Legal Analysis of NFT Pledge in Blockchain Games

Source: Lawyer Shao Shiwei

01 Introduction to NFT staking gameplay in Web3 games

Take The Sandbox as an example. The Sandbox (sandbox game) is a virtual game ecosystem developed based on blockchain technology, featuring a virtual world where players can build, own and earn benefits.

LAND is a digital land in The Sandbox Metaverse. Each LAND is a unique Ethereum (ERC-721) token on the Ethereum blockchain. After you purchase the land, you can create your own games and assets in it, such as games or 3D models, and add various ASSET (asset) NFTs to it, and these assets are unique [1].

According to the official website of Binance [2], users who own LAND NFT on The Sandbox on the Polygon network can participate in The Sandbox NFT staking program on Binance NFT. Users can stake their LAND NFT on The Sandbox to receive daily income in the form of SAND. Players can stake up to 30 LAND NFT in The Sandbox NFT staking program.

To put it simply, the player will In-game NFTs are pledged on the platform to obtain the pledge income rewards provided by the platform.

02 NMechanism and principle of FT staking gameplay

The platform sets up NFT staking gameplay The reason is to ensure the balance of funds in and out of your own game system. If players play games with the mentality of making gold and making money, they will want to sell the platform's NFT as soon as possible and realize it. Therefore, the platform needs to set up some mechanisms to enable players to stay longer.

However, if some thresholds are forcibly set in a simple and crude way to prohibit or restrict users from transferring their NFTs, there is a high probability that users will be dissatisfied, which will be counterproductive to the continued long-term operation of the project.

The gameplay of NFT staking mining is one of the mechanisms set up by the platform to increase the length of user stay.

Users who pledge the NFT they hold will receive more token rewards promised by the platform.

For the platform, if users pledge their NFTs to the platform, then the number of NFTs circulating in the market will decrease, increasing the scarcity of NFTs, the quantity will decrease, the supply will exceed demand, and the price of NFTs will rise. As the currency price rises, more users will want to hold the token, and more users will be willing to participate in platform games. The NFT pledge method has positive significance for the long-term stable development of the platform.

Therefore, this gameplay has certain positive significance for both the platform and the users.

03 Legal analysis of NFT pledge gameplay

Pledge in my country’s Civil Code The concept is divided into rights pledge and chattel pledge. The subject matter of rights pledge is creditor's rights, equity and property rights in intellectual property rights, and the subject matter of movable property pledge is tangible movable property. Obviously, NFT does not belong to either concept.

The principle of NFT staking is similar to DeFi liquidity mining. After users lock NFT to the platform, they will receive rewards based on the pledge market, the number of NFT pledged, and the revenue ratio promised by the platform.

Everything has pros and cons, and staking gameplay is no exception.

There are still only a few popular Web3 games on the market, and the game tokens of most project developers are priced but not marketable. Moreover, if these tokens themselves can be issued infinitely by the project side, then it may be difficult to say how much value the token rewards received by users have.

In addition, if the NFT is locked, it cannot be sold. As mentioned above, if the number of tokens in the market decreases, the token price will rise. However, the rise of tokens in a short period does not mean that the token price can be stable. Continued rise. If the NFT project is locked up by the platform for a long period of time, after the pledge period ends, the market price of the token may not be as good as before.

The China Mutual Finance Association and other departments have jointly issued the "Initiative on Preventing NFT-related Financial Risks", which mentioned the need to resolutely curb the tendency of NFT financialization and securitization and strictly guard against the risks of illegal financial activities. NFT staking is the so-called financial gameplay, unless the tokens/props obtained from staking can only be consumed in the game and there is no monetization link. Otherwise, this model has no room for development in China. If a user suffers losses due to such gameplay, it will be difficult for the relevant property rights to be protected by law.

[1]  The Sandbox of the Metaverse (1) | Blockchain game to make money while playing - Zhihu (zhihu.com)

[2]  ;The Sandbox NFT Staking Program FAQ | Binance (binance.com)