Two weeks ago, the French National Assembly passed the Sorare Law, which introduces the first dedicated regulatory framework for video games incorporating Non-Fungible Tokens (NFTs) and crypto-powered monetisation schemes.

The legislative move addresses the need to distinguish these games from traditional gambling activities, acknowledging the unique characteristics of crypto assets.The law aims to establish a regulatory framework for games with crypto elements, distinguishing them from traditional gambling activities.

The law received substantial support in the National Assembly, with 437 members voting in favour and 77 against its adoption. The Jonum regime seeks to strike a balance between encouraging innovation in French startups and ensuring user protection.

Details of the Sorare Law

The Sorare Law, part of the broader Digital Space Regulation Law (SREN), defines a new category of games referred to as "Jonum" or "games with monetizable digital objects." This nomenclature is a key aspect of the regulatory framework, aiming to create a distinct classification for crypto games separate from traditional gambling and video games.

Under the Sorare Law, the Autorité Nationale des Jeux (ANJ), the French National Gambling authority, will oversee compliance. This move addresses concerns that popular crypto games, including Sorare and Stables, might be classified as forms of gambling, subjecting them to heavier tax burdens. Users engaging in crypto games will need to report their age during account creation and verify their identity when withdrawing in-game earnings.

Games falling under the category of "Jonum" are granted a three-year experimental authorization, with winnings restricted to digital objects, not exchangeable for fiat.

The Jonum regime includes measures affecting the promotion of Web3 games through influencers. It prohibits influencer promotional activities on online platforms incapable of excluding minors. Non-compliance with these regulations may result in prosecution, including potential imprisonment and significant fines. Additionally, the legislation mandates identity checks to prevent individuals under 18 from participating in crypto games.

Will The New Law Cause Gambling Businesses To Shift Into Crypto?

The new regime’s decision to distinguish between crypto games and gambling may be well-intentioned, but a potential problem is that by trying to encourage crypto games, the gambling industry may decide to move into crypto games as a way to disguise their activities as innovation.

Because the new law tries to encourage businesses to innovate with crypto games, online casinos may find it easier to find ways to frame their businesses as crypto games in order to avoid paying the taxes that are levied on gambling revenue.

Crypto already does not have the cleanest of reputations- the myriad of hacks, scams, rugpulls, and money laundering scandals that are constantly in the news are already giving people a bad impression. The entrance of another use case often seen as a form of social decay and cause of social problems is not exactly what the crypto industry needs to improve its reputation.

That is not to say that the law itself is bad, but that it needs to be complemented with better and clearer definitions of what constitutes gambling. Only then will the new regime make sense and work as intended.