly a security.

If you're, if, and look, I'm not naming any names, but they're Investors at least two or three years ago were buying both equity in price rounds, they were buying the equity traditionally, and that's, of course, it is a security and then they were getting tokens as well. And I don't know. I don't know what that means again.

I'm not, but that to me looks very much like double dipping. It looks very much Hey, if we can't make our money, this is literally what just described Steve. If I can't make my money on the price equity on the preferred stock in this company, because it's. Takes a long time to get to liquidity.

Hey, maybe I can get a little double dip here, with the token if it goes up in price. So expectation of profit. So that to me is a clear case of it being a security. Whereas NFTs in my mind, like they're not right. So anyway, I'm going to push back on that a little bit. Yeah.

So investors, if they are investing,

Steven: I'm agreeing with you. But I think that's, so the question is, will Investors pull back from NFTs or tokens.

Niko: To me, the answer is obvious. Like they will they are risk takers, but if there is a SEC ruling out there, like it makes, it was just wait, especially given the returns and web three have been minuscule.

I don't know. Has anybody made any money?

Devin: If we were at a bull run, they would still do it because the due diligence is like zero in a bull run. So it's only because it's pulled back, but they would actually be like, maybe not.

Niko: Yeah. So look, I, in my opinion is like investors or not.

Some investors are stupid, but investors are generally not stupid. And generally not stupid. And if there is legal risk involved, like their diligence teams are, especially if they're But, The top tier investors they're not going to touch this with a barge pole anymore because it's just way too risky, right now, maybe the wells notice once we see what's actually in there.

If we ever get to see what's in there. Maybe a settlement likely will be a settlement by OpenSea and we won't necessarily know exactly what was there. So that will be a shame because it would be nice to Shine some light on this a little bit and understand what exactly the issue was. And were they specific projects like Devin seems to think, or whether it was a more broad brush, like the other Devin Dinser seems to imply in his posts.

But until such a time that there's clarity, that's one thing that's just don't they don't like uncertainty. They don't like to have a situation where there's no clarity around okay, what is this even a viable thing? Are we going to be breaking the law or our portfolio companies to be all Breaking the law down the line I think this is going to have a pretty chilling effect.

I had invited, I invited a VC onto the web three VC onto this pod, but we didn't manage to get it together in time because it was…

Steven: It was very quick. It was an emergency. Yeah.

Niko: Yeah. Emergency pod, man. That's what emergency pods are all about. You got to do it quickly. Or that's what I think anyway, it's the first one I've done.

Devin: So happy to be here.

Niko: So yeah, Devin, you're, your thoughts, what do you think? Like investment in web three has had not had a great deterrence. This is Going to make it better or worse?

Devin: I had to deal with a lot of interacting with VCs. I have friends that are VCs. I have a lot of projects, either prefunding or post funding.

And the thing is, they don't want to touch NFTs anyways. So this is like so irrelevant to them because they care about tokens. And honestly, tokens don't make sense for 99 percent of games. Tokens are for investors. It's a way that they can fleece the customers for their money back. Instead of the business and to Steve's point, then the business doesn't make any money.

Cause now they're competing with their investors just to keep the lights on. While the investors over there are like, Hey, don't go into that business. Come over here in this alley and buy this from me instead. Like they're selling the business of stuff off on the side. Nah. You don't want to, you don't want to buy from them.

Nah, just buy it from me. I bought from them already and I'm selling it to you now. Don't worry. And that's such a problem. And it's I've pitched so many designs around NFTs and stuff like that. And it's just no. Maybe the N and NFTs just stands for no freaking traction to them or something, but they're just not interested in it.

What's funny is at the end of the day, they're still doing the same thing, right? If they're just selling it to other people, it wasn't matter, but to them it's not money. And I think that's a good thing for games when it comes to NFTs. If we want to stay away from the sec, if we don't treat them like money and the investors don't treat them like money and we treat them like things, we're going to get a lot better away from the sec.

And then investors can be like, Hey, I want to invest in the game company. And they have secondary sales, and I can, maybe somehow as an investor in the company, recoup from royalty fees. That's all totally reasonable, and I don't think the SEC comes in there on that. Especially if it's one of the things I wanted to mention earlier, to what Steve was saying was, most game companies aren't going hey, you can take your items in this game, and you can continually flip them for profit forever.

Usually the pitches when you're done with this item, you can sell it for less than you paid for and get some of your money back. It's more GameStop than it is Sotheby's. And at the day, they're just like, no, no one's GameStop side out there pitching or EA, like you buy this Madden and don't worry, you'll be able to sell it for twice the price next year.

Like ultimate team somehow makes this FIFA or FC, like even those old, it goes up in price. You could have made the, argument for maybe Japanese imports, but. It's no one's pitching it like that. That's got any sense in games and I think that's why I feel like games are Okay, if they're being honest with themselves and they're not just being like, how can we get money right now?

And not just looking for some opportunity to get funding in a really tough environment And I don't blame them. I'm happy to help them try and figure that out navigate that Because I know you want to make a game and it's expensive And it's risky and you're like, who's going to take that risk for me?

So that's, that's great, but it's also very difficult right now. I don't think tokens are the smartest way to go about it. Obviously a lot of these VCs have tokens as their mandate for the liquidity. And I know that's changing occasionally over time and stuff like that. But sometimes it's just dude, this has got to go into tokens.

And it's probably got to go into something that's not going to pass the SEC. I see a lot of them tiptoeing up to essentially revenue share models or gambling models because those are other models that make sense financially, but also dip into different areas of regulation. And I think that's the problem is any area that's really going to be profitable outside of typical game.

Stuff is most likely going to dip into something else except for I would say royalties. And if you look at Valve, they've essentially done that just fine. Yes, technically they're not adding royalties, but they're the only ones collecting a market transaction fee and the majority of transactions are for their items.

They basically are we'll see what deadlock does when that comes out here, but I do think like they've shown that's fine and I think that is fine. I think if you're just like, Hey, you could transact in the secondary market, but you just got to give us a little cut because like you're cannibalizing a primary sale.

That's fine. Everyone's okay with that. As long as you're not committing fraud, stick to that. You'll make some money off of that, just do it smartly, and you're okay. Let's stop trying to do weird hoops, sneaking through the back door, and then go, oh, we're caught. That's not a smart way to defend this.

If we're not self policing, guess who is gonna do it? We're gonna have Dentslet at your door, and we don't want it, we don't want to invite him over. Why not self policing? It's like any industry that doesn't self police or self regulate. Ends up in that situation. And the only way we can get out of it is if we self regulated.

Niko: Yeah. And the tracker, that was that same argument for crypto. Oh, don't regulate us. Like we're self policing, we're self policing. How did that go? Didn't go very well. There was

Devin: so much financial motivation for shady behavior. Everyone was like behind closed doors. Like it's fine, dude.

Just don't let Gensler see. And it was like, we deserved it to be honest. That's why some people cheer the regulation when it happens or when sec goes after someone, this is like, well, don't do that. Then And that's helpful.

Niko: Steve we're coming up to time here. So final thoughts from both of you.

Why don't we start with you, Steve? And I have one final question at the very end,

Steven: Once you've given us the final question, it's the last question, Jeopardy, I want to save my points to wager. I don't think it's going to be detrimental to gaming. I think to Devin's point, if we were in a bull market, people would be investing.

They're not investing not so much because this is just because. NFTs have crashed significantly in the last couple of years. I don't think they're ever going to come back to the, where they were in 2020, 21 investors in particular though, I think they do, and maybe I'll disagree with people.

I think they, they're here for the risk. Now most investors, they, they don't get in trouble for investing in mid companies. So what you have is like really good companies are really bad companies. Can I get caught on the floor? But then I think they are looking to risk investments and that, they want to figure out.

How could a company, push so far and what would help is things like this and, either action letters, no action letters, lawsuit, just trying to figure out what's the regulatory ways to, advance in this technology. I think there's there's going to be a future. I don't think it's dead yet.

Niko: Yeah, they're looking to make risky investments for sure, but not risky investments where there's legal risk, right? It's more about business risk, market risk. That's the risk they're taking, team risk. That's the risk they're taking. They're not taking legal risk.

And to me, this seems like there's more legal risk. Because I, I don't know if you guys were predicting this.

Steven: No, it's another way to say no, right? And investors are always looking for ways to say no. Of course.

Niko: Which, to me, is a chilling effect. But, okay, let's see. You're optimistic on gaming.

Devin, your final thoughts? Thanks.

Devin: Yeah, I definitely think it's a chilling effect on particular type of investment, but I think at the end of the day, like the important thing is and then this is always like the first question I ask people when I'm starting to work with them is what's your business model?

If you don't know what that is, and it's just speculation, then you're probably going to get in trouble with some industry, whether that be gambling, whether that be securities, whatever it is, if you can't actually clearly articulate your business model or don't really know what it is yet, You probably should think about that.

I think that's like an important lesson Here's if your business model makes sense, and it's not just trying to set up this how we test kind of stuff Like then it's probably fine as long as it doesn't violate some other thing I think yeah, maybe the sec hasn't set up like, color in these lines specifically But I don't think the how we test is that hard to understand especially when it's so fragrant frequently in the marketing sort of Gone around I think if you could say there's clear utility for what i'm doing You're actually buying something of value or getting something that a value that could have future value because of ideally your contribution and not the contribution of a common enterprise or whatever you can steer away from the Howie test.

I think it's not that hard to be like iceberg ahead. You're not on the Titanic. I think you could pivot a little bit first and see this coming. But it will definitely have a chilling effect on investment to some extent. But I think we were already getting there anyways. And I think we were on the last legs for some of that, maybe from venture capital.

Investing in games right now, I'll be honest, is not the greatest business. And it never was a great business. It could be an interesting business, but it was never great. And I think now, like the web three angles, like there, I think there's absolutely opportunity. For new business models, new ideas. I'm always exploring that space.

There's always really cool things you could do. Secondary markets are really cool thing. These are all great things. Continue to explore them, but just let's stay away from the, how we test so we can just focus on games.

Steven: All I like that because I uh, FIFA so I see, maybe it's two, two, two to one here, but it seems like arguably we are leaning towards a gray market.

That NFTs, could be closer to securities than purely goods and in some of these cases for OpenSea or Renshin, but, we are agreeing also is like the NFTs themselves are unique, right? They represent digital art collectibles, other assets for games and that perhaps the way that we look at, the Howie test or the way we look at securities probably doesn't consider the innovation that is NFTs and the things that we're moving towards, right?

So I think the. When you start this call, I think the highway test you said was 1930 something. Hard to, I think apply that to what the future is coming with the NFTs.

Devin: Also kind of hard to say you don't know about it.

Steven: Yeah, yeah.

Niko: Sure. 90 years old this year, huh? 1934, so if my math is right.

So yeah, coming up to a century old.

Devin: Okay. He's doing it for the birthday anniversary.

Niko: Yeah, there you go. There you go. He's getting ready for it. Could we do the wills notice as an NFT?

Steven: Should we do that after this?

Niko: There you go. That's what we should absolutely do. Fun. So final question, fun question, hopefully.

Former president Donald Trump is has just issued. His fourth NFT collection on Tuesday, literally of this week, today is a Thursday, August 29th. This is the day after August 28th, which is when the walls notice or when the open scene use broke. So he's doing his fourth NFT collection. It is a collection of Donald Trump and much younger more vigorous superhero thinner mode.

They are there's one of them, at least where he's holding a Bitcoin. And he claims, he says, Trump digital trading cards, NFTs are intended as collectible items for individual enjoyment only, not for investment vehicles. Question. How we test? Passes it or not?

Steven: Oh, I like it. It's a simple yes or no.

Yeah, he said it does. He said it does.

Niko: It does. Yeah, he said it's not coins, right?

Devin: You see those like commercials for collector coins that are like pseudo infomercials during the day where it's like for these collector mint coins, whatever the coins, whatever it is, same kind of idea.

But Trump said specifically, he's going to get rid of Gensler if he gets elected. So he's defending himself because I believe if my understanding was Gensler was a Biden appointee and you can't like fire the commissioner, but you can replace them by like nominee or chairman. So I think he technically can. So I don't know. I guess he can always protect his own trading cards from the Oval Office if he gets in there.

Niko: There you go. All right. So you're like, yep, he said it wasn't. So it isn't, there you go. Steve, is it as simple as that? If I go out there and say, Hey, no, this is not an investment vehicle.

This is for individual enjoyment only. We could just do that and then we're good to go.

Steven: I think you're good to go. There's cultural significances with some of these NFTs or rare double Eagle collectors, men's coins, being sold now. I think there, you have to look into the, to that.

Niko: So what I hear you saying is you're all in on Trump digital trading cards. I'll take one if you want to give me one. All right. 90. They're 99 each guys. So here we are.

Steven: Hey, it's a fixed fee. That's great.

Niko: Yah. And there's no, how much can I later? No expectation of profits. It's for individual enjoyment only.

Devin: The expectation of profits if he gets elected. So you're just like, all right,

Niko: I'm in on the election. There you go. I may as well go. To the the bookies for that then. Okay. Are on that note then. So everybody agrees. Donald Trump, digital trading cards, NFTs are indeed collectible items and they're individual enjoyment only.

They are not for investment purposes. Clear utility. Okay. That's clear then. Excellent. All right. Well, Gentlemen this has been an excellent excellent time for me, at least hopefully also for our listeners. Very interesting. I see and appreciate that we had some. Differing opinions on certain things and that's always good.

It'll be interesting to see what's in that wall's notice if we ever get to see it. Some clarity on this would be so good. I think that's the one thing that would bring investment back. If there's clarity on what is okay and what isn't okay. That's the one thing that I think a lot of us developers too would very much want.

The crypto purists, not so much. They don't want any regulation. They don't want any clarity. There's one like stay out of this. Okay. Steve, thank you very much for coming.

Steven: Perfect meeting. Thanks.

Niko: Devin, thank you again for taking the time and doing this last minute.

Devin: Always, always Nico.

Niko: Excellent. All right. And also a big thank you to all of our listeners. Welcome back. This was an emergency pod, a lot of stuff we covered today. On that note, then come back. Next week, we'll have more interviews, more insights, more analysis from the weird and wonderful world of gaming.

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