With regulators set to clamp down on the ICO gravy train, Hannah Gannagé-Stewart looks at other ways that gaming businesses are assimilating blockchain technology.
There’s no doubt that initial coin offerings (ICO) split opinion. While many igaming businesses have used them to raise muchneeded start-up funds, critics in the industry regard them as little more than a pyramid scheme.
Despite the bad rep, ICOs have come to characterise the crypto and blockchain phenomenon over the past few years. But they’re not the whole story and as lessons are learnt and the regulators move in, some businesses looking to experiment with blockchain are taking a different tack.
KamaGames is one such business. The social casino started researching crypto and blockchain back in 2011 but only went live with its token sale in August. Chief executive Andrey Kuznetsov (pictured) says while an ICO wasn’t always off the table, in the end it presented too much of a risk for too little reward.
“ICOs are associated with some legal challenges. Beyond the legal risk, this can be a huge PR risk for an existing company that values its name and products and has a reputation,” he explains.
Instead, KamaGames opted to run a token sale. For a limited time its customers, and latterly the general public, are able to buy tokens, which they can then exchange for chips to play at KamaGames online.
The campaign not only tests the appetite of Kama’s customers for crypto, but also encourages acquisition of new players and retention of existing ones with a number of incentives.
Holding onto the tokens brings rewards, in the form of bonus chips for the duration that you hold the token and a growth in the exchange rate. The casino guarantees an increase of 25% each month during the first 36 months.
The idea is that punters hold onto their tokens and cash their chips out gradually, thus avoiding inflation in the customer economy. The introduction of a variety of player vs environment (P2E) games has also been planned to assist in this aim, with slots the key to bringing chips out of the customer economy and back into the house.
Kuznetsov’s cautious approach to crypto is designed as a learning curve. Depending on the results of the token sale, he says the business may consider a security token offering (STO) in future.
STOs bear more resemblance to a traditional IPO; regulated in the US by the Securities and Exchange Commission (SEC), they treat the purchase of tokens as a secured investment, similar to shares.
“We’ve been thinking about private placement for a number of years,” Kuznetsov explains. “We still haven’t decided but we have been looking at STOs, so this campaign is testing the water.”
Unlike KamaGames, crypto casino FunFair opted to take the plunge with an ICO relatively early on. In June 2017, it raised $10m in ethereum, as well as more than $10m in other currencies and private institutional investment in the space of just four hours.
FunFair founder Jez San knew he was taking a risk but was undeterred by the prospect of being a crypto pioneer. FunFair aims to corner the crypto casino market, appealing to punters not only on the basis that they can use crypto to gamble but that a blockchain-based platform offers superior security and fairness to players.
FunFair’s business strategy and marketing consultant Stefan Kovach argues that, while the casino can’t claim to function on a totally trustless, or decentralised, basis, it is closer to that end of the spectrum than conventional casinos.
A completely trustless ecosystem removes any middlemen within whom trust has to be placed to make a transaction. In the case of blockchain, it means that crytocurrency can be passed from one individual directly to another, without any banking or transactional intermediaries at all.
FunFair isn’t able to operate as completely trustless, but the casino’s ethos is that by operating on a blockchain they can make all transactions ‘provably fair’ and in doing so build their players’ confidence in the brand.
“As a provider, we promise that every spin of a wheel or roll of a die is fair and you have a ‘provably fair’ button,” says Kovach. “It’s a bit like Intel in that no one really knows how a processor works but you know it makes your computer a bit quicker and you’re happy to spend £300 more on it”.
As a first mover in the crypto casino market, FunFair may succeed in creating brand loyalty through its crypto USP. Kovach says many of the casino’s ‘community’ are early crypto investors themselves; they are blockchain natives. It is harder to know at this stage whether crypto in and of itself will have mass appeal.
On top of that, if truly taking the middleman out of the picture is what modern punters are looking for, then being only partially trustless seems at odds with the concept. But some tech companies are working on ways to do it.
Professor of health and life sciences at Surrey School of Law Ryan Abbott highlighted the opportunities for entirely trustless gambling in his presentation at iGB Live! in July. Abbott suggested that decentralised prediction markets (DPM) could be the future for igaming.
“Instead of going to William Hill and betting on the outcome of the World Cup, you find another bettor or gamer and make the bet directly with them on the blockchain,” he explains. Unlike existing prediction markets, which have been in operation for some time, DPM removes the middleman or trusted intermediary completely and makes the process totally peer-to-peer.
Abbott outlines several benefits to this model: no single entity governs the market, all transactions are transparent on a blockchain, and anybody can participate pseudonymously to either open a new market or place bets in an existing one.
These may be benefits for the punter, but for operators used to acting as that middleman, this model is arguably less ideal. Tech companies and suppliers, however, may have an opportunity. Abbott namechecks three businesses looking to occupy this space.
Hivemind uses bitcoin for its DPM and is currently in the R&D stage, while Augur, which launched this summer, and Gnosis are doing the same thing with ethereum. There is the potential for bitcoin to be used later on both platforms.
Abbott says all three are examples of how distributed ledgers can fundamentally alter a gambling offering. And while operators may not be involved in the transactional side of betting on DPMs, Abbott points out that “traditional gaming companies would use them to hedge bets and to predict markets”.
He is clear that this technology could pose both opportunities and threats to the existing industry and suggests now is the time to shape the future of DPMs or even obstruct them if necessary. “Regulators may be receptive to cries of foul play – in the name of consumer protection, and protection of a tax paying industry,” he says.
Ultimately DPMs’ arrival on the scene could place more pressure on operators to distinguish themselves through more imaginative and innovative offerings. They will need to exceed a peer-to-peer gambling experience. Just adding crypto to their offering may not be enough.