China’s non-fungible token (NFT) industry has published a “self-discipline initiative” that promises identity checks for users, adherence to the country’s ban on cryptocurrencies and a promise not to establish secondary marketplaces to fight speculation.
Platforms that sell digital collectibles, the term used in mainland China for NFTs that cannot be traded using cryptocurrency, “shall require real-name authentication of those who issue, sell and buy” the assets and “only support legal tender as the denomination and settlement currency”, reads the 14-article document endorsed by many of China’s biggest tech firms.
The document, an effort from private companies that is not legally binding, was published by the China Cultural Industry Association last week. Many companies involved in China’s digital collectibles market have signed on, including Tencent Holdings, Baidu, JD.com, and Ant Group, the fintech affiliate of Alibaba Group Holding, owner of the South China Morning Post.
The agreement calls on signatories to “firmly resist speculation” in the market. “Do not contain financial assets or unlicensed financial products, including securities, insurance, credit and precious metals, in blockchain-supported goods,” it reads.
The document also said digital collectible platforms should have relevant certifications, including those required for blockchain service providers, internet culture operators and telecoms business operators.
The initiative “recognises NFT technology’s use in intellectual property protection and cultural product registration”, said Luo Jun, secretary general of the metaverse committee of the China Computer Industry Association. However, as cryptocurrency is banned in China, there is need for further regulation to curb financial risks, according to Luo.
The initiative was formed by the industrial association and multiple market operators, “which do not represent the government’s stance”, he added.
The document “is an industry-level initiative in response to an earlier one published by major financial industry associations to curb risks associated with digital assets”, said He Yifan, CEO of blockchain developer Red Date Technology, which provides technical support to China’s Blockchain Service Network.
In April, the National Internet Finance Association of China, China Banking Association and the Securities Association of China issued a joint statement to prohibit the use of NFTs in the issuance of financial assets such as securities, insurance, loans and precious metals.
The key is to “prevent the financialisation of the digital collectibles”, He said.
Even though the Chinese government restricts NFTs, domestic companies have been embracing the new business. Ant and Tencent were the first Chinese tech giants to launch digital collectible platforms. JD.com followed with its own platform, and Baidu has issued its own digital collectibles.
Major domestic platforms have similar requirements: users require identity checks and owners are not permitted to resell the items for profit. A digital collectible can be transferred as a gift after the owner has held it for a specific period.
The new initiative does not mention the resale of the NFTs, but calls on companies to not “set up a centralised marketplace” for bidding, matching or anonymous trading. However, experts say that private transactions cannot be banned.
“Digital collectibles in China are the digital assets of art and cultural works, which aren’t entitled to be financial or securities products, so there isn’t need for a centralised marketplace,” said Liu Jiahui, a partner at Beijing-based Derun Lawyers.
“Chinese laws stipulate that the owner of property rights can dispose of the property at any time,” Liu said. “Digital collectibles have higher liquidity than traditional artworks. It is in fact impossible to prohibit speculation during circulation.”