Yes I know that is as vague as it can be, but let’s try to untangle the non-existing regulation around NFTs and what some recent development in European legislation could mean to the emerging market of NFTs.

We need to consider two things:

• Are pre-reveal PFP and P2E NFTs loot boxes?

• If yes, would the loot box legislation apply to them?

We can and we should.

Loot boxes are a feature within video games that allow players to partake in a game of chance, exchanging real world money for a randomised in-game item or benefit.

In this definition our pre-reveal NFTs could be considered randomized in-game items, especially if they are part of a P2E game, given their attributes are randomly generated from legendary 1/1s to uncommon 10000/1s, which would also constitute a game of chance aspect. Can we say that we can exchange these P2E NFTs for real-world money? Of course, even if the P2E game uses a niche crypto token to purchase these NFTs, we still can exchange our tokens for cash on any CEX and vice-versa.

Probably would change how we reveal NFTs, but the market as a whole won’t be regulated anytime soon.

The most recent addition to the not-so-long list of loot box-related regulations comes as consumer groups in 18 European countries jointly announced that they will launch a coordinated call to action to pass regulations on the despicable practices around loot boxes. The 59=page long report details key issues with loot boxes and their mechanism, a few for the sake of understanding the issue:

• Exploiting cognitive biases and vulnerabilities through deceptive design

• Using aggressive marketing practices to push sales at every opportunity

• Using layers of virtual currencies to mask or distort real-world monetary costs

Even before the years of the pandemic-induced chaos around the world, legislators tried to look into the issue at hand, most notably in Belgium where EA had to stop selling FIFA points, and in the Netherlands, the company was fined 500,000€ each week they continued selling loot boxes in their games (this decision has been since ruled as unjustified). Following the BENELUX success, the UK government also started a multi-year investigation on whether they could change the gambling legislation to regulate loot boxes accordingly. This was recently published as an overview by the House of Commons Library;

• In September 2019, a House of Commons Committee published a report on technologies that called for regulations to be made to extend the 2005 Act to loot boxes.

• In June 2020, the Government announced that it would be launching a call for evidence into the impact of loot boxes on gambling-like behavior.

• A July 2020 House of Lords Committee report on gambling harm also called for loot boxes to be brought within the scope of the Act.

• On 19 May 2022, the Government said a gambling white paper would be published in the “coming weeks”.

If we look at these common issues with loot box mechanisms in the video games industry we can see why they would apply to the current P2E market. Imagine a virtual world where you earn or buy virtual tokens that you can exchange for in-game characters or features, this would be per definition the loot box mechanism that the legislators are trying to regulate to keep children safe. In this regards the general PFP market might also fall into this category.

While the legislators are working on actually taking care of this problem that is now part of most video games, the NFT market should self-regulate and try to come up with a better solution for pre-reveal PFP NFTs and purchasable P2E NFTs.

Do I have a solution? No.

Do I believe in NFT technology? Yes.

P.S.: Sorry for making this article an NFT, just wanted to try this functionality out.