Friday FUD: China and Canada cracking down on NFTs and Crypto

K, guys (and girls) we are back for another episode of Game of Cryptos. If you make it through the long winter with us you'll be Crypteros royalty.

Estimated read time: As short or as long as you'd like, life's about enjoying yourself.

Today's stories are full of FUD (sorry):

• Peak FUD - China is cracking down on NFT marketplaces

• Canada and it's wacky crypto regulation attempt

Nobody can say that Decentra Daily is afraid to write about topics that perhaps make  Web3 believers uncomfortable. It's important to have exposure to both the good, and bad news in the space. We're sure these are bumps on the road to a Web3 filled future.

Big Chinese NFT platform ceases trading

If the US government is wary of NFTs, China’s government is actively hostile.

After banning crypto trading, there’s been a series of crackdowns aimed at throttling the NFT market.

As a result, one of the country’s biggest NFT platforms has effectively shut down.

Huanhe is an NFT space owned by Tencent, a huge tech company (they also make WeChat). The platform’s been around for about a year, but from this Tuesday, will no longer release new NFTs.

Holders can still use the Huanhe app to access their collection, but that’s about it.

– interestingly, Huanhe says it will also refund purchased NFTs.

What is Huanhe?

• One of the biggest NFT platforms in China

• Releases high-profile collections from famous artists, museums, brands, etc.

• Built on Tencent’s own, government-authorized blockchain

• Has an app with a virtual gallery

• Doesn’t support a marketplace. 

Why are they pulling out of the NFT game?

After the nationwide ban on crypto, a financial ruling warned NFT platforms against selling NFTs for securitization.

Shortly after, the country’s biggest tech companies (Tencent, Ant Group, Baidu) put out a “self-disciplined development proposal” that pledges to strictly regulate the NFT market.

The ‘voluntary’ agreement brought in buyer ID verification and a ban on secondary marketplaces.

If you can’t sell your NFTs, are they worth it? 

Removing liquidity has dramatically slowed NFT sales in China. With crypto, true decentralization, and secondary marketplaces all out of the question, it seems like Tencent has decided to leave NFTs alone for now.

What’s the deal with China & NFTs?

• Centralized blockchains. Chinese NFT platforms use a state-sponsored blockchain network (the BSN) that’s compatible with the quickly growing digital yuan. 

• “Distributed Digital Certificates.” Using this network, platforms mint DDCs – China’s version of NFTs. 

• Poor immutability. Because the blockchains are effectively centralized, immutability is threatened. If the chain is discontinued, you could easily lose your rights

• No Crypto. Since last year’s national ban on crypto trading, buyers can only use Chinese fiat currency to buy NFTs

• “Digital collectibles.” Also since last year, Chinese platforms now advertise their collections as Digital Collectibles instead of NFTs, moving them further away from market assets.

• Doxed. All Chinese platforms require you to register with real-name identification.

Why is this interesting?

1. It’s worth keeping up with how NFTs are evolving in a market as big as China’s

2. It’s an experiment in separating NFTs from trading culture –

• When it’s all about utility, how much value does NFT tech actually have?

• Do people care about NFTs when you can’t make a profit?

Restrictions coming to Canadian crypto platforms

The Canadian Securities Administrators (CSA) are upping restrictions for individuals buying crypto on registered, centralized exchanges.

In all but 4 provinces, there’s now an annual limit of $30,000 for certain coins.

Affected provinces are:

• Ontario

• Newfoundland

• New Brunswick

• Nova Scotia

• Nunavut

• Northwest Territories

• Prince Edward Island

• Saskatchewan

• Yukon

But, The limit doesn’t apply in BC, Alberta, Quebec, or Manitoba – or apply to Bitcoin, Ethereum, Litecoin, and Bitcoin Cash.

The fine print:

• The limit resets every 12 months

• It’s a 30K combined total of restricted currencies

• Sold restricted crypto is subtracted back from your limit 

• Limits are calculated in CAD at the time of the trade

• Here are the full changes

Why certain coins and provinces only?

Canadian authorities want crypto to be regulated under securities laws, which are controlled at the provincial level – so that explains the geographic gaps.

As for the coin exemptions – that’s a little more unclear.

Plenty of high-profile coins (ADA, MATIC, etc.) don’t have a buy limit exemption.

Thoughts? We’re struggling to understand the distinction here.

Can they actually enforce this?

The CSA is operating a regulatory sandbox for fintech firms as they try to find the right way to protect crypto investors.

Crypto exchanges who want to treat assets like securities and register in the sandbox need to follow the evolving guidelines – in return for “faster and more flexible” treatment. 

Bitbuy and Newton, two of Canada’s biggest exchanges, have already signed up and thereby agreed to enforce the move (twitter is not happy - check out the comments on this thread):

You’ll now have to fill in a risk tolerance questionnaire to use them, plus you’ll see a trading limit bar like this:

But… if you want to get around the restriction, any DeFi exchange should still allow you to trade freely.

Our take

Nobody wants to see people lose their life savings in shitcoins. But at the same time, if you’re dropping 30K a year in alts, you’ve probably got the money to lose.

Not to mention, plenty of respectable, longstanding projects have been sidelined by this ruling.

Thankfully, with only some provinces, coins, and exchanges covered, this change won’t affect too many people.

It does however tell us which coins the Canadian government is (and isn’t) willing to take seriously.

Headlines of the day

• Nearly $55M worth of Bored Ape, CryptoPunks NFTs risk liquidation amid debt crisis

• New NFT Utility Platform Launches to Compete for 60M Twitch, YouTube Creators

• Web3’s Promise of NFT Intellectual Property Rights ‘Far Off,’ Says Galaxy

Disclaimer: Nothing in this article/newsletter should be considered financial advice. The purpose is to inform readers of the current trends and news in the web3 space. We encourage every reader to do their own research and not act upon information put forth by Decentra Daily.