NFT mania in the IP arena
Blockchain-based digital artwork has experienced a craze in western countries. The global monetary inflation further drives investors to seek unique assets across borders, even into cyberspace. Now the tide reaches China. According to the Financial Times, “Digital art – including NFT (Non-fungible token) – is enjoying an upsurge in Beijing.”
However, as some mainstream fashion observers point out, Chinese regulations may stand in the way of large-scale adoption. Numerous regulatory and intellectual property issues have not been tested in Chinese courts, “there is simply too much unknown from the Chinese law perspective.” *
The Monkey King
History helps to shed light on these unknowns and certain principles could help predict IP-related financial innovation development track in China. Innovation’s Crouching Tiger goes in depth about this story (ictiger2020.com).
In 2015, there was a blockbuster release, Monkey King: The Hero is Back, developed from the famous, classic Chinese novel, Monkey King. The movie producer digitally raised funds to produce the film through “Moments” on WeChat, a similar feature to that of Facebook’s timeline. The project offered individuals and enterprises to participate in the crowdfunding through WeChat's mobile payment system.
These participants contributed anything from just a few hundred Chinese yuan up to CN¥10,000. In total, the producer raised CN¥1 million (US$148,000) towards the initial cost of production.
It was the first time this novel IP monetization model appeared in China. It paid off – generating a record-breaking CN¥600 million (US$88.5 million) in box office revenue in just 15 days! The initial 89 investors were entitled to a share of the box office takings and future royalties.
The movie producer used digitization tools and a novel social media approach in this success story, similar to the development of NFT adoption and digital artwork.
How did Chinese regulators respond?
A closer look at this story reveals that both the habits of Chinese internet users and the regulatory regime played a significant role.
WeChat’s integrated functions, such as rapid completion of third-party payments, are especially effective fundraising tools as investor interest in a project often fades when there are obstacles to making payments.
Second, the regulatory regime surrounding mobile payments through social media applications helps to reduce the legal risk of fundraising when “targeting the general public". The payments made through social media apps help mitigate these risks because of the pre-existing relationships between the investors and the fundraisers.
The project managers have to design the transactional structure and run the process carefully. Otherwise, they will cross regulatory red lines.
The securities regulatory authority is focused on funding activities targeting the public due to the potential risks to social stability if they go wrong. Funding projects or activities through people who already have a relationship with the fundraiser is less likely to attract regulatory scrutiny.
Will the Monkey King be back?
Since 2018, the government has been gradually tightening the controls over the payment and fund transfer functionality through social media apps to maintain the order of financial transactions in cyberspace. Both the payment amount and the frequency of payment on the internet have become increasingly limited over time. These measures somehow will limit the trades of NFT for the copyrighted digital artwork in cyberspace.
As far as how the mania of NFT adoption in artwork will spread in China, there is no crystal ball. But China has a spirit of experimentation regarding business models in finance and business. This experimental spirit enables the markets to try out novel models without violating the law. As the law is subject to interpretation in many innovative areas, the regulatory authority usually leans on the tolerant side, provided the experiment does not threaten social stability.
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