The crypto world continues to be the financial Wild West of our time. Investments skyrocket, only to hit rock bottom a few months after. Digital currencies, stablecoins, and other intricate terms are known to only a tiny percentage of people and reflect the level of time that must be invested to be truly knowledgeable in this ever-changing financial landscape.
The biggest news of the past few months was the bankruptcy filing of FTX, the formerly second-largest cryptocurrency exchange in the world, and the arrest of its former CEO, Sam Bankman-Fried. The Hong Kong-based company lacked the funds to back its customers’ withdrawals after the release of a Coinbase report. How does this influence the gaming startups Southeast Asia is home to, and how will the region’s eSports companies be affected by the volatility of the cryptocurrency universe? Here is a brief review of this debacle’s background and possible ramifications on eSports in Southeast Asia.
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FTX: a giant’s fall from grace
Financial structures behind cryptocurrency companies tend to be “flexible”. According to current CEO John Jay Ray III (who specialises in managing and recovering funds from failed companies), FTX’s management before its bankruptcy was not the exception. “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
Bankman-Fried was indicted on charges of wire fraud, commodities fraud, securities fraud, money laundering, and campaign finance law violation charges by the Southern District of New York on December 13 2022.
Some crypto enthusiasts will argue that FTX was a risky place to invest due to it being a centralised exchange and that complete decentralisation of financial structures is the proper way that people will have absolute power and equality over their finances. This has always been the original cryptocurrency ethos: Decentralisation offers the transparency that centralised financial systems do not have, and that’s why centralised systems must be regulated.
So, how does the implosion of one of the world’s largest crypto exchanges affect Southeast Asia, especially its gaming landscape?
Game over for FTX and crypto gaming companies
Last year was a year of heavy investments in the region, with USD 502 million poured into the gaming startup landscape, according to a Deal Street Asia report. However, interest has waned regarding crypto, especially with the falling price of non-fungible tokens (NFTs), security breaches and environmental concerns regarding the mining and minting of cryptocurrencies. Some of this unease stems from the need for more platforms that permit digital asset exchanges, such as those frequently seen in pay-to-earn games.
The highlight of blockchain gaming is that users play to earn NFTs, which can then be sold for cryptocurrencies. The demise of significant exchanges throws a wrench in the entire ecosystem, as transactions might slow down considerably. Because of this, game developers in the region are now focusing on optimising game quality above earning potential.
Southeast Asia’s two largest gaming companies are Axie Infinity and Yield Guild games. Sky Mavis owns Axie Infinity, and the crypto exchange Ronin, which is the biggest fundraiser in the region, with USD 311 million raised to date. Ronin sustained a massive hack in March 2022, with over 620 million stolen in USDC and Ether.
The Vietnam-based company set an example, though, reimbursing its users’ money after a USD 150 million round led by Binance between April and June 2022. The company’s transparent handling of the situation has set an example in a moment of heightened uncertainty, especially after the FTX and Terra crises.
eSports has left the FTX server
Exchanges and pay-to-earn structures weren’t the only ones who suffered. The eSports ecosystem is strongly linked with crypto, with big companies like Coinbase and Crypto.com sponsoring teams worldwide. FTX was no exception, inking a particularly juicy naming deal with eSports organisation Team SoloMid (TSM). Fielding professional players in over 12 different games, TSM also dropped its association with the failed exchange as soon as news of the collapse made the headlines.
FTX was also a title sponsor of the League of Legends Championship Series (LCS), the top level of professional League of Legends in the United States and Canada. Riot Games, the developer behind League of Legends, also dropped its association with FTX and its CEO in December. Finally, FTX was also a significant investor in the Brazilian eSports team FURIA. Having signed a USD 3.2 million sponsorship deal, the eSports organisation also terminated its association in early November.
Beyond the ripple effect on eSports in Southeast Asia and abroad, FTX’s demise is another of many scandals orbiting the cryptocurrency landscape. Investors are encouraged to be careful when dealing with cryptocurrencies and the gaming startups Southeast Asia has developed and those in other regions, as the regulatory mechanisms are virtually nonexistent in centralised exchanges, and security breaches are still rampant in some decentralised structures.