Mankun Web3 Research: Survival Rules for NFTs in the Chinese Market—Consumer Attributes and Community Culture

Consumption or Investment?

Are NFTs fundamentally a form of consumption or finance?

Since the concept of NFT digital collectibles surged in popularity in 2021, players and investors worldwide have flocked to this sector, rapidly making it a hotspot following virtual currencies. However, as the hype subsides, particularly in the Chinese market, the positioning of NFT digital collectibles has become nuanced.

As a legal practitioner who has long focused on the blockchain sector, Attorney Hong Lin has been contemplating and monitoring viable commercialization pathways for NFT digital collectibles. Recent discussions with several entrepreneurs in the NFT digital collectibles space have further reinforced the view that:In the Chinese context, the relationship between the “consumer attributes” and “financial attributes” of NFTs is key to their long-term viability.

From a global perspective, NFT digital collectibles are no longer merely synonymous with digital art; they have progressed significantly along the path of financialization. For instance, many overseas platforms not only treat NFT digital collectibles as unique digital assets but also incorporate them into the realm of financial investment: practices such as hype-driven trading, speculation, and even financial derivatives based on NFT digital collectibles continue to emerge. However, can such practices be implemented in China?Clearly, this is unlikely.

China has consistently maintained strict regulatory attitudes toward virtual currencies, especially intensifying crackdowns on virtual currency-related activities in 2021. Meanwhile, the state continues to strengthen controls over financialization risks associated with token-like instruments. Consequently, the “financialized practices” common in overseas NFT markets will inevitably be curtailed in China. It is our view that for NFT digital collectibles to survive long-term in China, they must follow a path where “consumer attributes outweigh financial attributes.”

One of the appeals of NFT digital collectibles lies in their ability to integrate deeply with various cultural industries. Fields such as digital art, sports entertainment, and celebrity merchandise can leverage NFT digital collectibles to provide fans and users with deeper interactive experiences. For example, NFT digital collectibles like NBA Top Shot have attracted significant attention from basketball enthusiasts by selling digital collectible cards featuring NBA highlights. Similar scenarios exist in China, such as artists issuing limited-edition digital artworks or virtual idols offering exclusive NFT digital collectible merchandise.

Image source: NBA Top Shot official website

China is a vastcultural consumption market.If NFT digital collectibles can integrate with local culture and capitalize on the wave of cultural consumption, they hold substantial potential to open up larger markets in the future. For instance, Peking Opera NFTs, digital versions of traditional handicrafts, and even digital props from domestic TV dramas and variety shows could become popular areas for consumer-oriented NFT digital collectibles. Such cultural integration not only satisfies users’ emotional needs but also enhances the scarcity value of NFT digital collectibles, thereby promoting their lawful sustainability.

Beyond the cultural industry, NFT digital collectibles can also combine with education, public welfare, and social responsibility to create new application scenarios. An increasing number of public welfare organizations are attempting to raise funds by issuing NFT digital collectibles, leveraging their uniqueness and scarcity to attract donors. For example, some environmental protection organizations issue limited-edition digital artworks, using the sales proceeds for environmental projects. For donors, this is not only a way to support public welfare but also allows them to receive unique NFT digital collectibles as souvenirs. The integration of NFT digital collectibles with the education sector also holds promise. For instance, some online education platforms could issue NFT digital collectibles to provide users with exclusive study materials, limited-edition course content, or certifications for specific courses. This approach not only stimulates users’ interest in learning but also creates a new model of digital education consumption.

How are consumer attributes defined?

When discussing consumer attributes, many may first think of consumption behaviors involving physical goods, such as buying clothes, electronic products, or limited-edition sneakers. In fact, such consumer attributes also exist in the NFT sector. For example, limited-edition digital artworks or digital collectible cards issued by many platforms are essentially no different from purchasing a pair of limited-edition sneakers.

Consider a simple example: a brand issues a series of limited-edition NFT sneakers. Users holding these NFTs can not only display them in the virtual world but also enjoy special discounts at the brand’s offline physical stores by virtue of owning the NFT digital collectibles. For many users, this constitutes a consumption behavior; they purchase NFTs not for resale profit but to enjoy these additional benefits. This model has potential for promotion in China as it aligns more closely with the definition of consumer goods.

The uniqueness and singularity of NFT digital collectibles grant them scarcity attributes in the digital realm similar to those of physical collectibles. Just as limited-edition sneakers have sparked enthusiasm among younger demographics, digital collectibles are similarly sought after in the online world. Particularly in China’s gaming industry and ACG (Animation, Comics, and Games) culture sector, the consumer nature of NFT digital collectibles is even more pronounced.

Financial attributes have not completely disappeared

Of course, stating that consumer attributes outweigh financial attributes does not mean that NFT digital collectibles lack any investment value. In reality, NFT digital collectibles are akin to limited-edition sneakers; although they are consumer goods, their scarcity generates certain premiums within specific user groups.

Devoted fans are willing to pay more for products they cherish, while some speculative players seek profits through buying, holding, and reselling. This phenomenon is commonplace in global sneaker and art markets and likewise occurs in the NFT digital collectibles market. Decades ago, avid stamp collectors were passionate about philately, with certain rare stamps commanding high prices due to scarcity—a situation not fundamentally different from today’s NFT digital collectibles enthusiasts. At this point, while NFT digital collectibles appear to be consumer goods, their uniqueness and scarcity endow them with a degree of “investment value.”

However, the financialization of NFT digital collectibles in China must be carefully controlled. Given China’s strict regulations on the financialization of virtual currencies and related assets, NFT digital collectibles cannot undergo large-scale hype and speculation as seen in overseas markets. To mitigate this, some platforms have begun limiting price volatility of NFTs to ensure healthy market development. For instance, certain platforms set caps on price increases to prevent excessive fluctuations caused by speculative behavior. This approach preserves the investment attribute of NFT digital collectibles while restricting the accumulation of financial risks.

NFTs and Community Culture

Although China strictly regulates the financial attributes of NFTs, the market still holds immense potential for exploration. By combining NFT digital collectibles with consumer goods through limited releases and exclusive benefits, sustainable market space is being created for more users. China’s vast base of young internet users and their cultural consumption habits also provide possibilities for the future development of NFT projects.

As digital collectibles, NFTs often amplify their value through community culture.Enthusiast communities represent a pathway for the lawful survival of NFT digital collectibles,where users often share deep emotional resonance in a particular field based on common interests. For example, fans of artworks, music albums, or virtual idols may use NFT digital collectibles to establish closer connections with the objects of their affection. This connection is not merely about financial return on investment but also involves emotional and cultural resonance.

Enthusiast communities can be viewed as niche markets. By targeting precise audiences, NFT digital collectibles can achieve higher recognition and acceptance in these areas. For example, with limited-edition NFT music albums, users who purchase them may gain opportunities to interact with artists, receive exclusive concert tickets, and more. Such projects not only align with the consumer attributes of NFTs but also create additional value and experiences through user community culture.

Furthermore, this model lends greater rationality to the circulation of NFT digital collectibles. If a collector wishes to resell an NFT digital collectible, they can obtain a reasonable premium based on scarcity and demand within the user community. This lays the foundation for the long-term development of NFT digital collectibles in China. Consequently, the prices of NFT digital collectibles will not spiral out of control due to excessive hype but will fluctuate around genuine user demand and consumer attributes.

Although the market prospects for NFT digital collectibles are broad, achieving long-term development requires further user education and increased market maturity. Currently, many users’ understanding of NFT digital collectibles remains stuck at the level of “hype” and “speculation,” overlooking their true consumer attributes and application value. Platforms and the industry need to conduct more educational activities to help users understand that NFT digital collectibles are not merely tools for making money but can serve as bridges connecting creators and consumers in the digital world.

By enhancing users’ understanding of NFT digital collectibles and reducing speculative behavior in the market, a healthier ecosystem can be created for the NFT digital collectibles market. Users will not only acquire unique digital collectibles through NFTs but also engage in trading and investment in reasonable ways, rather than blindly following trends and speculating.

Currently, many platforms are attempting to legalize and standardize NFT digital collectibles through technical means, with some leading platforms actively embracing national regulatory requirements to ensure the legality and compliance of NFT digital collectibles. The development of NFT digital collectibles in China is destined not to be filled with the financialization and speculation characteristic of overseas markets. China’s market and policies dictate that the future of NFT digital collectibles here leans more towards consumption and collection. Although the scarcity of NFT digital collectibles brings certain financial attributes, this is merely an added value, not the core.

Summary by Mankun Attorneys

Are NFT digital collectibles consumer goods or investment products? From the Chinese context, having consumer attributes outweigh financial attributes will be key to the long-term survival of NFT digital collectibles. We cannot deny that NFT digital collectibles possess a certain investment value, but this value must be controlled and restricted in the Chinese market. Like limited-edition sneakers or rare stamps, NFT digital collectibles can serve as collectibles within enthusiast communities and may generate certain premium returns under specific conditions.

The future of NFT digital collectibles lies in providing users with more consumption experiences within a legal framework, while bringing a healthy and sustainable ecosystem to the market. In this process, NFT digital collectibles will become a bridge connecting digital assets and physical consumption, offering new possibilities for the widespread application of blockchain technology in China.

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Mankun Web3 Research: Survival Rules for NFTs in the Chinese Market—Consumer Attributes and Community Culture

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