Recently, the author has received many legal inquiries about domestic NFT digital collection platforms, most of which have prize-empowering gameplay. Some rights protection cases have been triggered by prizes, either due to unfulfilled promises or reduced product quality (even fractures). Therefore, it is deemed necessary to write an article to sort things out. In fact, the ManKun team has already written many legal articles about the prize-empowering gameplay of digital collection platforms. However, given the current wave of rights protection, the author believes it is necessary to analyze it again to help various platforms "de-risk" as much as possible and create a clear entrepreneurial environment for digital collection.

01. Lottery is the favorite of digital collection platforms

Prize-empowerment is an effective way to achieve "fission" in the e-commerce of the Internet. Blockchain, which is inseparable from Internet thinking, replicates early e-commerce gameplay without any sense of violation. Domestic digital collection platforms rely more on various fresh gameplay, which may involve the underlying value logic of digital collection.

When we act as defense counsel for digital collection platforms involved in criminal cases, we always patiently explain to relevant departments what it is, what its technology is, and most importantly, where its value lies (how its price is reflected). As I mentioned in last week's ManKun afternoon tea live broadcast, similar to many virtual items, the value/price of domestic digital collections comes from a consensus among people. When people believe it is worth the money, it is; conversely, the reason why large-scale brushing of orders by digital collection platforms is considered a deceptive act from a legal perspective is that some platforms use artificially manipulated technical means to create a thriving scene, leading people to mistakenly believe that there are a large number of players involved, all of whom recognize its value, thereby increasing the possibility of future appreciation, transaction circulation, and direct realization. When it turns out that all of these are fabricated, can players not be angry?

Therefore, some digital collection platforms, in order to attract users, may adopt prize-empowerment, linking the digital collections they issue with physical or circulating items (i.e., prizes) for value appreciation, to tell a "story." Therefore, if the prize-empowerment gameplay is used as the core (main selling point), the subdivision of prize gameplay and whether it can be realized will determine the user's perception, further affecting the platform's level of legal risk.

02. Risks of prize-empowerment gameplay

Based on the author's superficial industry observation, the prize-empowerment gameplay of domestic digital collection platforms currently includes lottery (blind box) activities, points (synthesis) exchange, and invitation rewards. We will analyze different types of activities separately.

1. Lottery (blind box) activities

In civil law, lottery activities are considered gambling, simply based on luck, or "betting." In order to distinguish it from gambling, China has formulated the "Anti-Unfair Competition Law" and the "Interim Provisions on the Regulation of Promotional Activities." Among them, Article 10 of the "Anti-Unfair Competition Law" stipulates that "operators engaged in prize sales shall not have the following situations: … (3) lottery-style prize sales, with the highest prize amount exceeding five thousand yuan." Article 17 of the "Interim Provisions on the Regulation of Promotional Activities" states that "the highest prize amount for lottery-style prize sales shall not exceed five thousand yuan." In other words, violating the regulations on the value of prizes in lottery/blind box activities may carry the risk of administrative violations and may be subject to administrative penalties.

In addition, if the platform sets the prize rewards too high, does not establish/publish clear winning probabilities, and the platform itself has repurchase, discounted repurchase of prizes, or functions for realization or indirect realization, the essence of this behavior may be considered by relevant authorities as "betting small to win big," "betting little to win a lot," or determining the ownership of property through uncertain chance events, which may constitute the crime of gambling (gambling or opening a gambling house).

For those who manipulate blind box prizes through the backend or reduce the winning probability to deliberately prevent users from winning, this behavior may constitute the crime of fraud.

2. Points (synthesis) exchange

Some low-level items can be combined into high-level items using a certain "fuel" to increase their value. This is not uncommon in online game props and is now a trend in the digital collection circle.

In terms of gameplay itself, I think it's not bad. It is an effective method for revitalizing the circulation of digital collections, giving players a sense of freshness, and attracting new players. However, the problem arises when the synthesis requires a large number of digital collections, possibly tens, hundreds, or even thousands, and it takes a long time to obtain them through transactions. By the time the actual synthesis is achieved, either the value plummets and no one is interested, or the platform simply refuses to exchange. The reason why players are so enthusiastic is usually because the platform made too many overly promising commitments in the early stages. These promises were foreseeable in the good times (or may be false advertising), but when they are unable to be fulfilled and a crisis arises, it may constitute the crime of fraud.

3. Invitation reward

The fastest way to expand the user base is through invitation rewards (giving prizes), and the most important thing to note here is pyramid selling. Regarding the determination of pyramid selling, the author has written an article "New gameplay of NFT digital collections, be careful of pyramid selling with mentorship invitation rewards!" and has analyzed the popular mentorship invitation leaderboard gameplay, as well as the distinction between commercial pyramid selling and fraudulent pyramid selling (organizing and leading pyramid selling activities) in China's legal practice. Readers can refer to it for more information.

Domestic digital collection platforms are keen on using pyramid selling-like models to expand their user base, mainly because digital collection platforms are more of a community ecosystem, and the pyramid selling model is a convenient way to cold-start users. Therefore, digital collection platforms are always enthusiastic about this. However, in the current situation where front-line law enforcement officers generally have misunderstandings about new things, when the hierarchy and number of people are "sufficient," this method is easily mistaken for pyramid selling crimes, thereby increasing the criminal legal risk, which platform operators should be aware of.

03. Conclusion by ManKun Lawyer

Humans are inherently accompanied by risks, and as a new thing like digital collections, it is difficult to completely eliminate risks. However, while using prize-empowerment for digital collection platforms, remember not to "cheat," which can eliminate a large part of the risk, and the remaining risks can be left to lawyers to resolve professionally.

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