Linden Lab has announced a new policy regarding banking, essentially shutting down dozens of largely insolvent self-styled “banks” in Second Life.
There are open questions regarding the impact on other institutions, and undoubtedly, one or two legitimate operations will be caught in this net. That is undeniably unfortunate, but the vast majority of “banks” in Second Life are nothing more than fraudulent ponzi schemes, and this is positive step that will save a lot of people a lot of unhappiness in the long run. It is a smart move from both a business and legal perspective, and it stands as further evidence that Linden Lab is growing up and focusing on the long-term health of the grid. From the notice:
As of January 22, 2008, it will be prohibited to offer interest or any direct return on an investment (whether in L$ or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter. We’re implementing this policy after reviewing Resident complaints, banking activities, and the law, and we’re doing it to protect our Residents and the integrity of our economy.
Since the collapse of Ginko Financial in August 2007, Linden Lab has received complaints about several in-world “banks” defaulting on their promises. These banks often promise unusually high rates of L$ return, reaching 20, 40, or even 60 percent annualized.
Usually, we don’t step in the middle of Resident-to-Resident conduct – letting Residents decide how to act, live, or play in Second Life.
But these “banks” have brought unique and substantial risks to Second Life, and we feel it’s our duty to step in. Offering unsustainably high interest rates, they are in most cases doomed to collapse – leaving upset “depositors” with nothing to show for their investments. As these activities grow, they become more likely to lead to destabilization of the virtual economy. At least as important, the legal and regulatory framework of these non-chartered, unregistered banks is unclear, i.e., what their duties are when they offer “interest” or “investments.”
My only complaint with this policy is that it has been too long in coming; it is clear and concise, and it undeniably makes the grid a better place. In the long run, policies like this, which acknowledge the obligations facing a company that offers users the chance to “make real money in a virtual world, that’s right, real money” (emphasis in original), will keep Second Life, and the grid in general, healthy and relatively free of regulation.
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