The rise of virtual casinos hosted in the metaverse has created increased demand for NFT tokens, but two major US states have now banned the sale of non-fungibles.
Authorities in Texas and Alabama will no longer allow casinos to accept NFTs as a payment method, nor will they be allowed to offer the tokens for sale to their players.
Officials have claimed that NFTs and similar digital projects are in violation of pre-existing state regulations regarding online fraud, and cease-and-desist orders have now been handed out to a key project in the space – thought to be the first time that lawmen have intervened in metaverse business.
The veto has been designated to ‘stop an illegal and fraudulent securities scheme tied to virtual casinos’, with the prominent Sand Vegas Casino Club – and specifically the brand’s founders Martin Schwarzberger and Finn Ruben Warnke – named as one of the platforms stopped from selling their 11,000 NFTs in the two states. The largest NFT marketplace, OpenSea, has now stopped selling the Sand Vegas range of tokens.
They were allegedly promising NFT owners a ‘pro rata’ share of any yield generated by the casino, and had intimated that amounts as high as $81,000 per year – around £64,000 – were possible.
A Breach of Security
The nature of the ‘Gambler’ and ‘Golden Gambler’ NFTs means that they are considered to be securities in the US, for which specific laws over supply and trading are in place. Both Texas and Alabama have ruled Sand Vegas have violated securities regulations in each state by ‘engaging in fraud’, and by making potentially misleading and deceptive statements about the financial benefits of their product.
Officials at the Texas State Securities Board (TSSB) said:
“The parties are concealing their locations, hiding the identities of managers, misleading potential purchasers about their experience, and obscuring the significant risks associated with investing in their NFTs.
“Gamblers, acting through avatars, can enter the metaverse casino and play poker and other games using cryptocurrencies. Purchasers of the [Sand Vegas] Gambler NFTs profit from these operations. Not only do they become owners of the metaverse casinos, but they also purportedly share in half the profits generated.”
Meanwhile in Alabama, a spokesperson for the authorities there commented that the accused ‘are falsely telling purchasers they can avoid securities regulation by implementing illusory features or use different terminology.’
Defending his outfit’s aspirations, Schwarzberger said:
“We are absolutely confident we can solve this situation and possibly even lead the way for other NFT projects.”
However, the Sand Vegas Twitter account has since been closed, and a ‘sold out’ message now appears when trying to purchase a token via their website.
There is now is a suggestion that law-makers in other regions of the United States are also keeping a close eye on metaverse casinos being built on platforms like Decentraland.
The wider online casino space has started to adopt NFTs in their products. Evolution Gaming, the slots and live casino specialist, now plans to offer CryptoPunks NFTs as prizes in some of its new games.