DP lawmaker's scandal puts Korea's P2E sector at risk

Finance

Published: 21 May. 2023, 16:50 Updated: 21 May. 2023, 18:09

DP lawmaker's scandal puts Korea's P2E sector at risk

An image demonstrates the play-to-earn concept. [SHUTTERSTOCK]

A cryptocurrency trading scandal involving a lawmaker is battering Korea's in-game currencies market, also known as the play-to-earn (P2E) business, as the controversy shed light on the allegedly cozy relations between the game companies and politicians and the vulnerability of digital tokens to suspicious transactions.

P2E is a game model based on blockchain technology that allows users to earn tokens or non-fungible tokens (NFTs) with real-world value via gameplay.

Rep. Kim Nam-kuk, formerly a member of the main opposition Democratic Party and now independent, held at least 6 billion won ($4.5 million) worth of Wemix, a cryptocurrency distributed by game developer Wemade, last year but offloaded the asset about a month later. He also invested in other game-related coins, including Netmarble's MarbleX, a coin used for its P2E games.

Kim's transfer of some 4 billion won worth of Wemix coins to another crypto wallet in January was reported suspicious to the Korea Financial Intelligence Unit (FIU) of the Financial Services Commission.

Lawmakers of the People Power Party and academia raised doubts about the origination of the massive amount of tokens and the possibility of him using insider information to time his purchase and sale of the tokens.

Suspicions surrounding his investments include the provenance of the money he used to buy the cryptocurrency and whether he used insider information to time his purchase and sale of the tokens.

A number of politicians may have been lobbied by game companies to win approval for P2E in Korea, speculates the Korea Game Society.

"The fundamental of the Kim Nam-kuk incident is not the individual's coins, but the lobbying for P2E," said Wi Jong-hyun, head of Korea Game Society and a professor teaching business at Chung-Ang University, at a press event held in western Seoul on Friday.

Wi targeted Wemade in particular at the conference held to discuss the so-called "coingate" triggered by Wemix.

"There were lots of rumors that P2E game operators and associations lobbied the National Assembly from years back. An inspection was needed to see whether lawmakers from both the ruling and opposition parties and their staffs invested in Wemix."

Wemade filed a defamation suit against Wi Wednesday.

Rep. Kim Nam-kuk walks into his office at the National Assembly on May 14. The lawmaker left the Democratic Party the same day. [YONHAP]

Companies complain that the scandal is tearing down the nascent P2E business as people lose trust in the P2E market.

“The P2E game market could wither” due to the scandal, said Kim Won, a spokesperson for Wemade. “Since P2E games are related to virtual assets, it is affected by a lot of external issues. Games should be seen as games, but there are difficulties in that when it comes to P2E games.”

“I’m afraid prejudice may build against P2E” following the scandal, another source from the game industry said on condition of anonymity.

The government's effort to change the environment for P2E games may come to a halt as people start losing faith in the games.

“The government began conducting research on P2E, creating a positive mood over the past year,” said Lee Jae-hong, a professor who teaches creative writing at Soongsil University and head of the Korea Game Policy Association. “But all the positive discussions have been put on hold due to the incident involving the lawmaker, causing tremendous damage to the entire industry.”

A poster for Netmarble's metaverse game, Meta World: My City, released in the global market last month. The game has a play-to-earn feature. [NETMARBLE]

The Ministry of Culture, Sports and Tourism said in September it is conducting research on characteristics of P2E games through a task force. Korea’s game rating committee presently refuses to rate P2E games, calling them speculative, which makes it impossible to publish them in Korea.

Lee added, “The world is changing very fast, and the industry will inevitably fall behind if government support stops from the incident.”

Game publishers have been avidly developing technologies for P2E, seeing it as the blue ocean. Wemade launched the P2E game Mir4 in the global market in August 2021. Netmarble, Com2uS and Kakao Games followed.

The global blockchain gaming market size was valued at $5.41 billion in 2022, according to the India-based Polaris Market Research. The market is predicted to reach $1.02 trillion by 2032.

Development in Korea has been slow, in part due to sensitivity to P2E games in the wake of the "Sea Story" incident. The video arcade game, released in 2004 rewarded players with gift certificates, which many cashed out. People lost money on the addictive game, with some taking their lives over the money lost.

Not everyone agrees with the commercialization of P2E games, saying game developers are encouraging speculation.

“The purpose of technology is to remove inconvenience, but the essence of P2E isn’t technology,” said Lee Byung-uk, who teaches artificial intelligence and blockchain at aSSIST University. “P2E and probability items are deep-rooted evils that are putting the game industry on the path of speculation. The nightmares experienced through ‘Sea Story’ will not be repeated.”

Wemix traded at around $0.90 and MarbleX around $0.87 Sunday.

BY JIN MIN-JI [jin.minji@joongang.co.kr]