Dragonfly Research
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Dragonfly Research

The Rise and Fall of iBox

When is an NFT not an NFT?

One of the best-kept secrets in our industry is that China, despite having ostensibly banned crypto, has a vibrant “NFT” market. These NFTs share all the qualities with our beloved JPEGs, save one crucial difference: they don’t live on decentralized blockchains.

Internet search data shows that China is the country with the most interest in NFTs

Buying an NFT on Ethereum is an awful UX. You have to open an exchange account, buy ETH, transfer that ETH into a crypto wallet, connect your crypto wallet to the NFT marketplace, buy the NFT, and then safeguard the wallet. The whole operation can take days to complete and each step is laden with the danger of mismanagement. On the other hand, to buy a centralized Chinese “NFT,” you download an NFT platform app and checkout with your credit card or Tencent’s WeChat wallet. Most such “NFT platforms” control their own enterprise blockchain in which they run their own nodes, meaning that the NFT platforms do not interoperate.

The streamlined process for buying these NFTs has catalyzed mass adoption. China Youth Daily, the widely-circulated official newspaper of the Communist Youth League of China, reports that there are now over 500 Chinese native NFT trading platforms, including ones backed by every single one of China’s tech conglomerates: Alibaba’s 鲸探(jingtan), Tencent’s 幻核 (Huanhe), JD.com’s 灵稀 (lingxi), Xiaohongshu’s R-space, NetEase’s 星球 (xingqiu), Bilibili’s “哔哩哔哩数字藏品 (bilibili digital collectibles),” and many more.

One of the most interesting platforms is Xiaohongshu’s R-space, which has pushed the frontiers of the fashion NFT industry forward in a meaningful way by onboarding a lot of its own user base (primarily upper-middle class Chinese women) into sharing and collecting AR-clothing. The tech unicorn’s April collaboration with the prestigious Shanghai Fashion Week was met with applause, and the “digital fashion” topic on the platform raked in over 5.6 million views.

User Kira0131’s NFT dress

But nothing screams mania more than the fact that the CCP’s own Communist Youth League, a cradle for generations of Red Aristocrats, has embraced NFTs to mark its 100th anniversary. This May, the organization minted 54K of the centenary NFTs for free, despite Beijing’s strict ban on cryptocurrencies. These NFTs, built on a blockchain developed by Hangzhou Shunwang Technology, sold out within an hour.

On July 15th, another CCP-sponsored publication, the Beijing Youth Daily (the most widely circulated metropolitan newspaper in Beijing) reported that online quotes for building a custom NFT marketplace — complete with minting, transfers, listing, sales, support, etc. functionality (and ability to comply with or avoid crypto-related regulatory sanctions) — has plummeted to 150K RMB (25K USD), and is in increasing demand.

The Rise of iBox

The iBox Secondary Sales Page, Sorted by Newest Listings

By far the biggest platform for collecting these “NFTs” is iBox, which is not backed by any sino tech giant. At its peak, according to Chinese analytics platform MData, iBox’s DAUs were a striking 500K, which is on par with OpenSea’s best days and about 10 times Opensea’s June DAUs of 30K-50K.

OpenSea, LooksRare, CoinbaseNFT DAU

As of July 20, the NFT market cap on iBox stands at 3.8B RMB (~$560M), which is about 2.2% of the $25B Ethereum NFT market cap as measured by Nansen (it is very difficult to isolate the ipso facto OpenSea market cap, but let’s assume it’s close to $20B, which would put iBox at 2.8% of that).

iBox’s Total NFT Market Capitalization according to Analytics MData (Note: this number may be skewed higher and there is no other way for me to confirm as it is not on a public blockchain)

According to an iBox insider, at its peak, iBox pulled in about 10M RMB per day (~$1.5M); since they charge a 4% transaction fee, we can estimate that their transaction volume topped out at 250M RMB per day (~$37M), even disregarding their NFT mint revenues (more on this later). In comparison, OpenSea’s daily volume currently sits at $14.3M, although at its peak it raked in a whopping $476M mainly from Yuga Lab’s Otherdeeds drop. iBox’s volume has no doubt been in decline since, but the numbers are shocking nonetheless.

And here’s the kicker: turns out, iBox was incubated by Huobi in May of 2021, incorporated as Hainan iBox Technology Co. Aiming to replicate OpenSea’s success, Huobi incubated iBox and funneled the exchange’s users to the platform, forming their first core user base of 100K DAU. Just as the NFT market heated up, however, Huobi’s founder and largest Shareholder Li Lin came under investigation by Chinese authorities and was forced to sell the platform for 100M RMB (~$15M) to Xuan Songtao and Tang Lin in January 2022.

iBox’s modus operandi is completely different from OpenSea. Whereas OpenSea is just a platform for transacting NFTs, iBox is both the platform and the sole NFT issuer. Whereas select NFT project teams can choose to use OpenSea to mint, the official iBox team will go and source attractive IPs and market the NFT projects themselves. iBox’s most successful NFT drops have been collaborations with A Chinese Odyssey, a two-part 1995 Hong Kong fantasy-comedy film loosely based on the Monkey King mythology directed by Jeffrey Lau and starring megastar Stephen Chow. The mint price of the former was 99 RMB (~$15), and it had at its peak traded at 10,000 (~$1500) RMB. To date, iBox claims that it has obtained licenses for over 500+ IPs spanning across art, streetwear, celebrities, animation, film and television, sports, China’s national cultural heritage, and many other fields.

The Successful “A Chinese Odyssey” NFTs

Buyers of the NFT can sell them in the secondary market (there is, for some reason, a price ceiling of 100K RMB ~$15K for any NFT). You cannot transfer your digital assets elsewhere and you cannot display it elsewhere; it’s visible only to other users of the app. iBox repeats this process with new IPs periodically—this is the other source of its incredible revenue, in addition to the 4% platform trading fees it charges.

iBox’s IP curation has also suffered many violations. For example, the platform illegally used Taiwanese singer-songwriter David Tao’s image for its NFT collection, and only after Tao’s legal team threatened legal action did it remove the collection.

Advertisement for the Removed Collection

Interestingly, newer iBox collections have co-opted some of Yuga Lab’s playbook, introducing the airdrop and whitelisting mechanics to better manage collector FOMO.

While the standard on OpenSea is 10K PFP collections, most iBox collections have a supply of 400 with a 100 RMB ($15) mint price, functionally similar to ArtBlocks’ generative art drops. This makes collusion by whales easier, and encourages users to form cartels to buy up a large portion of the supply and then shill the project.

The iBox Homepage

This has led to many accusations of fraud and manipulation on iBox. According to an insider, many of these accusations are levied at the iBox team themselves. Though it is difficult to prove, insider trading would be trivial given that they are the ones who schedule the most significant release updates and announce airdrops.

As iBox gained momentum, China’s bustling group of WeChat salesmen—the 微商/weishang (a new generation of C2C merchants leveraging the WeChat social network)—moved to flipping these NFTs. Then came the Chinese shoe dogs and hypebeasts, whose expertise navigating the volatile secondary luxury market proved to be surprisingly handy. Eventually, iBox’ staggering growth attracted the attention of serial con artists. Many professional scammers in China are fond of running multi-level marketing schemes, and iBox was the perfect breeding ground for their operations. Rumors began to circulate that some malicious swindlers formed crime syndicates to buy up NFTs to recruit college students and retired aunties alike to come work for them and market the collection to their friends, paying them by the number of new inductees they introduce.

Recently, a story has circulated that three such college students took out a loan to buy three/four hundred “cybercats,”with a total value of about 300K RMB (~$44K). The collection floor price then suddenly crashed and caused one student to commit suicide. The school allegedly reported the matter to the police.

iBox vehemently denied the story, but in early June, it updated its age policy to 21–60, excluding younger college students. Notably, iBox also has a tab on its website for anyone to publicly post rumors, where its official account attempts to refute many of them.

Rumor Exposition Page: MLM accusations denied by iBox Team

Overall, the Chinese digital collectibles market downplays the trading elements and instead pushes the collectibles and IP ownership aspects to NFT technology. Unlike iBox, Alibaba’s (Alipay’s) JingTan allows the free transfer of NFTs only after 180 days of hodling, and then only to KYC’d friends of the user. The new owner can only transfer the NFT again after 730 days! Yet, to circumvent these restrictions, transactions of these NFTs are often moved into hiding on secondary platforms like Alibaba’s own Xianyu, the Chinese eBay, or private WeChat groups that spread through word of mouth with trustworthy brokers and middlemen. As a result, although the spreads for these kinds of transactions tend to be quite large, the grey market stays alive.

The End of an Era

The volume of Chinese centralized digital collectibles have been trending down since March, but the first major blow to the industry came on June 21 when WeChat purged public accounts associated with NFTs, including iBox’s own official account.

Furthermore, China’s three major associations of the Internet have issued more stringent regulations. With the China Cultural Industry Association taking the lead, nearly 30 Chinese enterprises and institutions have jointly launched the Initiative for Self-Regulation Development of the Digital Collectibles Industry on June 30. The objectives are to oppose secondary trading and speculation and promote the quality development of the industry as a whole. The parties involved in this self-regulatory development initiative include professional institutions and associations of the cultural tourism industry, several state-owned enterprises, and Internet tech firms such as Ant Group, Tencent, Baidu and JD.com. It is by far the most extensive self-regulatory convention in China in terms of industry coverage. More specifically, the association demanded that platforms must obtain licensing according to strict jurisdiction to ensure the safety and control of blockchain technology and compliance to KYC policies.

The gradual downtown of the Chinese digital collectibles market was exacerbated by this black swan. Instantly sold out collections became a thing of the past, and speculators are sobering up from a midsummer night dream. Along with the stagnant primary sales comes turmoil in the secondary market, with some trading platforms seeing next to zero volume. Smaller platforms with less cash like HiNFT and iBear were forced to close shop. Even Tencent’s Huanhe (幻核) was forced to halt NFT sales after more regulatory pressure, though the company released a statement assuring users that “owners of existing collectibles will still be able to hold, display or request a refund for their possessions.”

Yet, surprisingly, iBox refuses to go gently into the night. On 8/12, amidst dwindling user numbers and falling prices, iBox raised an undisclosed amount from Yibao Capital group.

Venture capital still seems interested in the Chinese NFT space despite fledgling growth and transaction volume, perhaps not wanting to lag too far behind their global counterparts, which have still been actively deploying funds during the crypto winter.

Concluding Thoughts

Ultimately, the rise of cyber economies looks to be unstoppable. That’s why we Chinese people want to buy NFTs—stores of digital memetic value—even when our government tries to restrict us.

After all, humanity has, to date, only found two ways to record the ownership of a digital object: either some company writes it into a private database, or it’s atomically recorded on a public blockchain. So when a critic objects to using NFTs to record ownership of digital art or collectibles, what they really mean is they prefer that some company be in charge of managing the records of who owns what.

The wonderful thing about NFTs is that we take the “who” out of the picture. You can own the token in a wallet you control, you can buy or sell it wherever and whenever, you can display it in any virtual gallery of your choice, and you can play with it in any open metaverse world while interacting with people from all over the globe. In China, there are only two options: you can hand over control to a private company under the auspices of the government, or you can use a VPN to get access to the permissionless marketplace of blockchain and crypto.

In the end, it looks like the iBox model doesn’t work, and I wouldn’t be surprised if it ends up being a failed experiment. Yet, Chinese people still want NFTs. Even overseas, Marketplaces like Element and X2Y2 are on the rise (both teams are Chinese/have comprehensive Chinese language support) because people remain optimistic about these tokens and are figuring out ways to get access to this vertical.

I believe the decline of iBox can be explained simply: there is a limit to how much trust users are willing to place into digital collectibles on iBox, because they implicitly understand that these NFTs only exist on the iBox’s servers in China. To truly believe in the self-sovereignty of iBox’s digital collectibles requires a belief that iBox will survive for decades. This is hard to imagine.

There is no doubt to me that Ethereum and other public blockchains will outlive iBox and its myriad of competitors. After the brutal NFT crash in the summer, many of the Chinese NFT platforms have already gone under, and the NFTs traded on them have simply vaporized, as though they never existed.

Say what you will about Ethereum NFTs, but I expect them to outlive me. I hope China, for all its love of NFTs, discovers the same.


Special thanks to Haseeb Qureshi, Celia Wan, Mia Deng, and all who assisted in the writing of this article.

Follow me on twitter for updates!

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JPEG Waifu collector at Dragonfly