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Home Feature news Vass Bednar: Legitimizing nonsense economies is the opposite of innovation

Vass Bednar: Legitimizing nonsense economies is the opposite of innovation

More regulation isn’t always needed in the case of fantasy economies such as NFTs or real estate transactions in the metaverse

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Governments are constantly calibrating their policy approaches as they strive to catch up to the new realities of a digital world. But more regulation isn’t always needed in the case of fantasy, nonsense economies such as non-fungible tokens or real estate transactions in the metaverse.

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These so-called economies boil down to get-rich schemes that tend to leave consumers in considerable debt and without satisfying recourse. Validating them with policy regimes is the equivalent of creating a central banker for Monopoly money or a bank account for Beanie Babies — a pointless pantomime.

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Yet, strange schemes that invite speculative bets are being formalized by regulators. Take sports betting for example, which was made legal through a federal 2021 private member’s bill that paved the way for iGaming Ontario.

Instead of trying to generate a new venture capital-based economy in pixels, the government has actively taken an underground economy and legalized it. Is this how we are going to grow Canada’s economy moving forward — by scouring for shadow economies and bringing them onto the government’s balance sheet? One wonders whether and when we need to formalize an economy for human trafficking, organs or stolen antiquities. Maybe we should create a platform for selling blood, sperm, eggs and surrogacy while we are at it. We’re already scraping the bottom of the barrel and dressing that up as innovation anyway.

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Sometimes it makes sense to smooth a pathway to a new marketplace. For instance, there were good reasons to legalize cannabis in Canada in 2018, though it might also be worth asking who has really benefited, besides shareholders and investors. Now other drugs are on the same pharmaceutical pathway, such as psilocybin and psilocin (magic mushrooms) and MDMA (ecstasy).

The state and innovators are constantly described as being in opposition to each other, with the government cast as a goofy laggard, slow to recognize disruptive opportunities and lethargically carving out legitimate legislative responses. Even I scowl at the excruciating regulatory lag that has come to characterize that relationship, and spend time rallying regulators to wake up and catch up. Everyone wants a legislative reality that reflects the world of today.

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But there is a delicate dimension to when and why government should respond to new digital technologies or economies. Mostly they spring into action amid a mix of recognition, a desire to reduce harm, or to facilitate innovation. When it comes to nonsense economies, policy people need to make better use of tools already at their disposal instead of creating new regulations, and focus on rooting out fraud and taking on a preventative, advisory role.

  1. SpaceX owner and Tesla CEO Elon Musk at the E3 gaming convention in Los Angeles, California, in 2019.

    Vass Bednar: If Elon Musk can’t force Apple and Google to change their app stores, who will?

  2. Advertising on Google's search engine and YouTube brought in an estimated $6.2 billion, or $162 per Canadian, in 2021.

    Vass Bednar: Digital ads are a desperate gamble in a fantasy economy

  3. The Bank of Canada has clarified that it is not mandatory for Canadian businesses to accept cash. But maybe it should be.

    Vass Bednar: Let cash be king again — Why businesses should be forced to accept paper money

For instance, citizens who have participated in unregulated, risky, imagined economies frequently express expectations of consumer protection. Perhaps the initial role for the state is one that is both cautionary and educational — helping people understand the risks they are taking and the liability they are assuming.

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Another under-used tool in the existing tool shed is the false and misleading advertising provisions that currently exist in the Competition Act. Policymakers should lean harder on them. Influencers who peddle fantasy lands, such as now-collapsed cryptocurrency marketplace FTX, should have something closer to fiduciary duty and assume some liability for steering consumers to illegitimate markets.

The courts can also be useful here. There is currently a class action lawsuit against the celebrities who promoted the Bored Ape Yacht Club NFTs. Bringing such players to court can help establish a new norm of added accountability for endorsements. Mere disclosures that an endorsement is an advertisement is not enough.

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Governments already have ways to acknowledge new or existing economic activities occurring in murky marketplaces without resorting to regulatory legitimization or new laws. Slapping a basic warning label more explicit about the risks associated with sports gambling is one example. The state can use its resources to educate people while remaining vigilant against false and misleading advertising, and then punish those that dupe others into participating in the latest version of gambling.

The last couple of years have brought an explosion of grift that grasps at straws and is misinterpreted as genius. Accelerating pathways to financial ruin isn’t in the best interest of the state, even if in the short term we do witness mind-blowing bursts of innovation. Bad actors are pushing precarious schemes on consumers who may be ill-equipped to assess their notional nature. Rushing to legitimize these risky economies isn’t in anyone’s best interest. Responding with a skeptical regulatory attitude that makes better use of the tools already at policymakers’ disposal might make better sense.

Vass Bednar is an adjunct professor of political science at McMaster University and executive director of the school’s Master of Public Policy in Digital Society program.


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