Tuesday, August 16, 2022

Land-based sector looks to join the crypto revolution


Even by the standards of initial coin offerings (ICOs), Macau gaming company Dragon Corp. raised eyebrows in September with an announcement that it planned to raise $500 million to build a floating casino that operates in a newly-created cryptocurrency.

ICOs, the controversial form of crowdfunding where users usually exchange bitcoin or ether for a newly-issued cryptocurrency, have not received the best press of late. They were branded “illegal fundraising” and banned by the Chinese government at the start of September.

Regardless, they remain hugely popular among investors. During 2017 until the end of October, 211 ICOs have raised a total of $3.5 billion, according to ICO information provider Coinschedule.

The gaming sector has been the focus of a number of ICOs already, and while most of these have centred on igaming, several projects are looking to disrupt the land-based sector with blockchain technology.

Dragon Corp’s ambitious plan takes aim at junkets, with a bold bet that the blockchain will enable it to dramatically undercut traditional junket operators and offer a more convenient and secure service.

Another such project, CryptoChip.io, aims to decentralize and digitize the junket industry by allowing customers to convert cryptocurrency into land-based casino chips and vice versa. These customers will also be able to book their trips via an app.

“There is a big opportunity for blockchain technology to disrupt and modernize the land-based casino sector, which has been struggling to appeal to younger players for some time,” Shahar Namer, CEO of CryptoChip, told AGB.

“We are providing a link between the old and the new economy for casinos, junkets and players,” he added.

CryptoChip has already run a successful 100-player pilot across five casinos, including the Star Casino at the Hilton Bucharest. The next step is to launch an ICO in the coming months, with a target of around $30-40 million in ether.

Namer said that while Asia and Macau are “clearly important markets”, the initial focus will be on the mainstream junket sector, rather than high-rollers. “We offer something that will particularly appeal to junket players who spend between $5,000 - $20,000 on a trip,” he said.

The blockchain offers functionality that holds particular appeal to casino operators. As well as reducing junket commissions, it can also be used to enforce conditions such as minimum spends.

Namer said CryptoChip’s technology could be used to deliver push notification reminders if a player is not meeting their gaming requirements, or even to automatically transfer a deposit to the operator if these requirements are not met by the end of the trip.

A block on the chain?

Despite the obvious upsides, there remain significant challenges for blockchain tech and cryptocurrencies if they are to gain widespread adoption in the land-based sector.

“The primary hurdles to my mind are understanding the technology and how to work with it,” Ron Segev, technology and igaming lawyer and a founding partner at Segev LLP, told AGB.

“In its earlier days, the public had a negative idea of bitcoin and other cryptocurrencies because they were the currency of choice for same websites promoting trade in drugs and other illegal or controlled goods.”

AML and KYC considerations are often top of the list of concerns when gaming and cryptocurrencies are mentioned in the same breath, particularly in highly-regulated land-based environments such as Macau.

But, adds Segev, just because crypto currencies can be traded without KYC or AML processes in place, it doesn’t mean they have to be. He points to a number of companies trading cryptocurrencies in full compliance of their respective financial services authorities, including BitGold, BitPay and CoinBase.

The bigger problem, however, could be that gaming authorities lack the requisite know-how to regulate the sector. While there has been some progress in this regard in the online sector, with Malta and Gibraltar both close to announcing frameworks, the land-based sector currently lags behind.

“While this is certainly a temporary shortcoming, it would mean that early land-based adopters of distributed ledger technologies (DLTs) may run into some delays in getting their systems tested and certified,” said Segev.

Prospects in Macau

According to Henry Yu, Max Jackowski and Tanya Chan from the L&Y Law Office, the regulatory outlook for bitcoin in Macau’s land-based sector is still uncertain.

They note that in September, Macau’s Monetary Authority issued a notice reminding all banks and payment institutions not to take part in the provision of financial services in relation to cryptocurrency related businesses.

Meanwhile, Paulo Martins Chan, Director of Macau's Gaming Inspection and Coordination Bureau, was quoted by Macau Business Daily saying, “local regulations have ‘very strict proceedings’ regarding how to become a shareholder and local authorities would ‘never allow such an easy way to become a junket operator shareholder.’”

However, Yu, Jackowski and Chan said that the adoption of blockchain technology in the gaming sector not relating to cryptocurrency trading, such as improving casinos’ security, is unlikely to be affected by any legal framework.

Outside of this framework, AGB has heard unverified reports that bitcoin is already a well-established means of circumventing capital controls from the mainland into Macau.

While Macau is host to a handful of bitcoin ATMs, the greater scrutiny imposed on the cryptocurrency from both authorities in Macau and the mainland, coupled with the shutdown of exchanges in the mainland, means it is unlikely that bitcoin will become a major tool for cross-border capital transfers, said Yu, Jackowski and Chan.

Instead, Macau’s gaming industry will be better off focusing on the way blockchain and distributed ledger technology can improve the experience for all.

“We think that smart contract functionality of DLTs, Ethereum for example, would be ideally suited for regulators to be able to do a better job regulating players and operators in real time,” said Segev.

“Tokens can be tied to a particular player and operator in real time and problem gambling issues identified and stopped immediately. Operators can have their back-end systems tied to smart contract enforced operating restrictions.

“Those back-ends can continuously provide certain compliance reports. If any deviation from standards occurs, the regulator can be notified and the operator informed to change its behaviour – all in real time.”

If operators can overcome the regulatory hurdles, there is little doubt this technology has the potential to cause a major disruption in the land-based casino sector in Macau and beyond.

 

Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.

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