Attorney Shao Shiwei | What Are the Key Legal Compliance Points for Card-Based Web3 Games?

Author of this article: Attorney Shao Shiwei

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Card games can be broadly categorized into traditional card games, trading card games (TCG), and hybrid card games.

Traditionalcard games, or card games played with physical decks, such as Poker and UNO.

Trading Card Gamesare based on collecting cards, assembling collected cards into decks, and engaging in gameplay battles. Unlike traditional card games, the distinguishing feature of trading card games is that the decks used in gameplay are not fixed. Examples include the Pokémon Trading Card Game and Hearthstone.

Hybridcard gamesincorporate additional elements, such as Dota Legends (combining cards with action elements), Clash Royale (combining cards with real-time strategy), and Arknights (combining cards with tower defense). Compared to trading card games, hybrid card games have expanded further in the realm of video games.

1. Card Sales Models Similar to Blind Boxes

The gameplay of trading card games involves players assembling collected cards into decks for battles. Decks can be acquired through pre-constructed decks or booster packs. Pre-constructed decks are officially assembled decks with fixed cards, ready for immediate play upon opening. Booster packs contain a certain number of cards with a determined theme placed into a pack, from which cards are obtained randomly. This results in a certain scarcity for a small number of cards.

Although China currently has no specific laws and regulations targeting trading card games, their business models and sales strategies share similarities with blind boxes. Both create a phenomenon of scarcity for specific cards to attract players to purchase more card products. Therefore,relevant laws and regulations concerning blind boxes may be applied by reference.。

For example, Pokémon cards use only red and blue colors to indicate rarity levels but do not disclose the ratio of rare cards to common cards in each pack.

The Shanghai Guidelines for Compliance in Blind Box Business Operations stipulate that blind box operators must disclose key information such as 'product categories, box-opening rules, product distribution, quantity of products released, probability of obtaining hidden items, range of product values, and the number of draws and spending limits per series.'

2. Legal Issues Facing Secondary Market Card Trading

When players cannot purchase their desired cards through official channels, they seek secondary market trading avenues, such as offline trading communities or online live-streamed card openings. The scarcity of cards can trigger market speculation. After such speculation, the nature of the cards undergoes a qualitative shift from having competitive gaming attributes to possessing financial attributes.

In June 2021, a judicial auction sparked widespread online discussion. A Blue-Eyes White Dragon game card, which appeared to have no practical function, had a starting bid of 80 RMB, and the highest bid for this game card exceeded 87 million RMB.

In various popular live-streaming rooms on Douyin (TikTok) where cards are opened, players or scalpers open packs to obtain rare cards. Based on the 'consensus' psychology within the card community (similar to NFT digital collectibles, where the value of a certain type of NFT increases as more people recognize it), many players generally acknowledge the rarity of cards, causing card prices to soar due to their collectible value.

These buyers may not necessarily use the purchased cards for battling in games; instead, the cards they buy are often resold at higher prices.

In January 2022, all members of a certain sports card club were arrested during a live stream, causing the broadcast to be interrupted. The reason was that this practice involved gambling. The card-opening process constitutes online gambling because: users pay to purchase products, engage in card opening based on the mentality of risking small amounts for large gains, the results of card opening are random, and the drawn cards can be cashed out and converted into fiat currency, thereby forming a closed loop of gambling activities.

(All members of a certain sports card club arrested during a live stream)

3. Risks to Prevent When Hosting Live Streams of Card Game Tournaments

Game tournament organizers have established a common business model by live-streaming online competitive gaming matches. Hosting live streams of game tournaments itself does not involve illegality, butthe setup of certain gameplay mechanisms may pose legal risks related to gambling,such as: platforms allowing streamers to privately add players' contact information to buy back in-game currency; platforms collaborating with silver merchants to provide users

with services to convert in-game currency/items into cash through adding or deducting points; platforms organizing spectators to engage in live betting on match outcomes, etc.

For example, in October 2023, the Shanghai High People's Court published acase: Li operated an esports company. In 2020, the company developed and launched an online game APP that allowed online team formation and organized players to purchase tickets to participate in mobile game competitions for 'Honor of Kings' and 'Peacekeeper Elite.' Players ranking at the top could share the 'prize pool.' The APP took a cut from the ticket sales and provided

withdrawal functionality. After the competitions, players could withdraw funds from the APP based on their rankings. By the time the case was investigated, the gambling funds involved in the APP amounted to over 2 million RMB, and the personnel organizing the platform were sentenced by the court for the crime of operating a casino.

1. Prevent Risks to the Platform Arising from Cards Acquiring FinancialAttributes

In designing business models, platforms need to seek a balance between profitability and compliance. In designing gameplay, emphasizing the scarcity of certain cards can enhance the fun of the game and motivate player participation. However, excessive promotion and hype can trigger speculation, driving the prices of scarce card resources to absurdly high levels. If

the platform supports peer-to-peer trading among players and only charges transaction fees, if the price of such scarce cards eventually falls, the final buyers who incurred losses may become dissatisfied with the platform. If the platform does not establish a secondary trading market but still supports peer-to-peer trading among players, price speculation becomes even more uncontrollable (as the platform cannot impose price limits). Both of these trading

models may lead to user complaints due to falling prices of scarce cards. In such circumstances, the platform may face regulatory interviews and orders for rectification in minor cases, or encounter criminal risks in severe cases.

2. Prevent Gambling Risks in the Design of Game Mechanisms

In foreign Web3 games, in-game tokens can be traded on cryptocurrency exchanges, inherently possessing financial attributes. However, in China, card game gameplay must prohibit the conversion of virtual currencies back into fiat money. In card games, players need to formulate appropriate strategies based on the attributes and skills of the cards. There are complex interactions between different cards,

and players need to make optimal decisions through careful consideration. The game also offers rich tactical choices, allowing players to adjust their tactics according to different opponents. Therefore, the game itself is not purely based on probability. However, as mentioned above, if there are modes such as betting on wins/losses or live-streamed card openings, there remains a possibility of involving gambling.

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