Da Cheng Law Firm's Xiao Sa Team as Guests on Huobi Live: Legal Risks and Survival Rules for Digital Financial Innovation
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Da Cheng Law Firm's Xiao Sa Team as Guests on Huobi Live: Legal Risks and Survival Rules for Digital Financial Innovation
This live session, themed "Compliance and Fraud: Legal Risks and Case Analysis in the Digital Finance Era," explored compliance survival rules for digital financial products, legal risks, and more.
Navigating Web3 tides with focused insightsIn the era of digital finance, as technology rapidly advances and innovative applications emerge, legal risks and compliance issues are becoming increasingly prominent. The inherent lag in legislation makes it difficult to regulate fast-evolving innovations, and enterprises often struggle to maintain compliance while aggressively pursuing technological innovation.
On November 15, Huobi HTX collaborated with Xia Sa, a senior partner at Dentons Law Firm, and her team to deliver a legal education livestream. Themed "Compliance vs. Fraud: Legal Risks and Case Analysis in the Digital Finance Era," the session explored compliance frameworks for digital financial products and associated legal risks.
Legal Nature of Bitcoin
During the livestream, Xia Sa noted that there is ongoing legal debate over whether Bitcoin should be classified as data or property.
She explained that currently, two main viewpoints exist among legal scholars and practitioners: one denies virtual assets' status as property, viewing them merely as virtual digital information within cyberspace—thus constituting only data—and questioning their recognition as property in the real world; the other affirms the property nature of virtual assets, recognizing them as legitimate forms of property.
Xia Sa pointed out that from a criminal law perspective, Bitcoin is generally considered a proprietary right—or even directly treated as property. However, in certain regions of China, USDT and some mainstream cryptocurrencies may still be classified as data. As a result, stealing someone else's Bitcoin or other virtual currencies might not be prosecuted under theft laws, but instead charged as illegal acquisition of computer information system data.
In the Web3 era, with rapid advancements in AI, blockchain, and related technologies, new applications continue to emerge, making crimes involving virtual property increasingly complex. Xia Sa emphasized that as such cases grow in number and both theoretical and practical understanding develops side by side, responses to virtual asset-related crimes will become more comprehensive. Additionally, entrepreneurs—especially in the early stages—must respect and understand the law. Many countries exercise long-arm jurisdiction, meaning startups must operate legally and comply with regulations regardless of location.
Beware of NFT Industry Imposters: When "Li Kui" Becomes "Li Gui"
During the livestream, Yuan Chengpeng, a core member of Xia Sa’s team, referenced China’s first NFT-related criminal case in 2022—a platform using a three-tiered “person-to-person” structure to list digital artworks for consignment sales, luring large numbers of young people into investment.
Yuan analyzed this as a pyramid scheme disguised as primary issuance and secondary resale of digital collectibles. The operators skillfully used emerging concepts like NFTs as the "object" of the scam—the "flower" being passed around in a game of musical chairs. Unlike traditional large-scale pyramid schemes, modern ones have evolved significantly, implementing self-replicating organizational structures akin to hair salon franchise models: a master trains an apprentice; once the apprentice becomes independent, they open a new outlet, with the master retaining a small equity stake. This process repeats indefinitely—apprentice trains apprentice, generation after generation.
Yuan explained that platform operators mistakenly believed this ever-expanding model could evade criminal liability. However, according to Paragraph 3 of Article 1 of the *Opinions on Several Issues Concerning the Application of Law in Handling Criminal Cases of Organizing and Leading Pyramid Selling Activities*, if organizers or leaders formally leave the original pyramid scheme but continue receiving compensation or rebates from it, the number of new members and levels developed by the original organization after their departure shall still be counted toward their own network. Thus, such self-deception does not escape judicial punishment and remains subject to strict criminal sanctions.
Moreover, some platform operators even instructed users participating in "NFT minting" on the elements of Article 224-1 of the Criminal Code regarding organizing and leading pyramid selling activities. However, they misinterpreted the definition of "three levels"—failing to include the base level (inclusive counting). By excluding the starting tier, they remained fully liable for prosecution under the crime of organizing and leading pyramid selling activities.
During the livestream, Yuan also outlined the top ten most frequent types of fraud in the digital economy era: cash-back scams via fake orders, fraudulent online investment and wealth management schemes, fake online loan scams, impersonation of e-commerce or logistics customer service, impersonation of public security or judicial officials, false credit rating scams, fraudulent online shopping or service transactions, impersonation of leaders or acquaintances, fake trading of gaming items, and romance or wedding-related scams. He noted that while these scams may now appear under the guise of digital finance or Web3 technologies, their underlying patterns remain unchanged. Understanding key red flags enables effective prevention.
Huobi HTX stated during the livestream that, as a responsible virtual asset trading platform, it always prioritizes user rights, strictly complies with all applicable laws and regulations, and is committed to building a secure, compliant, and trustworthy digital financial environment.
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