Shanghai’s official announcement to support NFT trading platform is how to screen investment targets

The Shanghai government officially announced its support for the construction of an NFT trading platform, which once again pushed NFT to the forefront of investment horizons.

On July 12, 2022, the General Office of the Shanghai Municipal People’s Government issued the “14th Five-Year Plan for the Development of Shanghai’s Digital Economy”, which clearly stated “supporting leading enterprises to explore the construction of NFT trading platforms”. As one of the hottest investment tracks in 2021, NFT (Non-Fungible Token) has successfully “out of the circle” from the field of encryption, attracting leading Internet companies and professional investment institutions to enter the market one after another. The investment circle is endless. This time, the Shanghai government officially announced its support for the construction of the NFT trading platform, which once again pushed NFT to the forefront of the investment horizon.

Since NFT is still an emerging thing, while chasing NFT investment hotspots, investors can initially screen potential investment target NFT trading platforms according to the following criteria to avoid “stepping on thunder”.

Criterion 1: Does the NFT trading platform allow users to resell NFTs?  

In China, the NFT trading platform is also known as a “digital art trading platform”, which is generally similar to Taobao in the traditional e-commerce industry. Domestic NFT trading platforms generally mint and issue NFTs by means of PGC (Professionally Generated Content), that is, the NFT trading platform cooperates with artists and other professionals to jointly issue the non-standard digital ownership certificate NFT of physical/digital artworks.

As China’s regulatory environment for NFTs emphasizes the collection properties of NFT artworks and combats speculation in the NFT industry, the secondary market liquidity of NFTs is limited. In April 2022, three industry self-regulatory organizations including the Internet Finance Association issued the “NFT Risk Prevention Initiative”, which extended the supervision of “cultural art rights and interests” transactions under the original legal system to the NFT field, emphasizing that no centralization should be provided for NFT transactions. Transactions, continuous listing transactions and other services must not be disguised and illegal to set up trading venues, which reflects that the current supervision is likely to have a negative attitude towards NFT secondary market transactions.

Therefore, the current mainstream NFT trading platforms do not support users to resell NFTs. Investors need to pay special attention to legal risks if they find that the NFT trading platform allows users to resell NFTs during the due diligence process. In addition, in current practice, there is still controversy as to whether the user’s behavior of donating NFT is a secondary market transaction. If the relevant practices of the NFT trading platform are found during the due diligence process, it needs to be carefully screened according to the time and terms of the user’s gift.

Criterion 2: Does the NFT trading platform involve virtual currencies such as Bitcoin ?

The central bank announced in 2021 that virtual currency and fiat currency do not have the same legal status and cannot be used as currency in the market. Therefore, although virtual currencies such as Bitcoin and NFTs are based on blockchain, domestic NFT trading platforms are still not allowed to use virtual currencies as NFT pricing and settlement tools. At present, the NFT issuance of mainstream NFT trading platforms in the market is priced and settled in RMB through access to licensed payment institutions such as Alipay.

It is worth mentioning that, in addition to traditional equity investment, virtual currency-related Token financing is emerging in the investment circle. Overseas PEs will subscribe for Tokens when investing in Web 3.0 projects (including overseas NFT trading platforms). way to invest. However, since the central bank prohibits all kinds of token issuance and financing activities, currency rights financing cannot be used as a legal investment method to invest in domestic NFT trading platforms.

Standard 3: Does the NFT trading platform have core business qualifications?

The application scenarios of NFT trading platforms are diverse, but the following certificates are core business qualifications necessary for common NFT trading platforms. Investors need to check whether the investment target has been obtained during the due diligence process:

·Security assessment and filing registration of blockchain information services.

·Value-added telecommunications business license (NFT trading platforms generally require B25 ICP certificates, if the NFT trading platform involves a third-party “Taobao Store” model, B21 EDI certificates are also required).

In addition to the above-mentioned core business qualifications, the NFT trading platform may also involve other business qualifications according to the different types of digital works and business models of the NFT trading platform. For example, in addition to the above-mentioned core business qualifications, an NFT trading platform has additionally obtained the “Network Culture Business License” because its NFT digital works involve musical works.

Since the types of digital works and business models of NFT trading platforms are diverse, and the scope of application of various business qualifications is likely to be controversial in practice, whether the potential investment target has obtained appropriate qualification certificates for all its businesses, Specific analysis needs to be carried out according to the actual situation during the due diligence process.

Standard 4: If you are an overseas investor, you need to pay special attention to foreign investment restrictions on NFT trading platforms

For foreign investors, special attention needs to be paid to the foreign capital restrictions that come with the NFT trading platform. Since NFT trading platforms generally need to obtain the “Value-added Telecommunications Business License” B25 ICP certificate, the proportion of foreign capital should not exceed 50%. Under the premise of complying with the restrictions on the proportion of foreign equity, the application of foreign-invested value-added telecommunications business licenses has been relaxed in recent years. Invisible obstacles.

In addition, different types of digital works on the NFT trading platform (such as paintings, music, audio-visual programs, etc.) may also have a further impact on investors’ foreign capital restrictions. For example, if the digital works in the NFT trading platform belong to audio-visual programs, the minting and distribution of such NFTs is likely to have fallen into the field where foreign investment is prohibited. Therefore, foreign investors can only temporarily sigh and sigh in the face of NFT trading platforms engaged in such businesses.

Original title: “Shanghai Official Announcement Supports NFT Trading Platforms, How Do Investors Select High-Quality NFT Platform Investment Targets? 》

Original author: Song Ruiqiu, Zhang Yi, Jin Xin, Huang Yun, Jiang Hui, Wang Zhehui, KWM Research Institute

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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