Cracking the Liquidity Conundrum: NFT Leasing

Since the development of the NFT track, the liquidity of NFT seems to have become the direction that the industry wants to make efforts invariably . In addition to focusing on the NFT secondary transfer market many times, Sister Sa’s team has discussed the issues of NFT pledge and mortgage lending in previous articles . Today, Sister Sa’s team wants to discuss with you another topic of “liquidity” – NFT leasing .

The actual operation and logic behind NFT leasing

As we all know, in the booming and diverse overseas markets of the NFT market, the landing scenarios of NFT include avatar pictures, game assets, Metaverse virtual land, domain names, etc. Users who hold these NFT assets can use them for display, or in games. use. However, many holders and platforms are not satisfied with such usage scenarios. They have developed another method of realization of NFT – “renting”, so there is a corresponding NFT rental market .

In the NFT leasing market, it is generally the lessor that defines the leasing price, collateral and maximum leasing period of NFT assets. The lessee chooses the lease term and pays the security and rent. At present, NFT leasing is mainly used in on-chain game scenarios, and NFT assets that can be rented are mostly game equipment, props or game characters . Application representative of NFT rental platform – reNFT

reNFT supports NFT holders to rent NFT assets to obtain income, and plans to cast off-chain assets with rental properties as NFT on-chain to solve the trust and security issues of lessors and lessees. On the reNFT platform, NFT artwork, virtual land NFT, game NFT assets, NFT domain names, etc. can be rented to users in need. Holders can choose to rent out their NFT through a fixed price, term and amount of collateral.

In fact, reNFT has formed a market for NFTs to match user needs through leasing. For example, someone owns multiple domain name NFTs, but he does not have so many usage needs, so he can release idle domain name NFTs to those in need through the leasing market. The outbreak of the rental market may also require waiting for the maturity of the entire NFT market , including the degree of idleness of NFT held by users, game guilds and project parties, as well as the distinction between NFT leasing and lending and other rules related to market risks.

NFT leasing corresponds to the legal provisions of domestic law

According to Article 703 of my country’s Civil Code: “A lease contract is a contract whereby the lessor delivers the leased property to the lessee for use and income, and the lessee pays the rent.” It can be seen that the main purpose of leasing is for use or income. As mentioned above, NFT leasing is currently mainly common in game equipment, props and characters. In general, such leasing behavior is indeed to meet the needs of use or income. However, due to the incomplete development of chain games corresponding to NFTs in China, various application scenarios of NFTs are still under development and development. It will take a long time for domestic NFTs to develop to the application level of overseas chain games.

Although the legal nature of NFT is still inconclusive, it is almost a consensus that it can be protected by virtual property. When it comes to legal issues related to NFT leasing, we can’t help but think of the issue of online game account network equipment leasing. As the current regulations on online game account ownership and online game account leasing trading platforms can be said to be in a legal blank area , the legitimacy of online game account leasing trading platforms and online game account ownership identification and whether they comply with the regulatory secrets of relevant departments Inseparable, which has led to a lot of controversy over whether the existence of an online game account rental trading platform is justified. Some people believe that the online game account leasing trading platform is the industry’s general processing rule and business model that clearly prohibits game players from trading game accounts in the online game industry . It disrupts the normal business model and business order of online game accounts, undermines the fair and just game order , and endangers game security and game experience. It is not a legitimate business model, and may even constitute unfair competition .

Compliance Risks of NFT Leasing Platforms

 Breeding money laundering and other illegal and criminal activities

Combining the reports of several well-known blockchain data analysis companies such as Glassnode, we can roughly draw a figure: by the end of 2021, the value of virtual currency sent to high-risk addresses was about 25 billion US dollars, of which stolen virtual currency accounted for more than 90%, This is followed by the dark web, scams and ransomware. The NFT market is receiving more and more illicit funds . According to a Chainalysis report, in the third quarter of 2021, the amount of illicitly acquired virtual currency sent by illicit addresses to the NFT market jumped significantly to over $1 million. That figure grew again in the fourth quarter to nearly $1.4 million, with the bulk of the illicit funds coming from theft and fraud. With the further prosperity of the digital collection market such as NFT, and the continuous introduction of new methods such as NFT leasing and mortgage lending, a large number of illegal funds will quickly and secretly flood into the market in the next few years, breeding various types of money laundering-based Crime , which is also the direction that the platform needs to increase its efforts to prevent.

Copyright disputes

Article 10 of my country’s “Copyright Law” stipulates: “Copyright includes the following personal rights and property rights: … (7) The right to lease, that is, the right to temporarily use audio-visual works or computer software originals or copies for a fee. Computer software is not leased. Except for the main subject”. Judging from the legal provisions, it seems that China only grants the right to lease to the copyright owner of “original or duplicate copies of audiovisual works and computer software” . Although some scholars believe that the provisions of the “Copyright Law” are unreasonable and the scope of works that enjoy the right to rent should be expanded, the current legal provisions still use the above-mentioned scope. So, can the benchmarking NFT be included in the ranks of “audio-visual works, originals or copies of computer software”? The author believes that some NFTs expressed in the form of audio-visual works can be included in this scope . However, NFTs on the market are mainly displayed in the form of electronic images. If the right holder or NFT platform wants to obtain the authorization of such NFT rental rights, how should they determine the source of rights and the legal relationship between them? I think this is still a controversial issue.

write at the end

Different from the overseas development context, my country has always adopted a cautious attitude towards NFTs to prevent them from disrupting the original financial order and causing adverse effects on the economy and society. Therefore, starting from 2021, the development path of NFT is the process of continuously removing the “financialization” attribute. The positioning of digital collections in China is the media, tools and achievements of cultural digitization, digital artworks and digital cultural products . hype to make money. Therefore, in the face of the “liquidity” problem, it is still necessary to grasp the core positioning of digital collections and regulate their own behavior . Only in this way can the healthy development of the industry be achieved.

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