Chinese technology conglomerate, Tencent, has announced its exit from the non-fungible token (NFT) market after just a year. Its NFT platform Huanhe will no longer issue new NFTs but will allow existing users to continue sharing their digital collectibles on the site. The company will also offer refunds to users on request.
“Based on the company’s consideration to focus on its core strategy, Huanhe is making adjustments to its business,” said Tencent in an official statement.
A number of external and internal factors have arguably led to this decision. While it is one of the biggest NFT platforms in China, Huanhe has recently seen slow sales of its limited releases, which might relate to the inability to re-sell the items.
Furthermore, NFTs operate in a regulatory gray area in China and have recently come under increased government scrutiny. Cryptocurrencies are banned in China. Thus, platforms like Huanhe have had to actively distance themselves from any association with the crypto space and only accept yuan for payment. They even minimize the use of the term NFT, instead referring to them as digital collectibles. They have had to move cautiously when promoting their digital collectibles to ensure they do not fall foul of existing regulations.
Chinese state media has repeatedly highlighted the financial risks of investing in NFTs and the speculative nature of the market. As a result, a number of Chinese tech giants, including Tencent, Ant, Baidu and JD signed an agreement in June which includes a prohibition on secondary trading of digital collectibles and other restrictions. This was dubbed the “Digital Collection Industry Self-discipline Development Initiative”, and hence is portrayed as a self-regulatory move as opposed to government-imposed requirements.
The company has not confirmed if the Huanhe brand will continue beyond this shutdown. Regardless, Tencent’s move to stop all sales of NFTs is a drastic one and a far cry from the optimism with which they entered the market last year. It remains to be seen whether similar platforms will announce their closure in the months to come.