The Bangko Sentral ng Pilipinas (BSP) does not consider the popular Axie Infinity as a virtual asset service provider (VASP) and is critically monitoring how players are using and exchanging tokens or cryptocurrency assets known as Smooth Love Potion (SLP) as a form of payment and the extent of its merchant network.
But the central bank is also looking into its possible classification as an operator of payment system (OPS).
This was emphasized by the BSP in a reply to Business Bulletin’ email interview.
At present, the BSP’s jurisdiction over cryptocurrency-related activities cover VASPs. As such, it is watching how the blockchain gaming app participants are dispensing non-fungible tokens (NFTs) to pay for goods and services.
For now, the BSP said Axie Infinity owned by Vietnam-based Sky Mavis, “is not considered as VASP.”
“However, we’re also actively monitoring the level of merchant acceptance of SLP as a form of payment for goods/services, which may fall within the activities of an OPS,” said the central bank.
An OPS can be cash-in service providers, bills payment service providers, and entities such as payment gateways, platform providers, payment facilitators and merchant acquirers that enable sellers of goods and services to accept payments, in cash or digital form.
Once the BSP has determined that Axie Infinity play-to-earn game players are using and exchanging tokens or cryptocurrency assets known as Smooth Love Potion (SLP) as a form of payment for purchases, it will require its owner, Vietnam-based Sky Mavis or its local partner, to register with the BSP as an OPS, otherwise it should stop operating.
SLP price is currently at $0.14 (US dollar) or almost P7. SLP tokens are earned by playing the game. Players are required to buy three digital pets or Axies which go into battle, and rewards are paid in cryptocurrencies. An Axie costs around P30,000 in present value.
The BSP’s regulatory framework for VASPs allows end-users to exchange fiat (physical money) currency to crypto assets to acquire NFTs for game applications and to convert the same back into fiat currency.
BSP Circular No. 1108 or the Guidelines for VASPs issued in January this year, basically recognizes the evolving virtual asset systems or markets, and its attendant risks due to its anonymity, volatility of prices and “velocity” of transactions. Once fiat money is exchanged or converted into virtual assets, it is easily transferrable and used for payment, and this is why VASPs are considered as money service businesses and under BSP regulation.
But the BSP said Axie Infinity is not a VASP because the scope of BSP Circular No. 1108 “excludes digital units of exchange used as in-game tokens, such as the implementation of SLP within Axie Infinity.”
Thus, BSP’s ongoing monitoring aims to find out if Axie Infinity activities could be considered as OPS. As an OPS, it is required to register with the BSP based on another memo, Circular No. 1049 which provides the rules for the registration of OPS.
The BSP said its “attention” is focused on VASPs that provide consumers with the means to exchange fiat money to virtual assets to acquire NFTs, as well as the redemption back to Philippine peso. As such, the BSP said it is “aware of and actively monitoring the recent activities relating to merchant acceptance of SLP as a form of payment for goods/services.”
The OPS circular was BSP’s basis when it suspended and then cancelled the registration of Lyka/Things I Like Company Ltd. (TIL) local partner, Digital Spring Marketing and Advertising Inc. (Digital Spring) last July.
Lyka/TIL allows its users to purchase, exchange, and use Gift cards in Electronic Mode or GEMs as payment for goods and services. Based on this activity, the BSP said it is an OPS. It was slapped with a cease-and-desist order until it registers with the BSP.
Both the BSP and the Securities and Exchange Commission (SEC) – part of the interagency Financial Sector Forum – recognize the financial innovations involving NFTs and “have been developing regulations that ensure adequate regulation of these systems and their service providers,” said the BSP.
As of July 31 this year, the BSP has registered 15 VASPs. As registered VASPs, they are allowed to facilitate the trading of virtual assets into the local currency and vice-versa. Some of the listed VASPs are Philippine Digital Asset Exchange, Coinville Phils., Appsolutely Inc., TopJuan Technologies Corp., and Moneybees Forex Corp.
Last week, the SEC said that Axie Infinity is not a registered entity while the Department of Finance said its players should pay income tax to the Bureau of Internal Revenue.
In the Philippines, Axie Infinity does not have a license with the SEC to operate or have a branch or office here. The SEC said activities within the Philippines are not registered with any appropriate agencies.