Attorney Shao Shiwei | Legal Analysis of NFT Staking in Blockchain Games

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Taking The Sandbox as an example for illustration. The Sandbox is a virtual gaming ecosystem developed based on blockchain technology, featuring a virtual world where players can build, own, and monetize their experiences.

LAND is a parcel of digital land within The Sandbox metaverse. Each LAND is a unique Ethereum (ERC-721) token on the Ethereum blockchain. Once you acquire land, you can create your own games and assets within it, such as games or 3D models, and add various ASSET NFTs, all of which are unique [1].

According to the official Binance website [2], users who hold LAND NFTs in The Sandbox on the Polygon network can participate in The Sandbox NFT Staking Program on Binance NFT. Users can stake their LAND NFTs in The Sandbox to earn daily rewards in the form of SAND. Players can stake up to 30 LAND NFTs in The Sandbox NFT Staking Pro-

gram.

Simply put, players stake their in-game NFTs on the platform to receive staking yield rewards provided by the platform.

The reason platforms implement NFT staking gameplay is to maintain a balance of capital inflows and outflows within their game ecosystems. If players approach the game solely with the mindset of earning money through "play-to-earn," they would seek to sell and cash out their NFTs immediately after acquiring them. Therefore, platforms need to establish mechanisms to extend player retention time.

However, if platforms impose thresholds in a crude manner to prohibit or restrict users from transferring their held NFTs, it is highly likely to incur user dissatisfaction, which would have a counterproductive effect on the sustainable long-term operation of the project.

NFT staking mining is one of the mechanisms established by platforms to increase user retention time.

By staking their held NFTs, users receive additional token rewards promised by the platform.

For the platform, when users stake their NFTs, the circulating supply of NFTs in the market decreases, thereby increasing the scarcity of NFTs. With reduced supply and high demand, NFT prices tend to rise. As token prices increase, more users will wish to hold the tokens and be willing to participate in the platform's games. Thus, the NFT staking model has positive significance for the long-term stable development of the platform.

Therefore, this gameplay mechanic holds certain positive significance for both the platform and the users.

Under the Civil Code of the People's Republic of China, the concept of pledge is divided into rights pledges and chattel pledges. Rights pledges take claims, equity interests, and proprietary rights within intellectual property as their subject matter, while chattel pledges take tangible movable property as their subject matter. Clearly, NFTs do not fall under either of these concepts.

The principle of NFT staking is similar to DeFi liquidity mining. After users lock their NFTs into the platform, they receive rewards based on factors such as the staking market conditions, the quantity of NFTs staked, and the yield ratio promised by the platform.

Every practice has its advantages and disadvantages, and staking mechanics are no exception.

Popular Web3 games remain a minority in the market; the game tokens of most project issuers suffer from having valuation but no liquidity. Furthermore, if these tokens can be infinitely issued by the project issuers, the token rewards obtained by users may hardly possess significant value.

Additionally, if NFTs are locked, they cannot be sold. As mentioned above, a reduction in market token supply may lead to price increases; however, short-term price appreciation does not guarantee stable and sustained growth. If the period during which the NFT project locks assets on the platform is lengthy, the market price of the tokens may significantly decline by the end of the staking period.

The National Internet Finance Association of China and other departments jointly issued the "Initiative on Preventing Financial Risks Related to NFTs," which explicitly calls for resolutely curbing the trend of financialization and securitization of NFTs and strictly preventing risks associated with illegal financial activities. NFT staking constitutes a so-called financialized gameplay mechanic. Unless the tokens/items obtained through staking can only be consumed within the game and lack any cash-out channel, otherwise,

this model has no room for development within mainland China. If users suffer losses due to such mechanics, their relevant property rights and interests will struggle to receive legal protection.

[1] Metaverse The Sandbox (Part 1) | Play-to-Earn Blockchain Game - Zhihu (zhihu.com)

[2] FAQ on The Sandbox NFT Staking Program | Binance (binance.com)

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