Current status of digital collection platforms: secondary market is obviously de-bubbling and treading on thin ice under supervision

Digital collections have launched a "defense war" on the platform. Collections are facing a liquidity crisis, the secondary market is obviously de-bubbling, and users are losing a lot. The tightening of supervision has also made the digital collection market a bloody game on the edge of a knife.

Since 2021, digital collections, as a new form of digital art and cultural consumption that can be authenticated and traced, have rapidly swept the cultural and creative market. Small and medium-sized enterprises, Internet giants, financial institutions, traditional listed companies and even official agencies continue to pour into it. The number of fields involved and the breadth of institutions involved are astonishing, setting off a consumer frenzy centered on digital IP in the market.

However, in recent months, this craze seems to have faded. With the rapid growth of digital collection platforms, the frequency of issuance of collections by the leading platform Jingtan has increased significantly, and the scene of Huanhe collections being sold out in seconds is gone forever. Collections of mid-level platforms such as Hongdong and Digital Collection China are facing a liquidity crisis, and the secondary market is obviously de-bubbling, with serious user loss. On the other hand, regulatory tightening has also made the digital collection market a bloody game on the edge of a knife.

Various signs indicate that the battle drums have been sounded in the digital collectibles market and the battle to defend the platform has begun.

The number of digital collection platforms is soaring, and famous companies, banks, and official institutions are rushing to enter the market

As works circulated in digital form, digital collections do not have a physical universal matching platform. Due to the underlying blockchain as the carrier medium, digital collections are more dependent on trading venues than general commodities. Therefore, digital collection trading platforms occupy a prominent position in the digital collection market as trading venues, and their market trends are basically consistent with the number of trading platforms.

In terms of the number of platforms, since the launch of the first digital collection platform Jingtan (formerly known as "Ant Grain") in June 2021, the trend of digital collection has spread rapidly as a marketing tool and consumption form in the digital age, and the number of platforms has increased rapidly. According to statistics from the Digital Collection Ship, as of June 22, 2022, the number of digital collection platforms in my country has reached 681. Among them, since March this year, the average monthly number of new platforms has exceeded 100, with a rapid growth rate.

Under the fierce market impact, many companies and institutions have entered the market, and many well-known companies are among them. In addition to the well-known Ant, Tencent, Baidu, and JD.com, traditional listed companies such as Mango and Visual China are also actively involved. According to statistics, more than 25 listed companies in my country have entered the field of digital collections.

On the other hand, there are also many official institutions that have entered the market. As of the end of June, many official media organizations such as People's Daily Online, China Youth Daily, Jiangxi Press, and Xinhua News Agency have not followed suit and have launched digital collection platforms. However, unlike other institutions, the official media digital collection entrances are mostly embedded in the APP, and the digital collection business is mostly an innovation or extension of the platform's existing business, and does not reflect a clear strategic tendency. At the same time, the linkage effect of domestic commercial banks is prominent. In view of the user advantages behind the digital collection, Baixin Bank, Postal Savings Bank of China Shandong Branch, Xi'an Bank, Bank of Beijing, and China Merchants Bank have all released digital collections with the theme of anniversary celebration based on traffic acquisition.

In addition, along with the issuance of the "Opinions on Promoting the Implementation of the National Cultural Digitalization Strategy", it is clearly stated that cultural property rights trading institutions should give full play to the advantages of on-site and online trading platforms, promote the integration and innovation of identification resolution with blockchain, big data and other technologies, and provide professional services for the confirmation, evaluation, matching, trading, and distribution of cultural resource data and cultural digital content. Under the trend of tightening supervision, many cultural property rights exchanges have also become the primary way to explore compliance for digital collections. At present, Hainan International Cultural and Artworks Trading Center, Hangzhou International Digital Trading Co., Ltd., Shandong Cultural Property Rights Trading, etc. have begun to test the development of digital collections in the field of cultural creation.

From the perspective of business model, in the entire transaction process, the issuer is responsible for providing the IP carrier, and the platform is responsible for casting and selling. The profit model of platforms that have not opened a secondary market is mostly to share profits with the IP party, while platforms that have opened a secondary market can charge fees through secondary consignment resale in addition to sharing income. In terms of the nature of profits, the platform can be said to be quite considerable. Take ibox, the platform with the largest number of users in China, as an example. ibox charges a fee of 4.5% to participants in the secondary market. Currently, the number of users exceeds 3 million. Some industry insiders say that its daily turnover exceeded 100 million yuan during its peak period. The only designated official partner of the platform payment side, Yibao Payment, has a monthly revenue of tens of millions of yuan in management fees alone.

But this situation is no longer sustainable.

The top platforms are unsalable, the mid-tier platforms are in a liquidity crisis, and the secondary market volume and price are falling

As the number of platforms continues to surge, the total number of collections on the market has also continued to increase. Under the current situation of declining user growth rate, the market has gradually shifted from a seller's market to a buyer's market. Digital collections have fallen into competition for stock, and liquidity has begun to gradually decrease.

From the market perspective, the head aggregation effect of my country's digital collection market is prominent, forming a market pattern headed by platforms endorsed by large companies such as Whale Exploration and Huanhe, supplemented by active platforms such as ibox and Weiyi, and coordinated development of multiple other platforms. According to the data of the Computing Power Think Tank, in 2021, my country sold a total of about 4.56 million digital collections, with a total issuance value of about 150 million. As the only digital collection platform with a transfer function among Internet giants, Whale Exploration's trading market was once hot. According to statistics from Cover News, as of the end of April this year, Whale Exploration had issued more than 3.8 million digital collections, with a total transaction volume of 62 million yuan and more than 1 million collectors, basically occupying half of the digital collection transactions with one platform. However, starting from June this year, Whale Exploration changed the previous 2-3 days of sales frequency and adjusted the sales time to daily sales. In addition, its sales have always been characterized by large quantities and low prices. Its daily sales volume once soared to 60,000. Although the collections are still sold out with its huge user scale, it has also attracted dissatisfaction from many users.

On the other hand, Huanhe, another giant platform with 300,000 users and a high-price, low-frequency positioning, has already seen a slow-selling trend. The collections that were once sold out in seconds are now sold out in a few hours. In some cases, they are still not sold out the next day. For example, the six digital impressions of Paul Cézanne's masterpieces released by Huanhe on June 30, despite the endorsement of the National Gallery of the United Kingdom and well-known artists, as of 15:00 on July 4, there were still three unsold pieces, with a maximum of 1,655 pieces remaining.

Excluding the top market, mid-tier platforms have faced liquidity stagnation crisis due to weak IP premium ability and limited user scale. Platforms such as Shuzang China and Hongdong Shuzang have significantly reduced their release frequency, with release intervals ranging from several days to weeks. The sluggish liquidity is highly negatively correlated with user activity. Poor platform liquidity will directly lead to user loss, and user loss will further reduce liquidity. If you are not careful, you will fall into a vicious cycle. In this context, some small platforms will directly sell out the collections in the server background after they are released in order to create the illusion that digital collections are selling well.

On the other hand, the highly sought-after secondary market has seen constant public opinion on leading platforms, and the price of digital collections has become more de-bubbled. The secondary leader ibox was caught in a whirlpool of public opinion. It was first complained about lock-ups without reason and false propaganda, and then it was exposed for internal manipulation and price manipulation. The referees and contestants were flying together, and there were frequent rumors of running away. On July 4, according to the market indicators of Yuanshu.com, the popularity of ibox was clearly declining, and the collections fell by more than 20%.

Previously, the Dunhuang Feitian series of digital collections first launched by Whale Tan was initially issued at a price of 9.9 yuan, and then the secondary market premium reached more than 15,000 yuan. However, recently, someone has sold it in the trading group at a price of 7,000 yuan. The only one that was once sold for nearly 50,000 yuan, Yijian Qingxin Su Xiaomei, has seen its lowest bid drop to around 7,000 yuan, and there are many sellers who offer an average price of around 10,000 yuan. At the same time, market users have begun to show signs of fatigue. Previously, the digital collections launched by Bilibili had reservations of hundreds of thousands of people, and it was once hard to find one, but with frequent sales, many users have claimed that they are harvesting surplus value.

With the overall market weakening, in order to stimulate new users to join, emerging platforms are paying more attention to publicity and gameplay. In addition to IP empowerment, the diversity of gameplay such as synthesis, property rights, whitelists, and airdrops is constantly increasing. Off-site, community public accounts that can be used for marketing planning and attracting new users have also flourished. The price of the calendar for sale is generally one hundred yuan, and the price of community forwarding is as high as thousands or tens of thousands. However, according to the author's in-depth conversation, the actual number of new users is still very small. A small platform even revealed that it used 30 airdrop cooperation rights advertisements to forward multiple communities for its new product sales, costing tens of thousands of yuan, and the ideal number of people was 6,000, but the actual conversion was less than 30.

Under the dual stimulation of market downturn and fierce competition, the digital collection platform also feels that it is difficult to get off the tiger and the donkey in Guizhou has run out of tricks. According to the founder of a medium-sized platform, "the market is completely different from the initial stage. At the beginning, as long as there is a platform and collections, users don't have to worry at all. But now many users use the rating of the issuing platform as the core purchase standard. IP background, rights planning, and continuous operation are only one of the basic conditions for digital collections to be sold on the platform. The number of users is the key factor in the development of the platform. As the number of platforms increases, old users are lost and new users are difficult to retain. The purpose of current activities is to attract traffic."

This statement is not groundless.

The reason is that from the user's perspective, although there are real digital collection enthusiasts who pay for it, the initial digital collection market was first entered by users in the encryption field. After its hot rise, the hype value soared. At the same time, some platforms continued to attract traffic through internal manipulation, cash incentives, etc. With the addition of a new generation of speculation funds such as stamps, coins, cards, and shoe speculation groups in the traditional field, the demand for digital collections gradually moved closer to profitability, which directly led to the value of digital collections being far greater than their artistry. Under the current situation of the consignment market that is skyrocketing and plummeting, the user's money-making effect is significantly reduced, the loss of old users in the secondary market is serious, and new consumers' recognition of the value of digital collections and their enthusiasm for purchasing are also declining.

Combined with the current changes in supply and demand, the total amount of digital collections continues to increase, but user conversion has not made a breakthrough. Users are more cautious about digital collections and more selective. Due to the fierce competition between platforms, the local value scarcity caused by the purchase and sale restrictions of major platforms no longer exists. The platforms continue to issue excessive collections, and the quality of the collections is difficult to guarantee. The change in supply and demand has also led to the hesitation of new users to join. Even if new users join, they will tend to join large platforms with a large user base, strong operating capabilities, and high secondary market resale value. It is normal for small and medium-sized platforms to be ignored.

Regulatory uncertainty is high and platforms are treading on thin ice

Outside the market, due to the inherent financial attributes of digital collectibles, regulatory uncertainty has also caused the digital collectibles market to tread on thin ice.

On April 13, the three major associations, namely the China Securities Association, the China Internet Finance Association, and the China Banking Association, jointly issued an initiative on "resolutely curbing the tendency of NFT financialization and securitization". As the first NFT voice of the three major associations, the initiative has aroused heated discussions in the industry. In terms of content, it is not a qualitative document at the level of laws and regulations, but only has the attributes of industry self-discipline rules. However, it still regulates the compliance direction of NFT from a certain perspective, clarifies the scope of NFT's inapplicable targets (securities, insurance, credit, precious metals), and once again draws the red line of "NFT monetization and payment". Although the full text does not mention digital collections, it can be seen from the first paragraph of the initiative that its value in digital cultural creation is basically included. At the same time, this initiative also restricts member units from investing in the NFT field in terms of financing methods. The initiative was issued through self-regulatory organizations in the financial field rather than cultural organizations as the main body, which shows that NFT financialization has a rising trend and has been paid attention to by regulatory authorities.

Since then, the industry has continued to regulate itself, and many organizations, such as the Metaverse Industry Committee of the China Mobile Communications Association and the Blockchain Professional Committee of the China Communications Industry Association, have released digital collection standards or initiatives. On June 30, under the leadership of the China Cultural Industry Association, nearly 30 organizations including Baidu, Tencent, Ant, and JD.com jointly launched the "Digital Collection Industry Self-Discipline Development Initiative" in Beijing, opposing secondary transactions and speculation and raising entry standards, which have become the core consensus for the high-quality development of the industry.

WeChat also released new regulations at the same time. If an account is found to be involved in the issuance, trading and financing of virtual currency, the WeChat public platform will, depending on the severity of the violation, order the violating public account to make rectifications within a specified period of time and restrict some functions of the account up to permanent closure. If the account provides services or content related to the secondary trading of digital collections, it will also be handled in accordance with the regulations of this article.

Recently, due to the intangible asset sales nature of the collections, it has been reported that digital collection trading platforms need seven qualifications, including blockchain security assessment and filing, Internet information service value-added telecommunications business license, network publishing service license, information network audio-visual program transmission license, network culture business license, network security level protection filing, auction business license, and trading venue license qualifications approved by the provincial people's government. Combined with the current situation of many cultural exchanges entering the market, this news still has a certain degree of credibility. According to this standard, only digital collection platforms supported by cultural exchanges in Hainan, Shandong, Zhejiang, Heilongjiang and other regions can basically meet the requirements.

Under various industry self-discipline and market actions, stricter supervision has become a market consensus for digital collections, and digital collection platforms are therefore facing high macro uncertainty, especially those that have opened the secondary market, which are particularly sensitive. It is reported that since June, many platforms such as Yuzang, Guangyi Shuzang, Changsheng Shuchuang, and Hongguo Shuzang have issued notices of withdrawal or suspension of transactions. Among them, Cyber ​​Art Collections said that it had received a notice from the Shaanxi Provincial Administration for Industry and Commerce that due to a series of policies issued by relevant national departments on digital collections and the need to review the relevant qualifications of the application, the market will be temporarily closed until the review is passed.

Conclusion

From a technical perspective, the traceability and non-tamperability of digital collections coincide with the current development of my country's digital cultural and creative content industry. Under the general background of my country's cultural digitalization strategy, there is still a long-term positive development trend, which can be seen from the entry of the Ministry of Industry and Information Technology and the Ministry of Culture and Tourism. However, as a digital consumer product, it is ultimately an emerging industry. Problems such as mismatched demand, weak price discovery mechanism, and lack of market order are still mountains that stand in the way of industry development. Tightening supervision has become inevitable, and de-bubble is imperative. On the other hand, the digital collection market is also actively saving itself, and the trend of transformation from picture consignment as the main form to physical rights and interests is prominent. And after the bubble bursts, what kind of industry reshuffle will the digital collection platform experience?

Between compliance and traffic, between profitability and development, the platform’s struggle for survival continues.