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DeFi gambling has become increasingly prominent over the last several years. While the concept and execution of many leading DeFi betting projects have been successful, more or less, many have still failed to mitigate multiple potential risks.
Technical, operational, and legal risks must be identified and countered at an early stage to ensure a sustainable future. This article outlines the core legal tips to help startups in the decentralized gambling space deal with the big risk factors.
Understand the Risks in DeFi Betting Platforms
Being decentralized and greatly relying on automated systems with potential vulnerabilities opens DeFi sports betting platforms to many potential challenges.
Without central supervision, DeFi-based gambling platforms depend entirely on smart contracts to manage security protocols, ensure fair play, and address issues such as fraud and user disputes, creating potential conflicts with established regulatory standards.
Further, these smart contracts can have vulnerabilities to exploit; bad actors can find and exploit vulnerabilities in security or procedures. This could potentially lead to the platform being drained of funds or a decentralized crypto casino game having its odds adjusted.
Additionally, there is also a risk of market manipulation, particularly for smaller decentralized betting platforms. In this case, large bets and collusion can swing the odds and create advantageous betting situations.
The right legal structuring can help mitigate against some of these risks. Many implement governance models like that of a Decentralized Autonomous Organization (DAO), which use legal wrappers to ensure backing of supportive legal frameworks.
Licensing Is Still Essential – Even When Decentralized
Every B2B or B2C business offering gambling services is required to get a gambling license to operate – whether in a single jurisdiction or across a broad range of such.
This also applies to decentralized operators. Getting a gaming license is key, but DeFi betting platforms should prioritize securing a gambling license that allows accepting crypto payments.
Currently, several options are available for a decentralized crypto gambling business. However, the decentralized nature of such structures can make it difficult to identify the ultimate beneficiaries, which may create challenges in the licensing process in many jurisdictions. For example, licenses such as the Curaçao license or Estonian license may not be suitable for all decentralized gambling setups, as regulators typically require the beneficiary to be clearly identifiable for compliance and due diligence purposes.
Therefore, proper structuring of the business is essential to ensure a successful licensing outcome. We recommend consulting with our expert to develop a compliant and effective setup tailored to your project. The beneficiary should be known and shown to the regulator for checks and assessment.
Stay Compliant with Global Gambling Laws
One more aspect that we need to consider when building a decentralized gambling project is a jurisdictional approach to regulating crypto gambling. It varies across the globe. Even within the US, gambling laws differ greatly, from the more open markets like New Jersey to the very closed ones like Utah.
The European Union has more of a consensus and is home to the Malta Gaming Authority, while bodies like the UK’s Gambling Commission are yet to affirm their standing on crypto casino regulations.
Unfortunately, when it comes to regulating crypto casinos, it’s not as simple as asking “where is iGaming legal?” Instead, you have to look to where iGaming is legal and then the local Web3 regulation setup.
In this constantly evolving space, it is essential to always remain up-to-date with the ever-changing regulatory landscape.
Stay ahead of the dynamic Crypto and iGaming regulatory landscapes with the latest news and insights, carefully selected and vetted by Inteliumlaw
Build with Legal and Technical Risk in Mind
Navigating the world’s rules and regulations on DeFi sports betting and blockchain casino game development can be extremely difficult for those unfamiliar with the matter.
Therefore, it’s highly recommended that developers and founders consult with expert lawyers from the very early stages.
Inteliumlaw brings strategic legal oversight to your blockchain project, ensuring that any concerns related to token mechanics or game structures are swiftly addressed by our blockchain and cryptocurrency lawyers to ensure full compliance with local and international laws.
