Tencent “phantom core” storm: shocks in the “bear market” of digital collections

On August 2, 2021, Tencent’s NFT trading platform “Magic Core” was officially launched. The next day, the 300 vinyl record NFTs with the theme of “Thirteen Invitation” released by Magic Core were sold out within 1 second. This is a precursor to the outbreak of the domestic NFT market, and then the domestic NFT market began to grow wildly.

At the beginning of the introduction of NFTs into China, the development path of overseas tokenization directly touched the red line of the domestic crackdown on cryptocurrency policies, and Magic Core, together with Ali’s “Whale Scout”, changed the name of NFTs to “Digital” by restricting the transaction and circulation of NFTs on the platform. Collections”, emphasizing its collection properties and opening up a compliant development path for the Chinese market.

Tencent "phantom core" storm: shocks in the "bear market" of digital collections

As the “leader” of the industry, Magic Core accompanies the digital collection industry to gradually reach the public, but a piece of news has stirred up the situation.

On July 20, 2022, sources said that Tencent is planning to abolish the “phantom core” business. Immediately, Phantom said that it has not received relevant notices, and the current operation is business as usual. But as of now, the Magic Nuclear official has not denied the “rumour” that the Magic Nuclear has been revoked.

The “rumor” caused a stir in the entire digital collection circle. As the digital collection platform that has always been at the forefront, does this move also imply the decline of digital collections? Although there is no exact word yet, this concern is not groundless. Previously, Huanhe had faced a number of unsaleable digital collections. In early July, Tencent News App, which is related to Huanhe’s business, announced the suspension of the sales service of digital collections.

Under the phantom nuclear storm, where should China’s digital collection industry go?

1. A major reversal in the supply and demand of digital collections

If 2021 is the “first year” of the digital collection industry, then 2022 is the “explosive year”.

According to incomplete statistics from 01 Blockchain and Forechain, from 2019 to July 15, 2022, there were 998 domestic digital collection platforms. Among the digital collection platforms for which the specific launch date is known, 68 new digital collection platforms will be added in a single year in 2021, while 639 new digital collection platforms will be added in the first half of 2022, accounting for nearly 90% of the total, of which April is a single month. The number of new digital collection platforms reached 199.

Figure 1: Trends in the number of new digital collection platforms in China from 2019 to mid-July 2022

Tencent "phantom core" storm: shocks in the "bear market" of digital collections

Data source: 01 Blockchain Zero One Think Tank

With the explosion in the number of realizations, the participants in digital collections have also become more diverse. Following Tencent’s “Magic Core” and Ali’s “Whale Scout”, giant companies such as Baidu, JD.com, and NetEase have launched digital collection platforms based on their own underlying blockchains. Visual China, Xinhua News Agency, and QQ Music have their own high-quality digital resources. platforms have also joined. At the same time, a number of emerging digital collection startups have also sprung up.

Different from the digital collection platforms in the outbreak period, the transaction of domestic digital collections is slightly weak.

Previously, the domestic digital collections were in short supply, and the hot-selling trend of online products was everywhere. But for now, the “halo” of digital collections has faded. Taking Magic Core as an example, since June this year, the digital collections issued on the platform have experienced slow sales. According to public data, from June 2 to July 8, Magic Core released a total of 10 digital collection series. Except for one free collection, only 2 products were sold out, and 7 products were not sold out. end of the sale.

Among them, 30,000 copies of “Master Hongyi’s Calligraphy Motto Screen Digital Artwork” were publicly sold, each priced at 118 yuan, and 20,245 copies were slow to sell; “Ten Bamboo Studio Paintings” series, 25,600 copies were publicly sold, each priced at 108 yuan, with sales 8200 pieces. This is in stark contrast to the previous phenomenon of “hard to get one vote”.

Both the supply side and the demand side, the domestic digital collection industry has undergone a major reversal. Part of the reason for the reversal of supply and demand is that with the emergence of the number of digital collection platforms, the supply of digital collections is also “rising”, and the market is no longer in short supply. On the other hand, the entry of a large number of hype players has boosted the overall market demand, and as the hype atmosphere in the digital collection market gradually fades, the market gradually becomes more rational.

2. The way out under compliance risks

At present, compliance risk is the “knife around the neck” of the digital collection industry.

On the one hand, digital collections carry the risk of tokenization. Foreign NFTs are mainly issued on the public chain, which inevitably requires the issuance of tokens as an incentive mechanism. In order to distinguish it from foreign NFTs, the issuance of digital collections on the alliance chain has become the mainstream in China. But at present, many domestic digital collection platforms still use public chains. According to the incomplete statistics of 01 Blockchain and Forechain, among the 730 digital collection platforms that revealed the underlying blockchain category, 186 use the public chain as the underlying blockchain, accounting for 25%. In addition, 3% of digital collection platforms use both consortium chains and public chains.

On the other hand, the direction of development to avoid financialization is also the focus. In April 2022, the China Internet Finance Association, the China Banking Association, and the China Securities Association jointly issued the “Initiative on Preventing NFT-related Financial Risks”, stating that it is necessary to resolutely curb the tendency of NFT financialization and securitization, and strictly prevent illegal financial activity risk. Therefore, many platforms avoid financialization risks by limiting secondary transactions. However, among the 998 digital collection platforms in the statistics, 301 have opened the secondary market, accounting for about 30%. In addition, there are 181 digital collection platforms to achieve liquidity by linking with well-liquid over-the-counter trading platforms.

For a platform in a gray area, not only does it face the risk of being rectified at any time, but it is also not conducive to the overall development of the digital collection industry.

Since March this year, WeChat has banned more than a dozen digital collection platforms. The official said, “According to relevant national regulations, in order to prevent the risk of speculation in virtual currency transactions, the WeChat public platform has recently banned public accounts and mini programs for speculation and secondary sales of digital collections. Standardize and rectify.” For the official account that only provides digital collection display and primary transactions, WeChat also requires a certificate of cooperation with a blockchain company that has been approved by the Cyberspace Administration of China as a certificate of qualification.

Tencent "phantom core" storm: shocks in the "bear market" of digital collections

The entrance of the domestic digital collection platform mainly includes APP, applet, public account and webpage. Among the 879 platforms that revealed specific entry points, 437 and 72 platforms used official accounts and mini-programs respectively. (Note: Some platforms use more than one entry port). Therefore, the rectification of WeChat this time is a heavy blow to the digital collection industry.

In addition to compliance risks, 01 Blockchain and Forechain found many problems in the irregular operation of existing digital collection platforms in the process of collecting data. For example, some platforms lack user agreements and privacy agreements, and some platforms even directly copy the user/privacy agreements of other websites, even omitting to modify the official name and specific content; in addition, some platforms do not explain the underlying blockchain that the collection uses. technology, but vaguely generalized in terms of “based on blockchain technology”. There are also some platforms that attract players in the name of the public chain, but they are not minted on the public chain after they are actually sold.

3. Stand firm and look up at the stars

There are different opinions on whether the Magic Core is closed this time, and there are also many people who are skeptical and bearish about the digital collection industry. However, the seemingly “bear market” digital collection market actually contains a trend of retooling.

From the panic buying boom to the slow sales, it is also the stage when the digital collectibles market moves from a bubble to a benign one. Under the change of supply and demand, only the collections that can truly impress the audience can stand out in this “shuffling stage”, and how to create “quality” digital collections will also become a new focus.

In addition, compliance is an inevitable difficulty for digital collections. But at least the current regulatory trend is obvious, and de-tokenization and de-financialization will become the basic requirements for the sustainable development of the digital collection industry. Digital collections can truly gain a firm foothold in China only if they survive the “pain” in the process of compliance.

Although the digital collection industry is turbulent, it is undeniable that it has become a new type of cultural and creative carrier. With the help of blockchain technology’s verifiable features and the diversity of digital means, many paintings and cultural blogs can be vividly reproduced in front of the public, and digital resources such as IP and cultural tourism can also be further tapped to give full play to their commercial value.              

Since the spring of 2022, more and more institutions have also participated in the distribution of digital collections, including cultural and tourism institutions, film makers, banks, restaurants and clothing. Gradually, digital collections have also become an important port for institutions to enhance brand value, interact with audiences, and become an important means of brand marketing and promotion.

On July 25, according to the “Regulations on the Administration of Blockchain Information Services”, the Cyberspace Administration of China issued 348 record numbers, including nearly 100 digital collection-related companies and more than 150 digital collection-related services. For the digital collection industry, this is the first time that such a large-scale filing has been passed through the Cyberspace Administration of China, and it is also a big step forward for the industry in terms of compliance.

It is worth noting that the value of digital collections is not really realized as a collectible and a marketing tool. Digital collections have unique advantages in copyright confirmation and circulation, and can provide effective solutions to digital property rights and copyright issues, filling the gaps in the field of digital property rights. From the perspective of the long-term development of digital collections, realizing its value in the fields of asset confirmation and copyright protection and demonstrating strong industrial application capabilities are the real blue ocean of the digital collection market.

Therefore, digital collections should also “look up to the stars” while “taking a firm foothold”. Exploring the value of digital collections to empower the digital market and the physical industry and release strong economic value is the future that the digital collection industry should have.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/tencent-phantom-core-storm-shocks-in-the-bear-market-of-digital-collections/
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