Industry Winter Is Closing Small Chinese NFT Platforms

According to Chinese media outlet Caijing, more than 20 small and medium-sized digital collecting platforms in China are closing down as money and interest in the business dry up. Because of the country’s tight cryptocurrency regulations, Chinese sites refer to NFTs as digital collectibles.

“The nature of NFT platforms dictates that its profit model is dependent on liquidity,” Liu Yang, a lawyer at Beijing’s Deheng Law Offices, told in an interview. “Because of the current shortage of new funds entering this market, the fees for platform earnings are far from being able to pay the users’ losses, and the collapse is unavoidable.”

Chinese authorities have yet to adopt a firm stance on NFT trading. It’s still legal in the country. However, with the growing popularity of NFTs in China, three official banking groups issued cautions in April to investors about the risks of investing in NFTs.

Why it matters: Larger platforms, like Tencent, have recently withdrawn some NFT projects. The new closing wave emphasizes the waning of the euphoria around digital collectibles, as well as the difficulties of retaining investment in the face of regulatory uncertainty.

Tencent News and QQ Music abruptly discontinued their NFT trading features in July and November, respectively. Tencent also shut down its digital collectible platform Huanhe in August, only a year after it launched. Non-profit transfers to other users were strongly prohibited by Huanhe. At the same time, most platforms allow customers to privately trade their treasures after purchase, providing a potential to profit from these digital collectibles.

When Huanhe chose to close down, it provided users with two options: a complete refund or continuing to retain collectibles. However, it was difficult for small- and medium-sized platforms to provide full refunds, with most just refunding 5%-30% of the initial purchase price.

According to statistics from corporate data provider Qichacha in China, half of these closing platforms were established within six months of their closure. Most platforms cited falling user numbers as one of the reasons for quitting in their announcements.

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Since this summer, there has been a slowing trend. According to local media site Jiemian, Huanhe’s freshly released digital collections have been slow to sell since June, a stark contrast to the platform’s previous collectibles, which sold out in a matter of minutes.

Many users have been bargaining with the company in an attempt to recoup their losses, with little luck.

Xiaoye is an investor in a platform that has just been in operation for two months, and the platform announced on October 31 that it will only buy back 10% of the collectibles’ initial cost.

Xiaoye told during an interview that he found out about this network through a WeChat group where someone mentioned that collectibles will increase in value if users could trade on the secondary market.

“However, after spending about RMB 1,000 into it, the collectibles that I possessed were at a price significantly below the initial price,” Xiaoye said, adding that he cannot accept receiving only 10% back and will continue to protest.

Building an NFT platform is not a difficult undertaking in China. It was discovered a startup that offers to establish an NFT platform business through a short online search. According to one of the firm’s employees, it only takes RMB 39,000 ($5445) to develop an H5 site that supports NFT trading, and it may be operational in as little as three days.

According to a survey by think tank 01Caijing, the number of digital collecting platforms in China reached 2,303 as of November 15.

The platforms profit from the initial price of collections as well as commission, which is typically 5% of the secondary transaction price. In comparison, the maximum commission price for stock trading is 3, and most cryptocurrency exchanges charge 0.2%.

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