Indochine Counsel

The problem of data privacy being controlled by a bully company in a bully country is only the beginning of the problem, especially for countries that may not be in the exact sphere of influence of the Western alliance. Let me explore the issues using Axie Infinity as a definite example for ease of discussion.

This last week I gave a presentation for ASEAN Legal Alliance on NFTs, Axie Infinity, and the major problem digital assets present for national sovereigns. I’ve previously written in this space about the difficulty of the Metaverse being largely owned and operated by an American company. Citing the United States reaction to Chinese limitations to Facebook in order to protect their citizens from having their data collected by a foreign company in a country currently at odds with them. That Facebook and, by extension, the Metaverse collects more data on its users than any other social media provider and that doing so presents a very real risk to foreign governments who wish to protect the data of their citizens.  

This problem of data privacy being controlled by a bully company in a bully country is only the beginning of the problem, especially for countries that may not be in the exact sphere of influence of the Western alliance. Let me explore the issues using Axie Infinity as a definite example for ease of discussion. (Also as a way to localize the problems to Vietnam and ASEAN.) 

As I’ve written elsewhere, Axie Infinity is an NFT game using the play-to-pay model that has become increasingly popular over the last six months. Users buy NFT avatars, or Axies, for a given amount in order to play. This amount ranges in an amount just shy of one thousand dollars worth of AXS, one of the games cryptocurrencies. With these Axies, users can then breed more Axies which they can sell, or battle other Axies to earn SLP, the game’s other cryptocurrency. A player who spends several hours a day on the game can earn fifty to seventy dollars in a day in SLP.  

Because the nature of the game play is time intensive, it is very attractive to users in developing countries where the average daily income is quite a bit less than the amount that can be earned through game play. But the cost of joining the game is sufficiently prohibitive that very few of these same players are able to afford the buy-in. This has given rise to a sponsorship situation where investors in wealthy countries sponsor a player in a developing country in exchange for a percentage of the user’s daily earnings. This proved fruitful initially until it became obvious that the unlimited supply of SLP devalued the cryptocurrency and changes were required to make it more difficult to earn.  

Another challenge of Axie Infinity arose when, a few months ago, North Korean hackers stole over 600 million dollars worth of players’ SLP from the game. Not only was this a blow to the game’s reputation and the incomes of the users who struggled to make ends meet on their income from the game, but it also demonstrated the larger issue of lax cybersecurity in the blockchain (an issue I will address at a later date.) 

All of this gives rise to a large number of potential disputes in relation to the game play and all if the ecosystem of relationships that arise therefrom.  

First, the relationship between Sky Mavis, the holding company in Singapore that owns Axie Infinity and the founders who all live in Vietnam. Second, the relationship between Axie Infinity and its users. Third, the relationship between sponsors of the users and the users themselves. And finally, the relationship between all of these and foreign criminal actors like the North Korean hackers. 

The first relationship, that between the founders as owners of Sky Mavis and the game of Axie Infinity stands on fairly well developed corporate law grounds. In general, the founders are excluded from liability beyond their share of contributed capital to the company. Though that may be considerable given the fact that the founders have opened up new funding rounds in an effort to replace the stolen funds and to compensate users for their losses. As a result of such rounds, the founders will likely have to sacrifice a considerable portion of their remaining shares and, as such, their wealth in the value of the company. 

But what about Axie Infinity and users?  A brief review of the game’s terms and conditions reveals that users are automatically made subject to the same by the act of playing the game. The terms are governed by the laws of the Cayman Islands and dispute resolution is to be in the Cayman Islands using arbitration according to the American Arbitration Association’s rules. This is simply bizarre. The Cayman Islands have no special claim to legislation that is particularly friendly to NFTs or cryptocurrency and aside from the assumption that Sky Mavis houses their bank accounts in the country there seems to be no other obvious connection. But assuming that users can go to the Caymans to resolve disputes, there remains the issue of who exactly is a user. 

The Axie Infinity terms do not contemplate the sponsor/player relationship and it is unclear if there is a general relationship defined by either type of individual. A brief search some time ago revealed that players often post on Reddit or other messenger boards in search of sponsors. If this is generally the case, then the players are entering into ad hoc relationships with wealthy and sophisticated sponsors. It is likely that any contract is drafted by the sponsor and heavily biased in their favor. There is no existing body of law that governs such a relationship across country borders as it may or may not be seen as an employment relationship. If it is, then it remains unclear which country’s laws would apply. If it isn’t, then there is even less certainty other than simple laws of contracts, and the international law of contracts in services is much less developed than that for the sale of goods. 

Regardless of who is in charge and who actually sustains the relationship as a user to Axie Infinity, there is also a major question posed by the theft by the North Korean hackers. The hackers stole the money from the game’s Master e-wallets that was, apparently, held in trust for users until they cashed out. While it seems that Axie Infinity would have a case against the hackers should they ever be brought to justice, what about the users whose funds were actually stolen? And what about the sponsors? Does Axie Infinity or Sky Mavis hold the controlling interest in the funds? And how are blockchain thefts regulated? 

The questions that digital assets and decentralized ledgers present are multi-faceted and cross-jurisdictional. Not only is it unclear what sovereign has the right to prosecute offenses or torts, but even in what jurisdiction such prosecution is to take place remains uncertain. There is no clear answer when there is no entity backing the asset, such as many cryptocurrencies which are completely decentralized and have no government or even corporation to support them. There is too much that must be resolved that requires international cooperation that isn’t happening in order to resolve the conflicts.  

Apparently, the discussion of how these multi-jurisdictional conflicts are to be resolved I’d just beginning to take place, but these conversations are in the very beginning stages and have yet to reach the level of legislation or treaty negotiation. Let’s hope that we can have more success resolving these issues than we have of saving the environment. 

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Indochine Counsel

Established in October 2006, Indochine Counsel is a leading commercial law firm in Vietnam. Offering services throughout Vietnam, Indochine Counsel is ideally positioned to assist international investors and foreign firms to navigate the legal landscape in one of Asia's most dynamic and exciting countries. We also take pride in our services offered to domestic clients in searching for opportunities abroad. With over 45 lawyers and staff in two offices, Ho Chi Minh City and Hanoi, Indochine Counsel offers expertise in a dozen practice areas and provides assistance throughout the entire life cycle of your business.

Based on the principles of Excellence, Professionalism and Ethical Lawyering, Indochine Counsel strives to give clients quality service in a timely manner. Our lawyers have been trained all over the globe and have experience with both local and international law firms. Indochine Counsel takes pride in its people and works hard to ensure that they have the support and training necessary to work at the peak of excellence.

Indochine Counsel’s objective is to provide quality legal services and add value to clients through effective customized legal solutions that work specifically for the client. The firm represents local, regional and international clients in a broad range of matters including transactional work and cross-border transactions. The firm’s clients are diverse, ranging from multinational corporations, foreign investors, banks and financial institutions, securities firms, funds and asset management companies, international organizations, law firms to private companies, SMEs and start-up firms.

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