WeChat bans public accounts from providing secondary trading services for NFTs

Tencent's WeChat has introduced rules banning public accounts from offering secondary trading services for NFTs.
PHOTO: Reuters

WeChat, the ubiquitous super app operated by Tencent Holdings, is introducing a rule to ban secondary trading of non-fungible tokens (NFTs) on the platform, heeding Chinese regulators' guidelines to steer clear of the financial aspect of such digital assets.

Tencent said it will "order accounts to rectify if they provide relevant services or content for secondary trading of digital collectibles, and limit some features or even ban the account", depending on the severity of the cases.

The Chinese tech giant also detailed punishment for accounts that provide transaction channels, provide guidance, or issue cryptocurrencies to users. Accounts that enable initial coin offerings and transactions of cryptocurrency derivatives will also come under its purview.

"Tencent is acting preemptively to keep itself out of trouble," said Bao Linghao, a senior analyst at research firm Trivium China. "There are no formal regulations on NFT trading yet, but Chinese regulators don't like speculation of any kind, including NFTs."

Tencent Holdings' WeChat has 1.3 billion monthly active users.
PHOTO: Reuters

In April, Chinese financial institutions were asked to stay clear of NFTs, prohibiting its use in securities, insurance, loans and precious metals, further restricting the digital assets' financial scope.

Domestic brokerage Guosheng Securities pointed out in the same month that China was likely to introduce a centralised secondary trading platform for NFTs.

NFTs are often referred to as digital collectibles in China. China's digital collectibles are built on consortium blockchains, which is a form of blockchain that can be centrally controlled, different from open blockchains such as ethereum.

Moreover, digital collectibles must be bought using Chinese yuan under real identities to "avoid money laundering", the April guidelines said.

It is not the first time that WeChat, the multipurpose app with 1.3 billion monthly active users, has banned public accounts in the digital collectible space under regulatory pressure.

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In March, WeChat banned a slew of public accounts including Art Meta, OneMeta and iBox, saying that they had not obtained licences to publish or undertake relevant activities, while a few were banned on suspicion of fraud.

It also took down several mini programs offering digital collectibles around the same time.

WeChat said that accounts that display digital collectibles and primary transactions would need contracts with blockchain companies certified by the Cyberspace Administration of China (CAC), and would not support secondary trading.

The rules for WeChat mini programs were similar to those for the public accounts.

Consortium blockchains built by Big Tech firms including Alibaba Group Holding, Tencent, Baidu and JD.com were among the first blockchain service providers approved by the CAC in 2019. Alibaba owns the South China Morning Post.

Since last year, consumer brands and state media in China have all jumped on the NFT bandwagon with digital collectibles built on consortium blockchains.

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The digital collectible trading platforms of Tencent, Alibaba and iQiyi have all been connected with the national-level copyright protection consortium blockchain, according to media reports.

"The new rule's emphasis is on the narrative that the secondary market for trading digital collectibles might incur speculation and [lead to] instability of the financial market," said Wang Yinying, a Shanghai-based lawyer focused on blockchain and Web3, referring to the joint statement issued by the National Internet Finance Association of China, China Banking Association and the Securities Association of China in April to curb risks associated with digital assets.

The new WeChat rule should not affect digital collectible holders or buyers, she said, adding that as Tencent was one of the biggest social media companies in China and a member of the Chinese National Internet Finance Association, it was making its position clear and that other major social platforms could soon follow suit.

This article was first published in South China Morning Post.