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NFT exchange may be involved in fraud or illegal business crime?



Original title: "Xiao Sa: NFT Exchange, Exploring China's Compliance"

This article is written for domestic and foreign merchants engaged in NFT business, and it is not a science popularization for literacy. Therefore, Sister Sa will not introduce the basic concept of NFT. In view of the fact that the industry does not know much about the legal regulation of art investment, it is thought that art can be bought and sold at will after it is chained, but unfortunately, this understanding is wrong. Recently, when our team was assisting an official organization to conduct an assessment, we found that NFT transactions were actually trapped by the National Document [2011] No. 38 and the National Document [2012] No. 37. It is illegal to conduct equity transactions without a license event.

In response to this problem, the following analysis attempts to find a solution. The words of one family are for reference only.

Based on the fact that NFT is currently concentrated in the fields of intellectual property rights and cultural artworks, and the topic is hot, celebrities and poets have made attempts, and painters, singers, and athletes are all creating their own NFT assets. What is certain is that producing NFT assets and holding your own NFT assets will most likely be tolerated by Chinese law. The logic is simple, and it does not harm the interests of the public or unspecified individuals. The public has the right to dispose of their own assets, and also has the right to use technology to process and hold virtual assets.

The Vice President of Coinbase Product Disclosed the NFT Platform Interface and Purchase Process: On January 27th, Coinbase Vice President of Product Sanchan Saxena announced the user experience preview of the Coinbase NFT market on Twitter. This short video shows that the Coinbase NFT platform supports the use of self-hosted wallets (Metamask, etc.) to purchase NFT, and also discloses the interface, UI design and purchase process of its NFT market.

According to Sanchan Saxena, users can buy NFT minted on any platform in this market. [2022/1/27 9:16:02]

The problem lies in "NFT transactions", and the law will not be difficult for occasional transactions between acquaintances. However, if there are "centralized bidding", "market making", "standardized contracts" and "more than 200 equity holders", it violates the normative documents issued by the General Office of the State Council, and the behavior of trading market organizers and participants is illegal in China.

The Korean Herald published an article explaining why NFT is more disruptive than cryptocurrency: On November 7th, the Korean Herald published an article "Why is NFT more disruptive than cryptocurrency?" The article stated that NFT is more disruptive than cryptocurrency, Because it has the potential to be applied in many fields. Kim Won-sang of Ground X, the blockchain division of Kakao Corp., said that the cryptocurrency market still belongs to the traditional financial field. On the other hand, NFT has unlimited potential to surpass the existing concept of financial assets. Lee Young-jae, senior manager of Mirae Asset Securities, said: "Mirae Asset Securities has concluded that digital assets, including NFTs, have great potential and that innovation in digital assets represents an unprecedented combination of radical, discontinuous and disruptive innovations. Digital assets have risen to a level that threatens existing financial firms. In financial markets, we can expect something like 'NFT securities' that grant membership and shareholder rights at the same time." [2021/11/7 6:36: 45]

According to Sister Sa’s experience in handling other cultural and entertainment exchanges, similar behaviors may cause two red lines: First, when the fair value of cultural works of art is not high, but they are sold at sky-high prices, or even manipulated by pushers, the criminal law will evaluate their behavior as suspected The crime of fraud; second, when the rights and interests of cultural products are divided in equal amounts or traded in options and futures, the criminal law may evaluate its behavior as suspected of illegal business operations.

Messi-themed NFT series will be released on Etherity Chain: Jinse Finance reports that the certified Lionel Messi NFT series "The Messiverse" will be launched on the blockchain platform Etherity Chain at 21:00 UTC on August 20 on sale. "The Messiverse" consists of four pieces by Australian artist Bosslogic, who has previously worked for Marvel and Disney. [2021/8/5 1:35:22]

Readers who have studied the history of China's financial innovation still have an impression of the "grand occasion" when various exchanges became popular ten years ago. At that time, many commodity exchanges (or commodity trading markets), artwork trading markets, equity exchanges, and property rights exchanges sprung up in various places, packaging artworks, postal cards, and various common commodities. Drive up prices and lure financial consumers into the market. During this period, many exchanges also have special "lecturer teams" to explain K-lines, bands, and cases to Xiaobai customers, and fool Xiaobai into deep locks.

Fashion magazine media giant VOGUE and Vidy will hold an NFT-themed exchange event: According to the official announcement of VOGUE SG, the fashion magazine media giant Singapore VOGUE will jointly hold an online live seminar focusing on NFT together with Vidy, a blockchain-based digital advertising technology provider meeting. The live seminar was held at Clubhouse at 21:00 on the evening of March 31. The participants involved Vidy, Binance Charity Foundation, Multicoin Capital, Amber Group, Crasolum, many well-known cryptocurrency institutions and several world-renowned artists. It will be the first public discussion event of VOGUE SG in the field of NFT art. [2021/3/30 19:28:47]

Risks have accumulated to a certain extent. Document No. 38 of 2011 "Decision of the State Council on Cleaning Up and Rectifying Various Trading Places to Effectively Prevent Financial Risks" and Document No. 37 of 2012 "Implementation Opinions of the General Office of the State Council on Cleaning Up and Rectifying Various Trading Places" have been issued successively , which specializes in cleaning up and rectifying various trading venues for equity transactions, large medium- and long-term transactions, and other standardized contract transactions. Among them, there are exclusionary regulations on electronic matching, anonymous transactions, non-split into equal share issuance, and standardized contracts. If one of them is violated, it should be cleaned up and rectified.

At that time, basically only the exchanges approved by the provincial people's government were retained (the number was very small), and the approval of the State Council or the financial management department of the State Council was also required for the establishment of new exchanges. In reality, obtaining these two approvals is comparable to the Shu Road, and there are very few existing ones.

Compared with ICO, the legal tolerance of NFT will be higher. The solution that can be thought of at present is not to obtain a license overseas or move the operation team to Singapore, but two attempts: one is to transfer the agreement, but it is easy to be suspected of "electronic matching" and requires careful planning; the other is a more reassuring and bold approach : Operating with a license, the license here is not an exchange license, but a financial license.

Starting from BTC, the cornerstone of the currency world, the financial attributes of encrypted assets are engraved in the DNA. From clearing and settlement to Defi, everything is permeated with the phantom of finance. NFT is no exception, if it has no hype value, it is nothing.

Since it is a kind of financial behavior, the most appropriate way under Chinese law is to hold a license that can cover the scope of business. Inspired by Circular 37, we found that "auction" is excluded from the law. Therefore, we can try to purchase the controlling stake in the auction house or cooperate to conduct related business within the scope of the license. Today's auction house is no longer a film and television drama. The shrewd and greasy uncle in the movie hits a small hammer. Sister Sa has observed Japanese second-class luxury auction houses. They are all displayed online, and bids are given for a certain period of time. Finally, the program will automatically give the results, and the products will be mailed out by the program immediately. to all over the world.

Another path is Sister Sa’s experience as a player in the second luxury industry. As a local financial institution, pawnshops not only have financing functions, but also have the legal right to sell rare products. Within the business scope of this license, if it matches the demands of NFT, it may be able to collide with many micro-innovations. Since they operate within the scope of the license, there is no red line issue involved. As for new business methods, they can coordinate and communicate with the regulatory authorities. Under the current trend of "decentralization, regulation and service", legal micro-innovations by licensed institutions are generally encouraged.

Of course, there is another riskier move, which is the agreement transaction. Offline operations are relatively common, but frequent agreement transactions online, breaking through the frequency of OTC, essentially forming continuous bidding, electronic matching, anonymous transactions, etc., are easily misunderstood by various regulatory agencies, and thus slip into the law.

We support innovation and support that artworks have new value. However, judging from the current situation, it may be a commercial issue that NFT has a price but no market; the regulation of NFT exchanges will be a legal issue. Instead of feeling sorry for yourself, it is better to actively think of ways to see if the needs of NFT transactions can be met under the existing legal framework.

Sister Sa boldly put forward several solutions, trying to persuade friends to operate in a licensed and compliant manner, instead of walking a tightrope every step of the way. Of course, with the development of social life, the regulation of art investment may tend to be relaxed, but the strong regulation of financial behavior will not change, and the protection of minting rights and financial management order will not change. Finding compliance boundaries in tentativeness, new technologies and old laws also require dialogue and compromise.


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NFT exchange may be involved in fraud or illegal business crime?

Original title: "Xiao Sa: NFT Exchange, Exploring China's Compliance"This article is written for domestic and foreign merchants engaged in NFT business, and it is not a science popularization for literacy. Therefore.

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