Chinese media outlet Caijing reported Wednesday that more than 20 small and medium-sized digital collection platforms in China are shutting down as funds and interest in the industry dries up. Due to the country’s strict regulations on cryptocurrencies, Chinese platforms refer to NFTs as digital collectibles.
“The nature of NFT platforms dictates that their profit model is dependent on liquidity,” Liu Yang, legal counsel at Deheng Law Offices in Beijing, told TechNode. “Due to the lack of new funds to enter this industry, the platform’s profit fees are currently far from being able to cover the losses of users, and a collapse is inevitable.”
Chinese regulators have yet to take a clear stance on NFT trading. It is still allowed in the country. However, in April, due to the growing popularity of NFTs in China, three official banking associations warned investors about fraud related to investing in NFTs.
Why is it important: Major platforms such as Tencent have recently abandoned some NFT projects. The new final wave highlights the slowdown in the digital collectibles hype and the difficulty of sustaining investment amid regulatory uncertainty.
In July and November, Tencent News and QQ Music disabled their NFT trading feature without notice. And in August, Tencent shut down its Huanhe digital collection platform just a year after launch. Huanhe strictly restricted non-commercial transfers to other users. At the same time, most platforms allow buyers to trade their collectibles privately after purchase, offering the opportunity to profit from these digital collectibles.
Huanhe gave users two options when it decided to close – a full refund or continuing to store collectibles, but it was difficult for small and medium platforms to provide a full refund, since most of them returned only 5%-30% of the amount. original purchase price.
Half of those closing platforms were created within six months of the shutdown, records from Chinese enterprise data provider Qichacha show. In their announcements, most platforms cited declining user numbers as one of the reasons for exiting.
This deceleration trend has been observed since the summer of this year. According to local media outlet Jiemian, Huanhe’s newly released digital collections have been selling slowly since June, a far cry from earlier collectibles on the platform, which sold out in just a few minutes.
Many users have been negotiating with the platform in an attempt to recoup their losses with minimal success.
Xiaoye is an investor in the platform, which has only been around for two months, and on October 31, the platform announced that it would only buy back 10% of the original value of the collectibles.
Xiaoye told TechNode that he learned about the platform through a WeChat group where someone said the collectibles would increase in value once users were able to trade on the secondary market.
“But after I invested nearly 1,000 yuan into it, the collectibles I kept were priced well below the original price,” Xiaoi said, adding that he could not accept only a 10% return and would continue to complain.
It is not difficult to create an NFT platform in China. Through a quick online search, TechNode found a company that promises to build a business on the NFT platform. One of the firm’s employees said it only takes 39,000 yuan ($5,445) to set up an H5 site that supports NFT trading, and it can be up and running in as little as three days.
According to a report from think tank 01Caijing, the number of digital collection platforms reached 2,303 as of November 15 in China.
The platforms make money from the initial price of the collectibles, as well as from a commission, which is usually 5% of the price of the secondary transaction. In comparison, the maximum commission for trading stocks is 3‰, while cryptocurrency exchanges typically charge 0.2%.