Atty. Padilla Says It Depends on Its Behavior
“Hindi talaga natin maipo-prove ‘yong state of mind, pero (‘yong) mga circumstances, something na pwede nating i-consider. Halimbawa, meron tayong regulator na tinitignan, pinag-aaralan kung some of these in-game assets are behaving like a security.”
[“We cannot determine what the state of mind is, but there are circumstances that we can consider. For instance, we have a regulator that observes and studies if some of these in-game assets are behaving like a security.”]
This is the clarification of Atty. Rafael Padilla, a Commercial Lawyer specializing in Fintech and Crypto, when asked about the circumstances regarding game assets in blockchain games, and if they are considered “securities” during a Twitter Space hosted by BitPinas last March 25, 2022.
Padilla emphasized that earnings from any blockchain game are not considered securities, thus, the securities law is not relevant to this matter.
However, he added that there are instances that the securities law can be relevant in earning from these games, including Axie Infinity.
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Note: Everything stated in this article must not be construed as legal or investment advice. See notes at the end of the article.
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“When it comes to the context of scholarships, ‘yung mga managers na bumili ng mga NFTs, particularly Axies, tas pinagamit nila sa mga scholars nila para maglaro, hindi rin relevant ang securities law doon.”
[“When it comes to the context of scholarships, when the managers bought NFTs, particularly Axies, then they will let their scholars play those Axies; then the securities law is not relevant in that matter.”]
Padilla also stressed that Axies, as NFTs, cannot be determined if these are securities, knowing that managers earn from it.
“Those managers are actively contributing something, there is an economic value that they are contributing there, even if it looks like they are earning a passive income; but under these circumstances, there is actually a contribution from them.”
When Does a Scholarship System Become a Security?
The commercial lawyer, however, highlighted that a scholarship system can be tagged as security if the manager or the guild will find investors and share profit from the scholarship system.
“Ang medyo tricky na part dito, as we’ve seen in the case of Pogi Breeds, eh kapag ikaw ay manager, ta’s nanghihikayat ka ng investment from the public na mag-invest sila ng pera sa’yo para makabili ka ng maraming Axie, para mas marami kang ma-onboard na scholars, mas maraming maearn, tapos may profit share, ‘yun ang security, ‘yun ang investment contract as we’ve seen in the Pogi Breed Co-Partnership Program.”
[“The tricky part here, as we have seen in the case of Pogi Breeds, is when a manager seeks investment from the public to invest money so that more Axie Teams can be bought, thus, more scholars can be onboarded, then more money will be earned, then there will be a profit share; that scenario will be considered as security, that is the investment contract as we’ve seen in the Pogi Breed Co-Partnership Program.”]
The Case of Pogi Breeds
Padilla is talking about Pogi Breeds International, a group of individuals that plays the blockchain game Axie Infinity through soliciting investments from the public.
Pogi Breeds offers a Co-Partnership program, wherein an investor is enticed to invest an amount ranging from ₱5,000 up to ₱250,000 with promised return of investment ranging from ₱100 to ₱25,000 daily; which is 2% daily to 10% weekly earnings for 45 days. As well as a total contract earnings ranging from ₱4,500.00 up to ₱225,000.00 or 90% per contract after a month and a half.
Last September 28, 2021, the Securities and Exchange Commission (SEC) posted an advisory and warned the public against dealing with Pogi Breeds International.
Meanwhile, the lawyer reiterated that the normal scenario of managers buying Axies as NFTs, then arranging scholarship systems to his scholars is not security.
“But if you’re just buying NFTs and you’re letting your scholars use that, that does not make Axie a security, your arrangement with the managers is not a security.”
Should Axie Scholars be Treated as Employees?
However, Padilla warned the managers to be careful not to consider their scholars as employees.
“Kasi ang kailangang ingatan ni manager dito is hindi siya (manager) ma-consider na employer. Ang consequence kasi niyan, if you’re an employer, under the Labor Code, marami ka ngayong obligations, including registration, minimun wage, withholding taxes, and so on and so forth.”
[“The thing that managers should be aware of, is they should not be considered as an employer. Because its consequences are, if you are an employer, under the Labor Code, you will have obligations, including registration, minimun wage, withholding taxes, and so on and so forth.”]
He added that when a scholar is tagged as an employee, the manager cannot terminate the scholarship immediately.
“Kailangang mag-ingat diyan at importante siguro na may kontrata kayo with the scholars, para ma-demonstrate natin na hindi sila empleyado at sila ay independent contractor,” Padilla concluded.
[“We need to be careful in that matter, and it is important if managers will have a signed contract with the scholars, so that the managers can demonstrate that the scholars are not employees and they are independent contractor instead.”]
This article is published on BitPinas: Are NFT Game Assets Considered Investments or Security?
Disclaimer: BitPinas articles and its external content are not financial advice. The team serves to deliver independent, unbiased news to provide information for Philippine-crypto and beyond.