Digital collectibles experience a day of "bull and bear," iBox chain box "speculation arena" raises regulatory considerations

Author: Kyle, Wen Dao

*Original Title: 《Digital Collectibles Trend: iBox Chain Box Becomes a "Speculation Arena"》

In recent months, the digital collectibles platform known as iBox has been experiencing dramatic fluctuations every day. On May 17, the digital collectibles on the iBox platform saw a significant drop, with several image-based collectible series plummeting over 70%, resulting in substantial losses for many players. A day later, these collectibles surged by 30% to 80%, but just two days later, the "bear market" returned, with most digital collectibles on iBox experiencing declines of 5% to 20%.

Some have likened the market conditions of digital collectibles to a "daily bull and bear." In the eyes of iBox player Xie Yuhui (pseudonym), the C2C consignment market established by the platform is akin to a dangerous and thrilling "speculation arena," where "some images can multiply several times in a day, but they can also drop by 80% in a single day."

Major companies like Tencent's "Huanhe" and Alibaba's "Whale Exploration" have strictly limited the circulation of collectibles to avoid regulatory pitfalls, while platforms like iBox that support user resale are attracting more and more speculators, harboring hidden risks of speculation.

As the dramatic rise and fall of digital collectibles on iBox attracted external attention, the associated company, Zhigui Technology, also came to light. Public information shows that iBox was originally incubated by the cryptocurrency exchange Huobi. Following Huobi's exit from the mainland Chinese market, iBox completed a change of control in January this year. According to Tianyancha, the current shareholder team of iBox is highly overlapping with the core personnel of Zhigui Technology, whose members initiated the blockchain project "Mo Chain" in 2017 and launched the digital collectibles service platform "Lingjing Collectibles" as a technical support party in February this year.

The rise of speculation in digital collectibles has drawn resistance from some financial associations in China. In April this year, the China Internet Finance Association, the China Banking Association, and the China Securities Association jointly issued an initiative to prevent financial risks related to NFTs, urging member units "not to provide centralized trading, continuous listing trading, standardized contract trading, and other services for NFT transactions, and not to covertly establish trading venues in violation of regulations."

Although this initiative lacks legal enforceability, it indicates that the domestic financial industry has included speculation on NFT-based digital collectibles in its risk prevention sequence, while the dramatic fluctuations of digital collectibles on iBox have brought speculation and speculation into the open.

iBox Platform's "Daily Bull and Bear" in Digital Collectibles

The cryptocurrency community has described the market's volatility with the phrase "one day in the crypto world is like a year in the human world." Now, with the popularity of digital collectibles in the domestic market, fluctuations even more severe than those in the crypto world are constantly unfolding, with some experiencing the thrill of quick profits while others suffer heavy losses in the price rollercoaster.

The digital collectibles e-commerce platform known as iBox is one of the main battlegrounds for the speculation wave. Opening the iBox app reveals various digital collectibles related to IPs like "A Chinese Odyssey," "Three Kingdoms," and "Havoc in Heaven," with prices ranging from hundreds to hundreds of thousands of yuan. After domestic users register accounts and complete real-name verification, they can buy and sell by binding their bank cards, as iBox provides a market for users to trade digital collectibles publicly.

In the trading process, iBox has two channels: "Initial Release" and "Consignment." The digital collectibles in the initial release market are mostly issued by iBox in collaboration with various IP copyright holders, usually at lower prices and in limited quantities, requiring a rush to purchase. The consignment channel is a C2C secondary trading market where users can list or buy digital collectibles independently, and during the transaction, iBox charges the seller a comprehensive service fee of 4.5% based on the market transaction price.

In the past few months, the consignment market on iBox has been exceptionally hot, with various digital collectibles experiencing dramatic rises and falls.

Platform player Xie Yuhui told Hive Tech that there are mainly two ways to "speculate" on iBox: one is to grab the initial release, and the other is to "buy images" in the secondary market. As long as one can grab the initial release, there will generally be high returns. For example, the "Golden Hoop" series of collectibles issued by the Xi'an Film Studio had an initial price of 99 yuan, but in the secondary market, this series has been speculated to over 20,000 yuan.

The "A Chinese Odyssey" series collectibles have been speculated to over 20,000 yuan on iBox

"As far as I know, most people can't grab the initial release, so they can only play in the consignment market," Xie Yuhui revealed. The consignment market is the main gathering place for iBox players, and generally, whichever series of collectibles is popular will see a rapid surge. With more and more players on the platform, it is no longer uncommon for digital collectibles to be speculated to tens of thousands of yuan.

High returns and the dramatic rise of digital collectibles are not the full picture of the iBox trading market. In the speculative consignment market, the plummeting prices of digital collectibles and the inability of users to sell after purchase represent another side of this market.

On May 17, iBox's digital collectibles plummeted, making it a trending topic on Weibo. On that day, the "iBox Cyber Zodiac Series" digital collectibles issued by iBox saw a drop of over 70%, while the popular "Havoc in Heaven Series" collectibles dropped over 80%, with almost all categories of digital collectibles on the iBox platform declining.

Voices claiming "iBox has collapsed" spread across social media, and panic quickly spread. Some users stated, "The digital collectible I bought for 2,000 yuan has immediately become 200," while others claimed that a digital collectible purchased for over 40,000 yuan shrank to less than 10,000 yuan in less than a day.

"The voices in the group were polarized at that time," Xie Yuhui described the scene in the player chat group that day, "Some were shouting about scams, while others were clamoring to buy the dip." He is not surprised by this state, saying that a fluctuation of over 70% in the crypto world might take a year to occur, but in iBox, it happens almost every month.

By May 18, digital collectibles like the "iBox Cyber Cats and Dogs Series," "Kung Fu Cat," and "Havoc in Heaven Series" began to rebound, with increases of 30% to 80%. But just two days later, the entire market turned "bearish" again; on May 20, most digital collectibles in the iBox market fell, with declines concentrated between 5% and 20%.

The dramatic rise and fall of the iBox trading market reflect significant speculative risks, with many players referring to it as a "casino," where digital collectibles have become betting tools, gradually deviating from the definition of "collectibles."

Who is the Operating Entity Behind iBox?

After the digital collectibles on iBox trended due to their plummet, people became curious about the operating entity behind it.

People in the crypto community have heard of iBox mainly because it was once associated with the cryptocurrency exchange Huobi. In May last year, before Huobi exited the mainland Chinese market, it officially announced the launch of the iBox platform. According to public reports at the time, iBox was positioned as a comprehensive NFT service platform, incubated by Huobi Group's newly established innovation department "Huobi X Center."

Now, iBox has changed hands. Tianyancha information shows that the operating entity behind iBox is Hainan Chain Box Technology Co., Ltd. (hereinafter referred to as "Chain Box Technology"), established on May 20, 2021, which is close to the time when Huobi announced the launch of iBox.

After iBox went live, it launched NFTs related to entertainment stars like Chen Xiaochun and Tao Zhe, allowing users to log in using cryptocurrency wallets and subscribe using crypto assets. In subsequent operations, iBox attracted industry attention due to an infringement issue involving Tao Zhe's NFTs. According to an announcement from Dreamdaling Culture (Beijing) Co., Ltd., related to artist Tao Zhe, iBox's WeChat public account illegally used Tao Zhe's name and likeness to produce and sell NFTs, which constituted an infringement. Subsequently, iBox took down the NFTs related to Tao Zhe.

So, how did iBox, which initially traded NFTs using crypto assets, evolve into a platform where digital collectibles can now be bought and sold directly through bank cards? With Huobi officially exiting the mainland Chinese market in the second half of last year, is the current iBox still under Huobi?

Tianyancha shows that in January 2022, the operating entity Chain Box Technology underwent a significant equity change, with original shareholders Hainan Xinnuo Software Co., Ltd., Shenzhen Jiedakang Network Technology Co., Ltd., Shanghai Huoyuan Technology Co., Ltd., Hainan Yingdong Technology Network Co., Ltd., and Hainan Daruitong Network Technology Co., Ltd. all exiting, with Super Starlink Digital Technology Co., Ltd. (hereinafter referred to as "Super Starlink") holding 100%. At this time, both Super Starlink and Chain Box Technology had Li Wei as their legal representative.

According to informed sources, with Huobi completely withdrawing from domestic operations, the iBox platform also completed a change of control after this equity change.

Tianyancha shows that in February and March of this year, Chain Box Technology underwent two more equity changes. Currently, Chain Box Technology is composed of five corporate shareholders and one individual shareholder, Zheng Haipeng. Among the corporate shareholders, Super Starlink holds 50%, Hainan Lianzhong Internet Service Partnership (Limited Partnership) holds 20%, Hainan Lian藏 Internet Partnership (Limited Partnership) holds 14.5%, Shanghai Fumu Technology Co., Ltd. holds 5.5%, and Hainan Ducheng Cangqiong Consulting Management Partnership (Limited Partnership) holds 5%.

Among them, Super Starlink, which controls Chain Box Technology, is held 45% by Li Wei, 10% by Xuan Songtao, 10% by Chen Chang, and 5% by Tang Ling.

From the "ultimate beneficiary" information on Tianyancha, it can be seen that the current ultimate beneficiaries of Chain Box Technology are Xuan Songtao and Li Wei, holding 29.7% and 22.5%, respectively. These two are important members of Xi'an Zhigui Internet Technology Co., Ltd. (hereinafter referred to as "Zhigui Technology").

Beneficial shareholder structure of Chain Box Technology

Public information shows that Xuan Songtao is a co-founder of Zhigui Technology, Chen Chang is the CTO & Executive President of Zhigui Technology, Tang Ling is the founder of Zhigui Technology, and Li Wei serves as a director of Zhigui Technology's controlled Zhigui Digital Technology (Yunnan) Co., Ltd.

From the equity structure, it can be seen that the major shareholders of the current iBox are highly overlapping with the core personnel of Zhigui Technology. It is worth noting that Zhigui Technology launched the blockchain project Mo Chain (INK) in 2017, but due to severe regulation in the cryptocurrency market later, the project became history. In February this year, Zhigui Technology also launched the digital collectibles service platform "Lingjing Collectibles" as a technical support party, and digital collectibles are becoming one of the business directions for Zhigui Technology.

From the above information, it is evident that Zhigui Technology is closely related to iBox, with core personnel and business operations highly overlapping. After testing the waters with blockchain projects, Xuan Songtao and others have embarked on a new round of entrepreneurship in the digital collectibles field, with the currently popular iBox being one of the products. Zhigui Technology has stated in response to media inquiries that they are independent from iBox, with only some overlapping shareholders.

Regulatory Gaps in the Digital Collectibles Market

In fact, since NFTs (non-fungible tokens) became popular in the crypto community, several internet giants in China have launched on-chain digital collectible platforms under the name of "digital collectibles." For example, Tencent launched the "Huanhe" platform based on the Zhixin Chain, Alibaba launched the "Whale Exploration" platform (formerly "Ant Chain Fan Grain") based on the Ant Chain, and JD.com also launched the "Lingxi" digital collectibles platform.

Unlike iBox, these "big factory" platforms strive to avoid establishing a secondary market, with the trading process only reflecting "users purchasing from the platform," and most collectibles are priced relatively low, ranging from 1 yuan to hundreds of yuan. When collectors purchase digital collectibles, the collectibles have corresponding HASH (hash values) on the blockchain, but cannot be resold.

To avoid speculation risks, these "big factories" have imposed strict restrictions on the circulation of the digital collectibles they issue. For example, "Whale Exploration" has set stringent transfer conditions, allowing users to transfer collectibles to friends with real-name authentication on Alipay only after holding them for at least 180 days, while the "Huanhe" platform currently has no circulation channels for digital collectibles. When selling digital collectibles, these platforms always remind users not to engage in speculation, off-market trading, or fraud.

An industry insider once told Hive Tech that digital collectibles based on NFTs still belong to the blockchain-based cryptocurrency asset system. Although NFTs are distinguished from Bitcoin and referred to as non-fungible tokens, they are still a type of token. Domestic "big factories" are concerned about touching the regulatory red line of digital currencies, so they avoid establishing secondary markets and continuously remind users not to speculate.

In contrast, a new batch of digital collectibles trading platforms represented by iBox is more aggressive than the big factories, establishing off-market trading channels and imposing no restrictions on secondary market prices, even directly extracting transaction fees or service fees from them. This model provides space for speculation.

To curb the financial risks brought by NFTs, on April 13 this year, the China Internet Finance Association, the China Banking Association, and the China Securities Association jointly issued an initiative to prevent financial risks related to NFTs. The three associations stated that NFTs, as an innovative application of blockchain technology, show certain potential value in enriching digital economic models and promoting the development of the cultural and creative industry, but also pose risks such as speculation, money laundering, and illegal financial activities.

The three associations advocated firmly curbing the financialization and securitization tendencies of NFTs and strictly preventing risks of illegal financial activities. In the initiative statement, the three associations proposed several behavioral norms, including requiring member units not to provide centralized trading (centralized bidding, electronic matching, anonymous trading, market making, etc.), continuous listing trading, standardized contract trading, and other services for NFT transactions, and not to covertly establish trading venues in violation of regulations.

The initiative of the three associations belongs to industry norms and lacks legal attributes, but some observers believe this is a regulatory signal released by the authorities. Whether this interpretation is excessive remains to be seen, but the speculative risks brought by NFTs have already manifested on platforms like iBox, and there are currently no regulatory norms for such digital assets in China.

In the absence of regulation, a large number of "copycat" digital collectibles have emerged. Statistics show that besides iBox, there are dozens of digital collectibles trading applications in the market, such as Huan Cang, Tian Qiong, Le Xiang, Seven-Level Universe, Longyu, Hassen Art, and Si Cang, most of which are developed by unknown teams and support secondary market trading.

Not long ago, a WeChat public account named "Xiang Xun" revealed that the company required the technical director to develop a digital collectibles trading app within 20 days. Online, advertisements for "developing digital collectibles trading apps" have already appeared, with the development cost of a digital collectibles app being around several hundred thousand yuan. To save costs and launch quickly, some platforms' "digital collectibles" lack actual blockchain technology support, meaning that users entering these apps to speculate on so-called "digital collectibles" are merely dealing with images and have no actual rights. If these apps become inaccessible, users will face financial losses.

Blockchain industry insiders have stated that digital collectibles have become a tool for certain teams to quickly amass wealth, exacerbating the risks of fraud and speculation, and affecting the healthy development of this emerging industry in China. In this regard, some lawyers have indicated that as speculation on digital collectibles becomes increasingly popular, regulatory authorities urgently need to establish a comprehensive regulatory system at the policy level to qualitatively define digital collectibles and digital collectibles trading behaviors, thereby better preventing and combating illegal activities and reducing the risks of speculation in digital collectibles.