Big GambleFi Boom? Crypto Has Mixed Feelings
So what is GambleFi, some of you may ask? Well, GambleFi is one of the newer buzzwords referring to blockchain-powered gambling. Opinions vary wildly, depending on who you talk to and largely on how much they understand of the current online gambling climate and GambleFi. Many of us who were around for the earliest projects have a skeptical image of this space, to put it politely, due to so many poorly-designed projects with inexperienced teams rushing to be a first-mover and subsequently failing. They have cost investors far too much money that could have been put to much better use, and severely damaged the image of GambleFi in the process.
To get a little perspective and context on the whole GambleFi situation, let’s first try to quantify the size/scale of crypto when it comes to gambling. It is extremely difficult, if not outright impossible, to get any hard numbers as we’re talking about operations that are largely underground and intent on keeping it that way. Even a large well-connected national organization like the AGA can only produce rough estimates, of which the latest numbers can be found here. Keep in mind that is just for the US only. If you would like to see more of the AGA data and information to get a more complete picture, our new 2023 AGA ‘State of the Industry’ review can be found here.
Their estimates show unregulated online slots and table games have an estimated handle of $338B and sports betting is at $64B. This comes out to an estimated revenue of $13.5B and $3.8B, respectively. A conservative estimate for global numbers would be around 5x of those amounts, but perhaps as high as 10x considering the situation in much of Asia and elsewhere. So we’re looking at anywhere from $2T to $4T bet globally, with roughly $86.5B to $173B in yearly revenue – which is in line with estimates from other methodologies. Crypto is generally the preferred payment method these days, so it most likely accounts for at least 30-50% of this. Also worth noting a third of Americans visit casinos each year.
Given the sheer size of the online gambling market, and the large part that crypto plays in the payment processing, it is absolutely imperative that those involved in crypto should have an interest in maintaining and growing the role of crypto here. These centralized unregulated operations are currently vulnerable to legal action, and actions taken in the past have targeted payment processors along with the leadership of the operators. Successful actions could bring into question how decentralized these cryptocurrencies really are, impose even more regulations on them, and very likely damage their image significantly.
However, crypto can greatly benefit as a whole if they can successfully rally for more friendly common-sense regulations and develop high-quality gambling solutions. Right now, in reality they are only managing to capture a very small portion of the revenue. The largest benefit by far from gambling has come from simply attracting users to crypto, motivating them to learn how to use it, and showing them first-hand how it can be beneficial for both themselves and society as a whole. Moving the actual gambling operations on-chain in a sufficiently decentralized manner would ensure that the crypto world earns its fair share of that revenue, and it is an absolutely massive incentive compared to other sources of revenue.
As I’ve written elsewhere, even the regulators would greatly benefit from the gambling industry moving on-chain. Every transaction and operation is stored in a transparent manner and near instantly. Everyone can view it too, so users can help keep track of issues to catch more of them and do it much more quickly and efficiently. We’re all aware of the sheer power of crowdsourcing and it would be foolish to not leverage it when possible. It also provides a realistic blueprint for creating truly global solutions, complete with localized versions to comply with regional laws and policies. So one should suspect the motives of gaming regulators speaking out too harshly against crypto, because frankly they should know better by now.
Some have asked why would crypto-natives even bother gambling, when they could have an edge by trading? They’re not mutually exclusive so one simple answer is purely for entertainment, as successful traders and long-term holders obviously have money to punt around with for fun. Even Satoshi himself recognized online gambling as a prime use-case for crypto from practically the very beginning, and he was proven correct just a few short years later. The key issue there though is that they’re using crypto only for payment processing – so they are still subject to many risks, inefficiencies, and disadvantages from being centralized. I’d bet Satoshi would be at least a little bit disappointed to see that however.
Another common misconception is that there are no edges in gambling. While this is (mostly) true for house-banked games, there are formats like sports betting and poker – where users essentially gamble against each other and the house takes a small cut. The potential edges in these are comparable to trading, but direct comparisons can be tricky as there are some fundamental differences. Some will point out the massive gains in BTC/ETH/others but they don’t take into account the huge numbers of crypto projects that fail, and even the many ‘digital money’ failures pre-BTC. DigiCash, e-gold, Bit Gold, B-Money, Hashcash anyone? I use failures loosely, as they inspired Bitcoin and were way ahead of their time.
It’s also worth looking at from the reverse angle – in that if trading offers gamblers a better edge, then bringing normie gamblers into crypto through GambleFi would be great for crypto. This would obviously require an intuitively designed UI/UX, but that is one of the top priorities here at GAMBL. Being easy to use for the average gambler is right up there with a strong focus on regulatory issues, fair and equal treatment of users, highly competitive odds, global accessibility, and transparency. Much of our team has been involved with online gambling from the early days and we’ve seen a *lot* of what works and what doesn’t, and we’re taking our time quietly building and improving. Okay, enough shameless self-promotion.
Speaking of your average gambler, why would they even want to take a chance on something new like GambleFi and dealing with the learning curve? Well it doesn’t even take much searching to find large numbers of gamblers who are quite unhappy with the current situation and seeking something better. Even the newer regulated sites haven’t really been an improvement, and a strong argument could be made that they have actually made things worse. And as far as crypto-based solutions go, it’s not the tech they’re hesitant about so much as the people behind it. Most are already quite familiar with crypto at this point, don’t underestimate them. They simply want people who understand them and share their values.
Let’s start with the unregulated sites. First and foremost, they offer zero protections and could go under at any time with users’ funds(which many do). There’s a good chance they sell and/or misuse sensitive user information, and are subject to regular security breaches. They can ban users for whatever reason, and in my case it was simply for winning a bit too often at poker. They also have a nasty habit of accepting deposits with very little restrictions and then imposing all sorts of restrictions and hoops to jump through after you win and try to withdraw, which happened to me personally multiple times also. Plus many other issues that could fill an entire article or more.
The regulated sites promise greater protection, but they still suffer from practically all of the issues listed above. We’ve already seen breaches, misuse of user data (covered here), banning/limiting winners, higher restrictions for withdrawing, and even operators going under and stiffing users as seen here. A quick Twitter or Google search will reveal all kinds of horror stories from users, like the ones we detailed here. They also generally have worse odds, collect more sensitive user information, and have strict geo-restrictions that severely hurt action for both poker and sports betting. Perhaps worst of all, they’re actually proud to brag that users are losing nearly 20% more on average per bet than just 3 years ago.
With all of these gambling industry failures as a comparison, it’s quite clear that the bar is absurdly low. Besides that, users deserve the freedom to be able to make their own choices. Crypto is already transforming and decentralizing many aspects of finance in a clear pattern and it is logical that gambling will follow suit at some point. Operators, builders, investors, and bettors should maintain a healthy curiosity in new solutions such as GambleFi and always aspire for better than just the status quo. They all certainly deserve better than what they’re currently getting.
(Image credit @nillionbull and thanks to @korpi87 for questions/inspiration)