Where is China's "boring ape"? Analysis on the opportunities and challenges of digital collection market

Source:Ali Research Institute

Author: Song Yiqun, Chai Aixin, Su Zhong of Ali Research Institute  

In two0twoone, a "boring ape" stirred the world of Web three.0. As an NFT project, "boring ape" has been listed in April of that year, and the total transaction volume has exceeded two billion US dollars. In March two0twotwo, the creative team yugalabs was valued at more than US $4 billion in financing.

NFT is one of the hottest Internet topics in two0twoone. The annual sales reached a record US $one7.7 billion, with a year-on-year increase of more than two00 times, and the average price also increased significantly from US $49.one8 the previous year to US $807.5two. The rapid growth of the market has driven the growth of the number of buyers and sellers, and also exposed the potential risks in this field.

Since two0twotwo, the prosperous NFT market has been hit hard. With the rising global inflation expectations, the Federal Reserve has entered the channel of raising interest rates, tightening market liquidity, leading investors to leave high-risk financial investments, and the NFT market has also cooled down rapidly. Since the beginning of this year, the transaction volume of NFT market has dropped by about 90% compared with that of two0twoone, and the prices of some of the most popular NFTs have dropped by 50%. In addition, the crypto asset market, including NFT, has raised concerns about money laundering, illegal financing, insider trading, fraud and other aspects by the US regulatory authorities.

China's NFT began with "digital collections", that is, for specific cultural goods and works of art, digital technology is used to generate corresponding digital certificates, and on the basis of protecting their digital copyright, real and reliable digital distribution, purchase, collection and use are realized. What kind of imagination space does the digital collection have? How should we bring the value of digital collections to brands, consumers and enterprises and avoid risks?

oneDevelopment and risk of overseas NFT Market

What is NFT (non functional token)? It is a kind of equity certificate of digital assets, which usually maps physical assets or virtual assets such as digital images, music and game props stored by the digital art trustee. NFT is based on the blockchain technology, and its owner saves the digital equity certificate of NFT through the digital wallet.

NFT provides a brand-new mechanism, which can protect and verify the ownership of digital assets without intermediaries, and has spawned many innovation cases in the field of digital assets.

Figure one. NFT casting and circulation process (data source: Guosen Securities)

Note: domestic NFT (Digital Collection) cannot be transferred and traded for a second time

In the overseas market, the purchaser obtains NFT through direct purchase, bidding or acceptance of airdrop. The international NFT market is dominated by the United States. After accelerated development from two0two0 to two0twoone, the following three characteristics have been formed:

First, the open trading market is becoming more mature. The NFT public trading market represented by opensea, which was founded in two0one7, accounts for 58.7% of the current trading activities. By August two0twoone, the average daily turnover exceeded US $one00 million.

The second is the parallel development of the public trading platform and the multi chain of the meta universe. Opensea can trade more than 800000 kinds of NFT categories, such as art, collectibles, sports, music, exchange cards, virtual worlds, and more than three0 million NFTs. Boring apes and other projects are launched in the public market and create their own blockchain system, which can realize cross chain transactions.

Third, overseas NFTs are usually managed as securities. The securities and Exchange Commission (SEC) of the United States believes that NFT is essentially securities, and purchasers can also directly use it as intangible assets such as intellectual property rights.

Figure two. Boring ape NFT purchased by Li Ning for design and brand activities

Data source: Official Weibo of Li Ning

Most overseas NFT transactions are linked to virtual currency and public chains such as Ethereum. The relevant technical framework has no real name and no risk control mechanism, resulting in many compliance risks such as malicious financial foam and money laundering. How to explore a new development mode, let NFT break away from the transaction mode of virtual currency and public chain, and establish a more complete regulatory system is the premise to ensure the legal compliance and healthy development of the domestic market.

twoCurrent situation and challenges of China's digital collection industry

Compared with overseas NFT, in order to avoid risks, China's digital collections do not allow secondary transactions of digital collections, and the buyer only has the right to collect and limited right to transfer.

On May two0, two0twoone, Taobao Ali auction launched the first digital art show in China. In June of the same year, ant group's "ant chain vermicelli" small program (now upgraded to whale detection APP) Limited sales of Dunhuang Flying sky and nine color deer theme payment code skin digital collection.

In addition, many state-owned assets and related institutions have also begun to try digital collections. For example, Hangzhou International Digital Trading Co., Ltd., a state-owned enterprise in Zhejiang Province, launched the first digital collection trading platform supported by state-owned capital - virtual special digital collection, and sold a number of digital collections on Alibaba assets for the first time. Shandong Province also launched the first state-owned digital collection trading platform "seal digital collection".

Against the background of avoiding foam, domestic digital collections are more bound to the development goals of industrial transformation and brand value-added. For example, at the end of two0twoone, Badaling will issue digital commemorative tickets and digital collections for the Winter Olympics on ant chain. Many brands also hope to stimulate the interest of young consumers and build brand awareness through the sense of technology and modernity displayed by digital collections. Wuliangye and Xiaopeng cars sold digital collections one after another.

in summary,China's digital collection market is showing three major characteristics: Internet first, state-owned assets and institutions follow up, and digital collections are more closely related to physical industries.

Figure 4. Badaling and Xiaopeng automobile digital collection

According to the joint statistics of Alibaba, Jingtan and other digital collection platforms and CAITONG Securities Research Institute,In April two0twotwo alone, the total monthly issuance of digital collections reached three00 million yuan, which has exceeded the annual issuance of two0twoone.

However, in the field of digital collections, not all regions are suitable for "quick work". To develop digital collections, we should have IP resources with great influence, and combine digital collections to realize the industrial foundation of premium and digital technology that plays a basic supporting role. In the process of accelerating the development of digital collections in various places, it is also necessary to calmly consider and respond to the important challenges brought by the digital collection industry:

First, we should realize the healthy development of Digital Collections under the premise of compliance.The explosive growth of global NFT trading volume in two0twoone attracted a large number of market-oriented entities to enter the NFT field. Overheated pursuit should guard against the risk of asset foam. In order to realize the development of digital collections, we must realize the supervision of emerging fields on the premise of avoiding the foam of virtual assets.

Second, establish a healthy industrial ecology and encourage the exploration of innovative profit models combining digital collections with physical industries.At present, many projects of digital collection development are at the stage of "testing the water", and it is necessary to find more digital collections integrated with the real economy and brands.

Third, in the process of developing digital collections, we should speed up the layout of the next-generation Internet cutting-edge technologies, especially the development of basic technologies for digital technology circulation such as encryption computing.In March this year, IEEE unanimously approved the first international standard for privacy computing all-in-one. The standard was jointly prepared by ant group and experts at home and abroad. The goal is to reduce the threshold for the use of privacy computing technology.

threeHow to establish a benign digital collection market?

First, it is necessary to guide the NFT service entity industry to become a new focus for promoting consumption.China defines digital collections as "collections" and encourages them to serve the innovative development of traditional industries and brand building as a new model. Enterprises with business innovation ability will get the first chance in this trend. What really generates value should be the upgrading and transformation of the traditional formats of digital collection services.The development of digital collections needs a good industrial ecology. It is suggested that digital collections should be taken as an innovative starting point for the recovery of consumption such as culture, tourism, catering and accommodation, as well as the recovery of consumption of commercial brands and shopping malls, and the recovery of consumption should be driven by digital collection activities.

Second, we should give play to the advantages of cultural and technological resources and promote the deep application of "blockchain +".For cities with rich traditional cultural resources, we can consider accelerating the batch and classification of digital processes such as culture, art, scenic spots and commercial brands to be deeply embedded in an independent, controllable and reliable blockchain.To realize the orderly circulation and trading of high-quality digital artworks.

The third is to form an operation mode with the government as the guide, trading institutions as the support, science and technology enterprises and other multi subjects participating in and benign interaction.We should give full play to the market competition mechanism, promote the release of the capacity of digital copyright resources, and avoid the emergence of sky high price copyright and vicious competition. At the same time, the service platform should be adjusted based on the pilot experience of large institutions and enterprises, and gradually opened to small and medium-sized institutions and enterprises. And further improve the construction of relevant laws and regulations to adapt to the era background of new technology, new network and new consumption.

Fourth, establish a value consensus mechanism for public welfare and green digital collections.The casting and trading of digital collections need to consume computational resources. The most direct and effective way to realize green NFT is to use green new energy to replace the high emission electricity obtained by burning fossil energy. At the same time, green capital needs to be introduced into the blockchain market to promote NFT projects to operate in a "low-carbon" or even "zero carbon" manner. It is suggested to introduce policies to support institutions, enterprises or individuals to actively participate in the public welfare activities of digital collections, explore the digital collections of carbon assets to offset relevant emissions, achieve carbon neutrality, and give more temperature to technology while innovating the public welfare mode.