Was Steam Right to Ban NFT Games?

Steam Bans Blockchain Games: The Full Picture

Following a stealthy change to Steam’s terms of service in mid-October, Valve recently began notifying developers that they would no longer allow games that leverage blockchain technology, like tokens or NFTs, to be listed on Steam. While this is a potential setback for the blockchain gaming ecosystem, the decision has recently been overshadowed by the bullishness of other industry leaders like EA, Take-Two, Zynga, and Square Enix. Specifically, Epic Games publicly took advantage of the opportunity to share that they are “open” to blockchain games on their platform (The Verge). Although Valve’s move is undoubtedly controversial, there are a lot of nuances to the discussion that are overshadowed by the blockchain community's sentiment.

The news was initially shared by Age of Rust developer, Space Pirate. In the screenshot for Steam’s Rules and Guidelines, they highlighted that “Applications built on blockchain technology that issue or allow exchange of cryptocurrencies or NFTs” (Steam) should not be published on Steam. Space Pirate mentioned that “Steam’s point of view is that items have value and they don’t allow items that can have real-world value on their platform.” Distribution and legitimacy verification are foundational elements of blockchain gaming. Steam had (and still has) the opportunity to be a central source of information in games. Your typical crypto native might not like this as centralization is generally frowned upon, but trustworthy central networks and platforms are integral to onboarding the next generation of blockchain enthusiasts (e.g., Coinbase). Steam could provide that for gaming.

Considering the public pushback Valve has received on this front and our view that both sides of an argument should be considered, we wanted to highlight some of the legitimate reasons for the current ban:

Regulatory Concerns: NFTs and the larger blockchain ecosystem currently sit in a gray area as governments figure out how they want to regulate the space. We’ve already seen companies like Uniswap Labs (as we’ve written about previously) get ahead of this by removing front-end access to potential securities being traded on their platform. For Steam, concerns around being an exchange and gambling laws are real concerns that have yet to be addressed by regulatory bodies so Steam cannot establish a clear compliant plan going forward. This is why platforms like Uniswap have just decided to get ahead of it. On the exchange side, if Steam is facilitating the exchange of assets with real-world value, that puts them under the spotlight as an exchange. With regard to gambling laws, Valve is currently headquartered in Washington, which has some of the most strict gambling laws with respect to games. If a game offers real-world rewards, that can be classified as gambling in Washington. That being said, this is all a bit ironic considering Steam has been one of the largest enablers of users trading game assets with real-world value through tools like their CS:GO marketplace.‍

Liability: Steam is a great distribution platform for consumers because they protect the customer and provide at least some safety when purchasing a game. This is important because games are expensive and Steam will (sometimes) handle reimbursements. For example, a user may not know that they didn’t meet the hardware requirements to run a game. The NFT space objectively has a lot of scams and if Steam is distributing these games to their players, the liability is going to fall on them. If a game is free to play then Steam can’t reimburse players because in-game refunds fall on the developer. However, if Steam is promoting a blockchain game that ends up pushing a scam, the players will turn to Steam and not the developers.

It seems like the majority of concerns and outrage about Steam’s decision is misguided and misunderstood and most companies are using it as a way to gain “points” with the blockchain community. This is clearly seen by the Open Letter published on Fight For The Future, or the countless blog posts written by different companies urging Valve to reconsider, where the majority of the letter boils down to Steam taking on all of the risks under the guise of “look how good blockchain technology is for gaming.

At Konvoy we’re clearly optimistic about the future of blockchain games with investments in four (one is in stealth) blockchain games companies in our second fund; however, there is an overcorrection to being “pro-anarchy” instead of actually trying to find legitimate solutions to some of blockchains biggest hurdles to onboarding the next generation of players. It’s easy to call Valve the bad guy, and we believe they misstepped here by not providing a path to embracing games leveraging blockchain, but when the regulatory hammer comes down it won’t be the people who wrote open letters who get subpoenaed. It’ll be Valve and that’s why their skepticism is understandable.‍

Takeaway: The best argument for Steam to allow blockchain games is to make distribution easier and to help with legitimacy. However, that’s a game developer benefit that doesn’t help Steam with any of the major regulatory concerns. Steam absolutely has the opportunity to be a pioneer in this space and help legitimize blockchain games for the casual gamer, but until there is more clarity around regulations, it is understandable why Steam is proceeding with caution.