The note warns that the niche is rife with scams “because operators do not usually have to comply with certain standards, such as anti-money laundering, which can increase the risk of fraud.”
Using one particular example of risk, the statement mentions victims being lured by “fake rewards” on fraudulent “custom-created gaming apps.”
It then relates how confidence tricksters look for victims online, establish trust with them over time, then direct them to an online game in which players can purportedly earn crypto for engaging in regular gaming activities.
The rewards displayed in these games can often be fake, and the money that the player has been depositing into it to develop their characters is then stolen “via malware which was covertly activated when the victim joined the game.”
Decrypt contacted the Philippines police department to ask for statistics regarding the number of citizens that have lost money in crypto gaming scams but did not hear an immediate response.
The statement also warns Filipinos that their money is at risk in other ways too, highlighting market volatility of the in-game native tokens earned or traded and the sometimes high economic barriers of entry before players can even begin.
Regarding the latter concern, the Police note cited Sky Mavis’s Axie Infinity as an example. Authorities did not label the popular crypto game a scam.
Crypto gaming in the Philippines and beyond
The Philippine police’s singling out of Axie Infinity is no accident.
Last year, Time documented the financial devastation some Filipino players faced when they decided to embark on playing the game to generate income. At one point, the Philippines reportedly accounted for around 40% of the game’s players.
While Axie is certainly no scam, its business model is vulnerable to the same headwinds that buffet the rest of the crypto market.
Last March, the game’s blockchain infrastructure fell victim to one of the largest hacks in history. Some $622 million in user funds was stolen from the bridge between the game’s sidechain Ronin and the Ethereum mainnet.
Sky Mavis managed to return the funds, but the combined effects of the hack and last year’s market-wide recession sank Axie’s active player count from 2.7 million last November to little more than 359,000 today.
The price of SLP also shrank from its height of $0.34 in July 2021 to its current price of just $0.0015.
Many beyond the Philippines have also been lured in by the promise of crypto gaming. One game that has been accused of being an alleged scam is the much-promised but never-delivered CryptoZoo, a game on the Binance Smart Chain launched in 2021.
In January this year, YouTube influencer Coffeezilla accused the game’s creator Logan Paul of running a scam after Coffeezilla claimed he’d spoken with over six different people who said they lost thousands from their purchases of CryptoZoo .
Paul then threatened to sue Coffeezilla for defamation while promising the project’s early investors that he would “make damn sure” the game eventually got released.
A few days later, Paul made a video where he alleges he and Coffeezilla made amends. Paul then promised to burn his ZOO tokens and commit $1.8 million to refund buyers of his CryptoZoo NFTs. The refund has not yet happened.