When Do Money Transmitter Rules Apply to Blockchain Games?

Most video games rely on in-game virtual economies to incentivize player engagement and facilitate the exchange of in-game items. But virtual economies that extend beyond the boundaries of gameplay and into real-world financial markets may also be subject to real-world currency regulation. In the U.S., institutions that facilitate money transmission from one person or business to another are strictly regulated by federal and state laws designed to detect and prevent money laundering and other financial crimes. Blockchain game companies that engage in certain activities, such as using fungible tokens as in-game currency, issuing NFTs, or hosting in-game wallets could be subject to multiple money transmission frameworks, each of which imposes unique and sometimes extensive recordkeeping and reporting obligations.

In the first quarter of 2023, blockchain game and metaverse projects received US$739 million in investment funds, an approximately 13% increase from the previous quarter’s investment total. Despite ongoing investment, developers face a fragmented, confusing, and ill-defined U.S. regulatory environment. Absent comprehensive digital asset legislation from Congress, U.S. federal and state agencies have been tasked with adapting existing legal frameworks to the emerging digital assets industry, including the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions to combat domestic and international money laundering, terrorist financing, and other financial crimes.

This legal update, the second in a series exploring U.S. regulations impacting blockchain games, outlines U.S. money transmission rules by surveying (i) federal and state money transmission regulation, (ii) activities that are more or less likely to trigger money transmission regulation, and (iii) current market practice among blockchain game companies toward compliance with money transmission regulatory obligations.