The Sa Jie team, as a lawyer team that has been providing professional legal services in the field of financial technology for domestic and foreign users for a long time, has always had a strong interest in GameFi (hereinafter referred to as "chain games"). We have always believed that the gaming industry is the most likely to give birth to the "iPhone moment" of Web3. However, in recent years, due to high development costs, insufficient software and hardware technology conditions, unclear regulatory rules, and many other reasons, chain games have become the most underestimated member of the entire Web3 ecosystem.
Today, the Sa Jie team will discuss the future development of chain games in China from a compliance perspective.
01. What does the large-scale deployment of chain games and the birth of exclusive game public chains mean?
In July 2023, the game-exclusive public chain Oasys gained a lot of attention. From the cooperation list announced by Oasys, we can see that the well-known Korean game company Com2uS announced that it will use its own "Summoners War" IP to create a 3A chain game "Summoners War: Chronicles" and launch it on Oasys. Sega Corporation and Ubisoft, two traditional and well-known game IP holders, also announced that they are developing their first large-scale blockchain game based on the Oasys public chain.
According to the information currently available, Sega is taking a cooperative approach, using its well-known "Three Kingdoms" IP to collaborate with Double Jump Tokyo (a company with extensive experience in developing chain games) to develop a card-based strategy game "Sangokushi Taisen."
Ubisoft, on the other hand, is taking an independent development approach and is preparing to develop a PVP mode strategy RPG game "Champions Tactics: Grimoria Chronicles." Based on the promotional materials released by Ubisoft, the game is well-made and highly playable, generating high expectations.
In addition to the two companies mentioned above, according to Oasys, traditional game companies such as Square Enix (developer of the Final Fantasy series), Bandai Namco (holding big IPs such as One Piece and Dragon Ball), and MIXI have also engaged in deep cooperation.
02. The compliance path of chain games in China
(1) The "untouchable red lines" for the development of chain games in China
When discussing the risks of chain game development in China, it is necessary to mention two well-known documents in the cryptocurrency industry: the "Notice on Preventing the Risks of Token Issuance and Financing" jointly issued by seven ministries in 2017 (referred to as the 9.4 Notice) and the "Notice on Further Preventing and Handling the Risks of Hype in Virtual Currency Trading" jointly issued by ten ministries in 2021 (referred to as the 9.24 Notice). These two regulatory documents explicitly state: (1) virtual currency is not a currency and does not have the same legal status as legal tender; (2) initial token offering (ICO) is prohibited within China; (3) any institution (especially financial institutions) is prohibited from conducting business in China or providing any form of virtual currency-related services to residents within China.
In addition, in 2022, the Supreme People's Court issued the "Interpretation on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases Involving Illegal Fundraising," which includes the absorption of virtual currency into the objective behavior pattern of the crime of illegal fundraising.
Combining the handling of various "hype" games disguised as chain games in 2021, it is clear that there are some "untouchable red lines" for chain games in China.
First, the prohibition of two-way exchange of tokens/points. Two-way exchange of points carries significant criminal law risks. As mentioned earlier, China has clearly stipulated that "virtual currency is not a currency and does not have the same legal status as legal tender." Any form of virtual currency or points can only be used within the game and cannot be exchanged back into legal tender. In practice, some companies, while officially prohibiting the reverse exchange of points, allow users to use tokens or points to exchange for easily "realizable" goods such as high-end tobacco and alcohol, posing a problem of disguised two-way exchange. The most common charges related to two-way exchange of tokens/points are illegal business operations, running illegal gambling establishments, fundraising fraud, and illegal fundraising.
Second, the prohibition of setting high entry fees. Some chain games (especially those operated overseas) often require players to invest an initial amount to purchase NFTs or other in-game items in order to start "earning" (P2E). For example, StepN, which was popular for a year, required players to use virtual currency to "buy shoes." While the Sa Jie team believes that setting an entry fee does not necessarily mean the game is a "hype" game, a large number of "hype" chain games indeed make a hefty profit from entry fees and then abscond, leading to regulatory agencies and public security organs being extremely cautious. In practice, charging entry fees for chain games is suspected of illegal fundraising, fraud, and other illegal fundraising crimes, and the "entry fee" at this point becomes the involved funds. In the process of handling a case, the Sa Jie team has even seen cases where an "entry fee" as low as 1 yuan was investigated for the crime of illegal fundraising.
Finally, the prohibition of developing game users by offering substantial rewards for recruiting new players. Player recruitment is a very common operation in games, and many players often develop new game players through game activities, increased publicity, and providing substantial rewards to existing players who recruit new players. While player recruitment is generally acceptable, the unique model of "earning" in chain games has led to its formal and substantive similarity to pyramid schemes. In practice, some "hype" chain games not only offer low daily static returns (usually only a few yuan per day in practice) but also offer high dynamic returns for recruiting new players, encouraging users to develop downlines. If users do not develop downlines, they may be restricted from "withdrawing," forcing them to develop downlines. The Sa Jie team advises that such behavior is suspected of organizing and leading pyramid schemes, and there have been similar cases in practice, making chain games a heavily affected area.
(2) What licenses are required for the development of chain games in China
In addition to avoiding touching the red lines of criminal law, it is also very important for the development of chain games in China to comply with relevant administrative regulations. Currently, it appears that the development of chain games in China requires obtaining the following licenses and administrative approvals.
Licenses/Qualifications
Necessary Licenses and Qualifications
Pre-approval and game version number
Value-added telecommunications service operation license (ICP), with at least B25 and B21 qualifications
Online publishing service license
Payment business license
Blockchain information service filing
Online culture operation license
Other Licenses and Qualifications
Artwork operation filing
Auction license
Internet audio-visual program transmission license
Radio and television program production license
Commercial performance license
03. In conclusion
What we can see is that in the current global economic downturn and under tremendous pressure, many game companies have instead calmed down and begun to explore a path that combines emerging technologies with traditional games, attempting to find a breakthrough. The Sa Jie team has long said that blockchain, NFT, AR/VR/XR, and other emerging and cool technologies are just tools, not the ultimate goal. In other words, without a good application scenario, no matter how well the tools are developed, they are useless.
For chain games, it is the game itself that is the blockchain, and playability is the core and essence of all games' competitiveness. Only by making good games can the blockchain be meaningful. We believe that the entry of the regular army this time is the first step for the superior currency to drive out the inferior currency in the chain game circle. Chain games are a huge blue ocean and a huge cake, but there are countless mousetraps around it. Only the bravest and smartest mice can eat it after overcoming obstacles.
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