Special Declaration: This article is an original work by Attorney Shao Shiwei. It represents only the personal views of the author and does not constitute legal consultation or legal advice on specific matters. For article reprints, legal consultations, or business exchanges, please add: sswls66
Introduction:
As a highly popular digital collectibles platform that attracted significant attention in 2023, Chao Wan Universe is an innovative blockchain gaming project that combines trend culture, NFTs, and blockchain technology. For example, the "Battle Royale" gameplay within the platform has been well received by users. Does this viral blockchain gaming project entail any relevant legal risks? This article provides an analysis thereof.
01
Introduction to Platform Gameplay
Chao Wan Universe (formerly known as "Chao Wan World") is a domestic blockchain game under the Bee Cluster Alliance. Centered on the core IP "Gashapon Rabbit," it collaborates with multiple top-tier IPs, including Bored Ape, Mutant Ape, and Devil Cat, integrating diversified businesses such as a "trendy toy IP matrix, trendy toy product matrix, and planetary game experience" [1].
The basic gameplay is as follows:Purchase apes within the App. After purchase, the apes mine gems daily. The price of gems fluctuates according to market conditions, currently around RMB 6 per gem. Purchasing seven apes allows mining approximately 30 gems per month.
For more advanced gameplay, users can acquire gems from other players and open mines within the App, which can produce more gems.
Items available on the platform include:
Bored Ape Cards.These can be obtained by purchasing offline from store managers or by drawing using badges. They can be sold for cash realization, subject to a 5% transaction fee deducted by the platform. Mining with Bored Ape Cards yields gems.
Gems.Gems can be sold in exchange for Ape Stones, which are essential for unlocking advanced Bored Ape mines, and can also be exchanged for assets in other games under the company. Of course, most importantly, gems serve as the "hard currency" within "Chao Wan Universe." A significant portion of users play the game with the aim of selling the mined gems for cash realization.
Badges. Badges can be sold in exchange for World Coins and NDTU. Conversely, badges can be purchased by selling World Coins and NDTU. These three items are mutually convertible. Storing badges allows users to earn gems. Badges can be used to purchase Bored Ape Cards. By consuming badges plus Bored Ape Cards, users can also exchange for physical items at treasure mines.
NDTU. NDTU is the exclusive points system of Chao Wan Universe. Within the App, NDTU is primarily reflected in resource ships, such as those in the "Battle Royale" mode. Users who deposit a certain amount of NDTU can receive gems daily. Furthermore, NDTU can be mutually converted with badges and can also be used to exchange for the latest cards in the Chao Wan series.
The platform features many mini-games, such as "Battle Royale," "Bomb the Monkey King," "Winner Takes All Tonight," and "Ape Fighting Arena." Through these games, users can consume large quantities of badges and gems held in their accounts, while winners may receive badges or gems rewarded by the platform.
Through the aforementioned methods of acquiring and consuming items, a complete internal circulation loop is formed within the platform.
02
Platform Legal Risk Alerts
According to publicly available information, both Chao Wan World and Lottery World are apps under the Bee Cluster Alliance.
Users can obtain badges, gems, NDTU, and other items through various gameplay mechanisms within the Chao Wan World app. After converting these into gold coins, users can withdraw funds via the "Lottery World" app.Through this method, users achieve "play to earn" (Play-to-Earn)。
Search results indicate that, in addition to withdrawals via Lottery World, major mining teams actively promote off-platform methods such as sales on Xianyu (a second-hand trading platform) to enable users to realize cash value. Many platform user IDs are named "XX Gem Merchant."
However, operating blockchain games in China is subject to dual constraints: regulations related to games, and regulations concerning blockchain and virtual currencies.
Risk 1: Lack of Game License
According to the Interim Provisions on the Administration of Game Publication, games must obtain a game publication number before launching operations.
Upon inquiry on the official website of the National Press and Publication Administration, Chao Wan Universe has not obtained a game license. For games operated without a license, cultural authorities may generally order the removal of the game and impose substantial fines ranging from five to ten times the game's revenue flow, in accordance with regulations.
Risk 2: Business Model May Be Deemed as Illegally Absorbing Public Deposits
According to disclosed reports [i], "With the surge in popularity of Chao Wan Universe in August and the influx of a large number of users, the daily limited sale of 40,000 Bored Ape Cards frequently sold out,At RMB 21 per card, this amounts to RMB 840,000 per day, or RMB 25.2 million per month."”。
According to the Announcement on Preventing Risks Associated with Token Issuance and Financing, token issuance financing (ICO) refers to fundraising entities raising so-called "virtual currencies" such as Bitcoin and Ethereum from investors through the irregular issuance and circulation of tokens. In essence, this constitutes unauthorized illegal public financing. In China, any organization or individual illegally engaging in token issuance and financing activities is suspected of committing illegal fundraising and other criminal offenses.
So, what is the relationship between ICOs and blockchain games?Here, we need to explain another concept:Liquidity Mining.
Liquidity mining (also known as yield farming) is a key feature of DeFi. It allows individuals to earn rewards by depositing (or "staking") a cryptocurrency or token on a DEX or DApp. These platforms reward users with another token, which can then be staked indefinitely on the same or another DEX or DApp. Each cryptocurrency or token can generate yields (such as savings interest), and higher yields can be obtained through cumulative staking processes (i.e., "mining") [ii]. It can be simply understood as "earning interest on deposited coins." Users invest tokens in an exchange; because a larger volume of tokens provides greater liquidity for the exchange's funds, users can receive token rewards.
The platform provides users with indirect channels for cash realization, with the aim of attracting more people to purchase its items.In Chao Wan Universe's gameplay, users engage in fiat currency transactions to purchase five Bored Ape Cards, thereby enabling Bored Ape miners to start mining gems. Gem earnings are generated automatically every day. Additionally, participating in various mini-games within the platform requires purchasing World Coins to exchange for badges. Winners can receive rewards such as badges and gems from the platform. As mentioned above, these items, including badges and gems, can be converted into fiat currency through indirect means. Precisely because there are channels for realizing the value of in-game items, more people are attracted to purchase Bored Ape Cards, World Coins, badges, and other items.
The various items issued on the platform lack physical backing and do not possess real value. The sale of items such as Bored Ape Cardsmay beregarded asa form of fundraising.Users purchasing Bored Ape Cards, enabling Bored Ape miners to mine gems, and playing games to acquire more items can all be considered mining. However, unlike traditional mining (which involves investing in mining rigs, consuming electricity, and providing labor), liquidity mining for token issuance and distribution does not incur mining costs nor does it have a trust foundation that commands widespread acceptance. Therefore, mining activities within the platform may be deemed asa method of obtaining project tokens by absorbing fiat currencyto conducttoken issuance fundraising, which is suspected of illegally absorbing public deposits.
Risk 3: The Platform Facilitates Exchange Between Fiat Currency and Virtual Currency, Which Is Prohibited in China
As mentioned above, both Chao Wan World and Lottery World are apps under the Bee Cluster Alliance. Users can convert various items obtained through gameplay in the Chao Wan World App into gold coins, which can then be withdrawn via the associated "Lottery World" App.
According to the Notice on Further Preventing and Disposing of Risks Related to Virtual Currency Trading and Speculation, business activities related to virtual currencies constitute illegal financial activities. Conducting illegal financial activities such as exchanging fiat currency for virtual currencies, exchanging between virtual currencies, etc., is strictly prohibited and will be resolutely banned in accordance with the law. Therefore, in accordance with policies and regulations on virtual currencies, blockchain gaming platforms face significant compliance risks if they enable "cash-out" mechanisms through any means.
03
Attorney's Recommendations:
Chao Wan World collaborates with well-known IPs such as Bored Ape, innovates various gameplay mechanics, and establishes game mechanisms that allow for a dynamic balance between the production and consumption of various game items, making it indeed a high-quality domestic blockchain game. However, even secondary market trading on digital collectible platforms remains in a gray area in China. If a blockchain gaming project allows direct conversion of in-game tokens/items into fiat currency, it would directly cross regulatory red lines, exposing the platform to extremely high criminal risks.
[1] Chao Wan Universe _ Baidu Encyclopedia https://baike.baidu.com/item/%E6%BD%AE%E7%8E%A9%E5%AE%87%E5%AE%99/62726035?fr=ge_ala
[2] https://www.zhihu.com/question/618670796 [3] What is Liquidity Mining? https://baijiahao.baidu.com/s?id=1763553632854106062&wfr=spider&for=pc
