Recently, I have received many legal inquiries about domestic NFT storage platforms. Most of these platforms have prize-enabled gameplay, and there have been cases of rights protection that were caused by prizes, either because the promised prizes were not redeemed, or because the quality of the redeemed products was compromised. Therefore, I believe it is necessary to write an article to sort things out. In fact, the Mann Group has already written many legal articles about the prize gameplay of storage platforms, but considering the current “wave” of rights protection, I think it is necessary to analyze it again to help platform operators “minimize risks” and create a clear entrepreneurial environment for storage.
Raffles are the favorite of storage platforms
The prize-enabled gameplay itself is a way of achieving “viral growth” in the e-commerce industry, and blockchain is an organic entity that cannot be separated from the internet mindset. It is not surprising to apply traditional e-commerce gameplay to blockchain. Domestic storage platforms rely more on various innovative gameplay, which may involve the underlying value logic of storage.
When we handle criminal defense cases related to storage platforms, we always take the trouble to explain to relevant departments what it is, what its technology is, and most importantly, where its value lies (how its price is reflected). As I mentioned in last week’s Mann Group afternoon tea live broadcast, like many virtual items, the value/price of domestic digital collectibles comes from a consensus among people. When people believe it is worth the money, it is worth it; conversely, why is it considered fraudulent behavior from a legal perspective when storage platforms engage in massive fake orders? It is because some platforms have artificially manipulated the technology to create a thriving scene, making people mistakenly believe that there are a large number of players involved and that they recognize its value, thereby increasing the possibility of future appreciation, transaction circulation, and direct monetization. Of course, players would be angry when they find out that all of this is fake.
Based on this, some storage platforms adopt prize-enabled gameplay to attract users, linking the issued collectibles with physical or circulating items (i.e., prizes) to determine their value and tell a “story”. Therefore, I believe that if prize-enabled gameplay is the core (main selling point), the specific gameplay of the prizes and whether they can be realized will determine the user’s perception and further impact the legal risks of the platform.
- SEC Issues First Fine to the NFT Industry What Kind of NFTs are Securities?
- A Brief History of Stablecoins Exploding in Silence or Dying in Silence?
- LianGuaintera Partner Three Key Trends of Stanford Blockchain Week, ZKP Optimization, Achieving Composability through Modularity, Bitcoin Ecosystem Revival?
Risks of prize-enabled gameplay
Based on my limited industry observations, the current prize-enabled gameplay of domestic storage platforms includes raffle (blind box) activities, points (synthesis) redemption, invitation rewards, etc. Let’s analyze each category separately.
1. Raffle (Blind Box) Activities
The act of lottery is considered a game of chance in civil law, simply put, it is gambling. In order to distinguish it from gambling, China has enacted the “Anti-Unfair Competition Law” and the “Interim Provisions on the Regulation of Promotional Activities”. Among them, Article 10 of the “Anti-Unfair Competition Law” stipulates that “operators engaged in prize sales shall not have the following situations:… (3) lottery-style prize sales, with the highest prize amount exceeding 50,000 yuan.” Article 17 of the “Interim Provisions on the Regulation of Promotional Activities” states that “the highest prize amount for lottery-style prize sales shall not exceed 50,000 yuan.” In other words, violating the regulations regarding the value of prizes in lottery/blind box may have the risk of administrative violation and may be subject to administrative penalties.
In addition, if the platform sets the prize reward too high, does not set/publish clear winning probabilities, and the platform has its own repurchase, discounted repurchase of prizes, or functions for realization or disguised realization, the essence of this behavior may be regarded by relevant authorities as “betting little to win big” or “betting less to win more”, or determining the ownership of property through uncertain accidental events, and may be suspected of constituting gambling crimes (gambling or opening a gambling establishment).
For those behaviors that manipulate the blind box prizes in the background or lower the winning probabilities intentionally to prevent users from winning, it may constitute fraud.
2. Points (Synthesis) Exchange
Some low-level things can be combined into high-level things by using certain “fuel”, realizing the value appreciation. This is common in props in online games and often appears in the plot of collecting 108 heroes of the Water Margin to exchange for a big toy when we were young. Now, it has also become a trendy gameplay in the world of digital collectibles.
In terms of gameplay itself, I think it’s not bad. It is an effective method to revitalize the circulation of digital collectibles, give players a sense of freshness, and attract new players. However, the problem arises when synthesis requires a large number of digital collectibles, which could be tens, hundreds, or even thousands, and it takes a long time to obtain them through transactions. By the time the synthesis is actually achieved, either the value crashes and no one is interested, or the platform simply refuses to exchange. The reason why players are so enthusiastic is usually because the platform made too many promises in the early stage, which belong to the foreseeable future (which may also be false advertising), but when they are unable to fulfill the promises and crisis arises, it may be suspected of constituting fraud.
3. Referral Reward
The fastest way to attract new users is through referral rewards (giving prizes), and the most important thing to pay attention to in this area is pyramid schemes. Regarding the identification of pyramid schemes, I have written an article titled “New Gameplay of NFT Digital Collectibles: Beware of Pyramid Schemes in Mentor-Apprentice Referral Rewards!”, analyzing the popular mentor-apprentice referral ranking gameplay and distinguishing between business-oriented pyramid schemes and fraudulent pyramid schemes (organizing and leading pyramid scheme activities). Readers can refer to it for further reading.
Domestic digital asset platforms are keen on using pyramid scheme-like models to attract new users. The reason is that these platforms are more focused on building a community ecosystem, and the pyramid scheme model is a convenient way to achieve user acquisition. Therefore, digital asset platforms are always enthusiastic about using this model. However, in the current situation where frontline law enforcement officers in China generally have misunderstandings about new things, when the hierarchy and number of people are “enough”, this approach is prone to be misjudged as a pyramid scheme crime, thereby increasing criminal legal risks, which the platform should be aware of.
Conclusion by Lawyer Mankun
Human beings are inherently accompanied by risks, and as a new thing like digital asset platforms, it is difficult to completely avoid risks. However, while using rewards to empower digital asset platforms, always remember not to engage in fraudulent activities, which can eliminate a large part of the risks. The remaining risks can be resolved by lawyers with expertise.
Like what you're reading? Subscribe to our top stories.
We will continue to update Gambling Chain; if you have any questions or suggestions, please contact us!
