Risks and Regulations in the Chinese Market – Pandaily

Digestible news on the latest developments across the fields of NFTs, blockchain, and metaverse in Greater China, compiled for you every week by Pandaily.

This week: Chinese computer giant Lenovo makes its foray into the metaverse field, game engine Cocos raises $50 million in series-B funding round, Chinese internet security company Qihoo 360 to launch metaverse product, and more.

Chinese Computer Giant Lenovo Makes Foray Into Metaverse

The Chinese computer software and electronics conglomerate is planning to invest $15.7 billion over the next five years in the R&D of new technology, and metaverse-related products and services, according to Forbes and Nikkei Asia.

• Lenovo said in a statement last week that the company’s R&D staff will work on “technology which will help businesses capitalize on the metaverse,” and that the investment should help “businesses capitalize on new and emerging technologies like the metaverse.”
• The Beijing-based company will double its R&D investment and recruit 12,000 professionals over the next three years for cloud-related research, which could become a crucial part of the company’s metaverse development.
• Specifically, the company could play on its existing strengths to develop servers and cloud-related technology, according to Brady Wang, an associate director at CounterPoint Research.
• Wang added that Lenovo might be able to develop other metaverse elements such as social networking and cryptocurrency by investing directly in other companies, rather than doing its own R&D. “We won’t think connectivity is too good because Lenovo is not a connectivity company, so they’d need to invest in it. For virtual reality, it’s the same thing.” (Forbes, Nikkei Asia)

Chinese Game Engine Cocos Raises $50 Million in Series-B Funding Round

Cocos Technology, a Beijing-based game engine provider, recently announced that it has received $50 million in a series-B funding round, according to TechCrunch.

• The company will use the proceeds to improve the core technology of its engine and move beyond games into XR, education, autonomous driving and home design, said the company in a statement.
  • In online education, Cocos has launched an interactive, no-code courseware editor for education companies, and claims to have captured over 90% of China’s market share in this new segment.
  • In autonomous driving, companies use Cocos’ engine to work on smart cockpits and advanced drivings solutions.
• Investors include CCB Trust, a subsidiary of China Construction Bank, GGV Capital, and real-time communication solutions provider Agora, a long-time partner of Cocos.
• Founded in 2010, Cocos is best known for its cross-platform, open source engine for 2D mobile games, and has recently added 3D capabilities to its engine in 2021. However, the company is not looking to compete with Unreal or Unity, companies specializing in 3D real-time projects, but rather is trying to revive HTML5 games in China and elsewhere.
• Thanks to its free-to-use model, the company has managed to generate capital from a variety of sources, including providing support to third-party developers, running gaming industry events, and getting funding from its Chinese parents Chukong Technologies, a mobile game developer and publisher.
• Cocos struck a major deal with Huawei last June to let global developers build games that run on the phone maker’s in-house chips and Harmony OS.
• The company also supports Baidu‘s metaverse platform, Xirang, but declined to comment on how exactly the two work together.
• For the past few years, Cocos has emerged as one of the main tools for building WeChat games. The company claims to power about 60% of China’s minigames. Most of these games are casual plays and monetize through ads rather than in-app purchases, which exempts them from acquiring government-issued licenses.
• In other news, China lifted a nine-month freeze on gaming licences after companies after companies made major adjustments to their business practices due to the ban’s economic repercussions. However, despite the regulatory relaxation, smaller gaming firms are considering leaving the Chinese market completely and pivoting into blockchain gaming in the West. (TechCrunch)

Chinese Internet Security Company Qihoo 360 to Launch Metaverse Product

Internet security company Qihoo 360 has recently launched “N World,” a metaverse product where users can create communities based on shared interests, according to Pandaily and Tech Planet.

• The company plans to play on it existing strengths in network security to break into the metaverse industry, a Qihoo 360 product manager told Tech Planet. “Metaverse security is a brand new industry. By building on our expertise in cybersecurity, we will effectively lower the barrier to entry into this market.”
• Since this January, the company has been recruiting for a position titled “metaverse security.”
• In addition to developing its metaverse product, Qihoo 360 has also been dabbling in EVs, fintech products, e-commerce, smartphones in a bid to expand its business and improve its revenue streams.
• However, Qihoo 360’s business expansion has slowed down significantly this year compared with 2020. The company’s primary focus, in addition to metaverse R&D, is to develop search and travel tools. (Pandaily, Tech Planet – source in Chinese)

Chinese NFT Market: Risks and Regulations

Three state-backed financial industry associations in China have called on their members to prevent financial risks associated with NFTs, such as masking trades of financial products as NFT transactions, Caixin Global reported this Thursday.

• The National Internet Finance Association of China, the China Banking Association, and the Securities Association of China jointly issued the proposal, calling for a balance between innovation in the NFT market and prevention of speculation.
• Outside the country, most NFTs are minted and transacted on decentralized, private blockchain networks. In China, however, NFTs live on centralized, public blockchains, and cannot be traded.
• In the proposal, the associations asked member institutions, including banks and securities firms to resolutely “curb the tendency to financialize or securitize NFTs” and prevent risks stemming from illegal financial activities. They also called on consumers to steer away from NFT speculation and other related illegal financial activities.
• Specifically, the associations ask their members NOT to:
  • issue new crypto by masking them as NFTs;
  • set up NFT exchanges, use existing cryto (e.g. Bitcoin, Ethereum) for NFT issuance or transactions;
  • invest directly or indirectly in NFTs, or provide financing for projects that invest in NFTs.
• While the proposal is not legally binding, it will likely end up in official documents issued by regulators. (Caixin Global)

SEE ALSO: PBoC Warns That NFTs and Metaverse Could Be Money Laundering Tools

Meta Working on Web Version of Horizon Worlds Metaverse Platform

Meta is planning to bring its Horizon Worlds socialverse platform to the web, reported The Verge, citing a tweet by Meta CTO Andrew “Boz” Bosworth. This marks a major expansion for the platform, as it was previously only available on its Quest VR headsets.

• Meta’s VP of Horizon, Vivek Sharma, said the company is also working on bringing Horizon to mobile phones later this year and is in “early discussions” about bringing it to game consoles.
• However, the company refused to disclose the specific timeline in which Horizon Worlds will expand to the web.
• Boz’s tweet came in the wake of Horizon Worlds’ announcement of a new fee structure for creators, which would take a 25% cut of the total left after any platform fees. This would effectively bring Meta’s profit to close to 50% on each transaction sold in Horizon on a Quest VR device (30% platform fee + 25% of the remaining 70%).
• Boz claimed that the rate is lower than some other “world-building platforms,” such as Roblox. The claim drew criticism from Apple spokesperson Fred Sainz who claimed that the comapny’s behavior was hypocritical. (The Verge)

Crypto Bosses Say Governments Begin to Take Positive Approach to Sector

The bosses of several major crypto companies said regulators are beginning to take a more positive approach to digital currencies, following a series of crackdowns targeting the space, according to a report by CNBC.

• While China has banned all crypto mining and trading activities since last September, countries like the U.S. and the U.K. have announced moves to bring regulatory oversight to the market.
• Changpeng “CZ” Zhao, CEO of Binance, told CNBC that “the tide is definitely turning,” and that regulatory discussions around crypto have shifted from “negative” to “positive.”
• The U.K. government last week announced it would bring stablecoins – cryptocurrencies whose prices are pegged to an existing cryptocurrency, fiat money, or to exchange-traded commodities – into the local payments regime.
• British Finance Minister Rishi Sunak has also asked the Royal Mint, which is responsible for producing the country’s coins, to create NFTs.
• Governments want to foster innovation around financial markets and Web 3, but are also weary of potential risks of the industry, including money laundering, illegal activities (which accounted for less than 0.2 percent of digital currency transactions in 2021), and the impact of energy-intensive bitcoin mining on the environment. (CNBC)

SEE ALSO: Binance Leads Seed Round for Socialverse Developer Ultiverse

That’s it for this week’s newsletter – thanks for reading! As always, I welcome any feedback on how to make this newsletter better. My email is [email protected]. See you again next week!