Why Valve’s Stance On NFTs Will Probably Change, And Soon

Over the weekend, Steam banned blockchain and NFT games.The crypto gaming world has responded, and it will live on. But it’s undeniably a blow to not be able to publish on PC’s main storefront for the foreseeable future a blow that will perhaps convince some developers to pivot towards mobile, console and HTML5.

On the front line of this kerfuffle, and in close communication with Valve, was Enjin-backed puzzle game Age of Rust, which was able to shed light on Valve’s reasoning:

Valve’s stance has nothing to do with the environment, and is likely a combination of marketplace control and legal compliance.

Of course as a private company, it could simply say “Valve doesn’t like crypto” and post a GIF of Gabe Newell burning a Dogecoin while blowing a raspberry to the internet en masse, and it’d be within its rights. But Valve didn’t do that. It put forward an argument, and now we get to point out that it’s fundamentally flawed.

You Wanna Go There, Valve?

A golden AK-47 appears on a third-party skins trading website for CSGO
A golden AK-47 skin purchasable on the DMarket trading site

For years, Valve has been the primary example of in-items having value.

Steam has a “soft” cashout system in which you can sell items for in-store credit to buy other items or Steam games. Then there’s a “hard” cashout in which you use a third-party, external website to sell the item for real-world cash.

Because the soft cashout technically uses “Steam bucks” instead of money, Valve gets to deny it’s a true cashout. Because the third-party websites aren’t Valve-affiliated, it gets to pretend it doesn’t know much about it.

One of the most popular of these third-party websites is DMarket. I was able to speak to its CEO Vlad Panchenko, who walked me through how they communicate with Valve as much as possible, ensuring compliance and security. Valve are fully aware this exists. To add an extra helping of irony, DMarket’s items are now based on a new blockchain/NFT system.

Over time, Valve has introduced limitations to curtail some of the dodgier practices around this system, such as imposing a wait before you can resell an item to slow down fraudulent activity and money laundering, or outright banning the gambling scene that flourished around item value. But you can still buy, sell and trade items, and ultimately cash out.

Publishers and industry lobby groups pleading the case of loot boxes are fond of saying there’s no cash out system in in-game stores. If you believe them and you shouldn’t that means these items have no value, therefor loot boxes don’t constitute gambling. Except, of course, there’s that one company. There’s Valve. The one that does let you cash out.

So by a commonly-used industry definition of item value, Valve’s skin economy is quite valuable indeed. But even this is too generous, as the definition of value doesn’t depend on cashing out.

In-game items have “value” because people are willing to pay for them. Riot’s ludicrous price tags on Valorant skins are what people will pay, so they’re worth that. The Steam marketplace just makes this easier for us because its value is collectively agreed instead of a retailer pricing an item, we can say a particular knife is worth X because the market decided it. Combined with drop rates, even the value of Valve’s loot boxes can be calculated.

With NFT economies knocking at the door, it’d probably be better for Valve to honestly say “This sidesteps our marketplace and we don’t know how to deal with it yet”. Or even perhaps “The lack of intermediary currency ruins the legal loopholes we’ve enjoyed and now we need to figure out a plan”.

But it’s the height of hypocrisy for Valve to disallow crypto games for proposing to do the very same thing that Valve was doing all along, albeit with some semi-intermediary funny-money that didn’t fool anyone.

Valve lacks an endgame in the NFT war

A FAMAS gun in a dark new skin with red, green, and white stripes
CSGO’s new FAMAS skin from Operation Riptide

Neither of these scenes needs the other. Steam will do just fine, and so will the flowering crypto gaming scene. NFT games would rather be able to rely on PC’s dominant digital storefront, but one can see how NFTs might cut Valve out of potential Workshop revenue.

That’s the irony of this whole fiasco just how similar Steam is to the thing it just banned. As if it highlights its ownunrealised potential with the Steam marketplace and Steam inventory.

Steams features are the closest thing gaming has had to NFTs. It tolerates internal and external trades on its items, taking a cut when it can. Its inventory could be used for some basic level of interoperability, but hasnt.

Heck, it’s even technically play-to-earn, if you count the bottom-of-the-barrel drops you get mid-match it’s just that in order to make its economy work, it maintains a ridiculous policy of implementing hundreds of “ugly” skins to flesh out the bottom of the pyramid of value, drowning out the truckloads of beautiful community-made skins.

No one serious would propose that Valve is threatened by NFTs, but comparing the two is more like apples to apples than Valve would like. And the newer of these apples looks tastier.

It wouldn’t surprise me if Valve changed its messaging around the issue quite soon, perhaps even within the next six months. The “your items have value but ours don’t” line is garnering the appropriate ridicule.I believe it’ll eventually change its policy as well though first it needs to decide how, if possible, it can capitalise on a technology that fundamentally wrests control from middle-men.