Special Disclaimer: This article is an original work by Attorney Shao Shiwei. It reflects only the personal views of the author and does not constitute legal consultation or legal advice on any specific matter. For article reprints, legal consultations, or business exchanges, please add: sswls66

 

Introduction:

With the development of technologies such as 5G, blockchain, and VR, the gaming sector is continuously exploring and advancing from Web2 toward Web3. Dao of Dragon, as one of the first metaverse game projects in China, is a metaverse dragon-raising game themed around dragons and operated on the BSN blockchain. Since its launch, the platform has maintained significant popularity, users have achieved favorable returns, and its various gameplay mechanics have been emulated by other project operators. So, do the platform’s gameplay mechanics entail any legal risks? This article provides an analysis thereof.

 

Author: Attorney Shao Shiwei

 

 

 

01

Basic Platform Introduction

According to its official WeChat public account, the creation of Dao of Dragon stems from Zhongchuan Yunchuang’s “full-force initiative” to address pain points in the digital collectibles market. It is a metaverse digital collectibles platform based on the model of “metaverse + digital collectibles + gaming,” where all users jointly make decisions, drive development, and engage in creation.

 

Within the Dao of Dragon App, there are three primary materials: [Dragon Eggs], [Dragon Essence], and [Dragon Souls]. These materials are produced by three types of dragons—[Giant Dragons], [Holy Dragons], and [Demon Dragons]—and can be purchased in the App’s [Market].

Different quantities and ratios of [Dragon Eggs] and [Dragon Souls] can be combined to synthesize dragons with varying attributes and levels. Dragons must be placed in corresponding incubators to produce materials. During production, incubators consume durability, which can only be replenished by using [Dragon Souls]. Once durability is fully depleted, the incubator will cease operation. During material production, dragons consume energy. To replenish energy, [Energy Potions] must be used, with [Dragon Essence] being the sole material for synthesizing [Energy Potions]. When a dragon’s energy is fully depleted, it will stop producing materials.
The core strategy of Dao of Dragon lies in how to achieve higher returns through the combination of materials.。

 

02

Platform Activity Gameplay

The platform periodically launches various popular activities. We will introduce them using the well-received mini-game [Evil Dragon Cave] as an example.

 

The gameplay of [Evil Dragon Cave] is as follows:
Users select a cave for exploration and commit in-game materials to a chosen room. When the countdown expires, the evil dragon appears. Users in the room where the dragon appears lose, while users in the other four rooms win. Within the App, the platform displays the following information:

 

Within the platform,The sources of materials can be summarized as follows:：
Methods for obtaining dragons: synthesis, purchase on the marketplace, and acquisition through participation in events.
Methods for consuming dragon eggs, dragon essence, and dragon souls: all may be listed for sale on the marketplace or used in events such as the Lucky Wheel.
Methods for obtaining dragon eggs, dragon essence, and dragon souls: purchase on the marketplace; hatching for dragon eggs; forging with the Demon Dragon for dragon souls; and blessings from the Holy Dragon for dragon essence.
In other words,All materials can be monetized through purchase and resale on the marketplace.。

 

 

03

 

Potential Legal Risks

This gameplay mechanic carries certain risks related to gambling.。The process of gambling involves participants committing legal tender and, through certain activities,/ultimately gaining legal tender in varying amounts, thereby forming a closed loop from money to money.。
 
Based on current regulatory norms and practical cases in China, the risks associated with online gambling are no longer confined to gambling websites and card-and-chess games, but have gradually permeated various types of games. Once online games of chance form a closed loop involving deposit, wagering, and withdrawal, such conduct may constitute the crime of operating a casino.
 
Summarizing in light of the Guidelines for Supervision and Law Enforcement on Online Game Virtual Currency issued by the former Ministry of Culture in 2010,
Generally speaking, if an activity or game simultaneously satisfies the following three elements, it carries the risk of being deemed gambling:
(1) Paid input: Payment includes direct or indirect payments made in cash, virtual currency obtained through payment, or in-game items exchanged for virtual currency;
(2) Randomized gameplay: If the minimum or maximum value of the output significantly exceeds the amount invested, it exhibits a nature of "staking small to win big";
(3) Cash or physical output, meaning that the relevant features or gameplay directly or indirectly yield cash.
 
Taking the prohibitions on gambling in the gaming industry as an example:
According to the Guidelines for Supervision and Law Enforcement on Online Game Virtual Currency issued by the former Ministry of Culture in 2010, online games that promote gambling content mainly take the following three forms:

Online game operators allow users to obtain in-game items or online game virtual currency through contingent methods such as lotteries, betting, or random draws, on the premise that users directly or indirectly invest legal tender or virtual currency;

Online game operators provide users with games whose forms or content are identified as gambling by laws, regulations, and relevant competent authorities;

Online game operators grant points to users for their use, on the premise that users directly or indirectly invest legal tender or virtual currency, and allow such points to be used to obtain in-game items or online game virtual currency through contingent methods such as draws, betting, or random selections.

 

The Notice on Regulating the Operational Order of Online Games and Prohibiting Gambling Through Online Games, jointly issued by the Ministry of Public Security, the Ministry of Information Industry, the Ministry of Culture, and the General Administration of Press and Publication, stipulates:

It is prohibited to collect, or to collect in a disguised manner through "virtual currency" or other means, commissions related to the outcome of game wins and losses;

For games that involve betting on wins and losses using game points, or games of chance, limits must be set on the amount of game points won or lost by users per round and per day. It is prohibited to provide services for the trading or exchange of game points, or to provide services for the disguised exchange of game points into cash or property through "virtual currency" or other means. It is also prohibited to provide services for the transfer of game points between users, such as gifts or transfers. Strict management must be implemented to prevent facilitating conditions for online gambling activities.

 

Therefore, in light of the aforementioned regulations, there is a possibility that the activity rules of "Evil Dragon's Lair" may be deemed as involving gambling. The specific analysis is as follows:
（1）Monetary Input: To participate in the game, users are required to possess materials such as Giant Dragons, Dragon Eggs, Dragon Essence, and Dragon Souls. These materials can be acquired through market purchases, or through participation in activities, hatching, synthesis, and other processes involving a relatively long chain of input. However, in light of relevant regulatory provisions and their underlying spirit,such conduct may be substantively deemed as constituting monetary input by users；
（2）Randomized Gameplay: Users contribute materials to bet on which room the Evil Dragon will appear in. Those who win the bet share the materials contributed by those who lose. From the perspective ofthe consequences associated with winning and losing, the activity exhibits a certain“nature of leveraging small stakes for potentially large gains”the nature of；
（3）Cash/physical rewards, and the materials obtained by users can be sold in the market for cash realization; the consignment trading platform within the App provides a channel for users to convert such materials into fiat currency.。

 

Given the current judicial adjudication environment, in substance, purchasing in-game items with fiat currency to exchange for fragments or materials for participation in activities is not materially different from making direct monetary investments. That is, as long as the conduct satisfies the pattern of “payment input – random gameplay – cash/physical reward output,” such conduct may meet the constituent elements of the crime of operating a casino.

 

04

Compliance Recommendations

In addition to the game [Evil Dragon Dungeon], other games on the platform, such as [Lucky Spin Wheel] and [Hera Racing], are also probability-based games and similarly carry gambling-related risks. The platform needs to adjust its activity mechanisms to break the chain of “payment input – random gameplay – cash/physical reward output” in order to substantially reduce such risks.
Furthermore, if the platform’s games are based on intellectual competition, stamina consumption, or similar mechanics, avoiding randomness in determining outcomes can also reduce gambling-related risks.
Since the launch of Dragon Island 1.0 in early January 2023, driven by consensus-driven hype, the value of pets on the platform surged tenfold within a short period. However, within less than half a year, the value of pets declined significantly due to factors such as the design of the game mechanics themselves and issues with the economic model.
Nevertheless, it is undeniable that Dragon Island leveraged blockchain technology to treat dragons as digital collectibles, endowing its brand imagery with scarcity and collectible value. The platform’s diverse gameplay features, such as dragon hatching and faction battles, have greatly enhanced the playability of the blockchain game, enabling users to engage more deeply with the game itself. How to establish a more sustainable economic model that allows users to remain on the platform in a continuous and stable manner, rather than following the pattern seen last year on some digital collectible platforms where “early users extract profits and exit, while new users become victims of exploitation,” is likely a question the platform must continually consider.