Small Chinese NFT Platforms Shut Down En masse · TechNode

More than 20 small and medium-sized digital aggregator platforms in China are closing as funds and interest dry up in the industry, Chinese media Caijing reported on Wednesday. Due to the country’s strict regulations regarding cryptocurrency, Chinese platforms refer to NFTs as digital collectibles.

“The nature of NFT platforms determines that the profit model depends on liquidity,” Liu Yang, an advisor at Deheng Law Offices in Beijing, told TechNode. “Due to the lack of new funds to enter this industry at the moment, the fees for platform profits are far from being able to cover users’ losses, and the collapse is inevitable.”

Chinese regulators have not yet taken a clear stance on NFT trading. It is still allowed in the country. However, in April, with the growing popularity of NFTs in China, there were warnings from three official banking associations to alert investors to fraud associated with investing in NFTs.

Why it’s important: Major platforms such as Tencent have recently spun off some NFT projects. The new closing wave highlights the decline in hype surrounding digital collectibles and the difficulty of sustaining investment amid regulatory uncertainty.

In July and November, Tencent News and QQ music shut down the NFT trading function without prior notice. And in August, Tencent shut down its digital aggregator platform Huanhe just a year after its launch. Huanhe strictly limits non-profit transfers to other users. At the same time, most platforms allow buyers to trade their collectibles privately after purchase, providing the opportunity to profit from these digital collectibles.

Huanhe gave users two options when they decided to close – full refund or continue to hold collectibles, but it was difficult for small and medium-sized platforms to provide full refunds, and most of them only refunded 5-30% of the original purchase price .

Half of these shutdown platforms were set up within six months before they were shut down, according to records from Chinese enterprise data provider Qichacha. In their announcements, most platforms attributed declining users as part of the reason for the termination.

Such a declining trend has been evident since this summer. According to local media Jiemian, Huanhe’s newly released digital collections had been slow to sell since June, which is quite a different situation from the platform’s previous collectibles, which sold out in just a few minutes.

Many users have traded with the platform and tried to recover their losses with minimal success.

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

Xiaoye told TechNode that he learned about this platform through a WeChat group, where someone said that collectibles will increase in value after users are able to trade on the secondary market.

“But after investing nearly 1,000 RMB in it, the collectibles I kept were at a price far below the original price,” Xiaoye said, adding that he cannot accept only getting 10% back and will continue to complain.

In China, building an NFT platform is not a difficult task. Through a quick web search, TechNode found a company promising to build an NFT platform business. One of the firm’s employees said it only takes RMB 39,000 ($5,445) to build an H5 website that supports NFT trading, and it can be live in as little as three days.

The number of digital aggregator platforms reached 2,303 as of November 15 in China, according to a report from think tank 01Caijing.

The platforms make money through the initial price of collectibles, as well as by commission, which is usually 5% of the secondary transaction price. In comparison, the maximum commission fee for stock trading is 3‰, and crypto exchanges typically charge 0.2%.