Blockchain gaming GameFi startup: Avoid these two criminal risks
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Blockchain gaming GameFi startup: Avoid these two criminal risks
This article will review the potential criminal risks associated with developing blockchain games in China.
Navigating Web3 tides with focused insightsAuthor: Gao Mengyang, Senior Lawyer at Shanghai Manqin Law Firm
Recently, SocialFi has gained massive popularity, and blockchain games (GameFi) are also surging. This is certainly related to innovative gameplay mechanics and the careful planning of domestic development teams—perhaps even signaling the end of the bear market? I won't speculate too much here, as I'm not a financial advisor after all.
However, launching innovative ventures in China inevitably invites intense scrutiny from all sides under a magnifying glass. In this highly order-conscious environment, any behavior that breaks conventional norms may face external pressure. Therefore, for GameFi—the new darling of the crypto world (though not really "new," just seemingly experiencing a second wind)—it's crucial to maintain底线 (bottom lines) and avoid crossing红线 (red lines) in order to safely raise funds. Otherwise, startup teams might soon find themselves facing nothing but prison jumpsuits.
Below, this article outlines the potential criminal risks associated with operating blockchain games in China.
01 Organizing or Leading a Pyramid Scheme
There's a common saying in China’s crypto community: “Crypto projects rely on cx for promotion,” where “cx” stands for chuanxiao—pyramid schemes. Traditional marketing methods tend to be costly, time-consuming, and slow to yield results. In contrast, setting up an upline-downline referral system quickly turns ordinary users into self-motivated promoters (“zigan shui”—water armies who bring their own rations). Each participant becomes a de facto ambassador for the project, driven by incentives to recruit more members below them. Blockchain games are no exception.
Take the once-popular “Block Cat” project, which transplanted the mechanics of old QQ Pet games into the crypto space, claiming to be “on-chain” and rebranded as an innovative product ready to harvest yields—from韭菜 (the韭菜 metaphorically referring to retail investors being "harvested"). But innovation alone wasn’t enough to attract users, so they turned to cx. According to Judgment No. (2020) Yu 0104 Xing Chu 582 issued by the Guancheng Hui Ethnic District People's Court in Zhengzhou City, Henan Province, the involved company “lured participants into continuously investing funds and recruiting others by advertising high returns from buying and selling virtual ‘Block Cats’ on its app platform, forming hierarchical relationships. The organizers profited from direct or indirect recruits’ investment earnings. Audits showed there were 4,885 valid user records on the platform, with a total micro-points supply of 304,993 yuan, cumulative earnings reaching 52,943,777.2773 yuan, total assets amounting to 104,551,858.9833 yuan, total referral rewards totaling 483,910.7752 yuan, and team-based rewards totaling 391,784.5814 yuan.” These micro-points function similarly to gems or tokens in today’s blockchain games—same game, different packaging.
Of course, modern projects use increasingly complex layering techniques that obscure their true nature at first glance. But ultimately, they still exhibit the defining characteristic of hierarchical reward structures.
02 Operating a Gambling Business
As I discussed in my previous article, “The Rise of Blockchain Social Platform friend.tech: What Criminal Risks Do KOLs Face When Issuing Tokens?”, any project involving game-like mechanics carries inherent gambling risks. And since blockchain games aren't merely incorporating gameplay—they *are* the game itself—the risk of gambling violations is their biggest threat. Looking across the gaming industry, monetization features like opening loot boxes, unlocking skins, weapons, items, gacha pulls, lotteries, or premium memberships all exploit players’ gambling psychology—a concept formally known as *aleatory* mechanisms—encouraging small investments for potentially large returns. However, legitimate platforms typically mitigate risk through one-way value flow: allowing fiat-to-in-game currency conversion but prohibiting reverse redemption (cash-out). Some even include guaranteed minimum rewards (e.g., low-tier “junk” items), eliminating the possibility of complete principal loss and thereby reducing regulatory exposure.
Yet current blockchain games still struggle to resist the allure of gambling. Take the recent wave of “prize-splitting” mechanics: at their core, these remain zero-sum games where winners “split” the spoils generated from defeated losers—no different in essence from traditional dice-rolling or high-low betting. If such systems further enable two-way fiat exchange—even if layered behind intermediaries—it's only a matter of time before authorities shut them down.
Modern blockchain games have become smarter, adopting the “nested doll” strategy—inserting endless layers between betting units and redeemable fiat currencies to avoid immediate detection. But this approach is ultimately self-deceptive. In criminal investigations, regulators look beyond form to substance. Authorities will conduct穿透式审查 (penetration reviews) of the entire system. Anyone believing they can outsmart regulators with elaborate obfuscation is merely standing in front of a train with outstretched arms.
03 Manqin Lawyer’s Summary
There are many other potential risks associated with blockchain games, but as I’ve previously argued, the two primary ones remain pyramid schemes and gambling. These represent red lines entrepreneurs must never cross—and bottom lines they must uphold. There are countless ways to promote a project; using pyramid schemes is drinking poison to quench thirst. At its heart, a blockchain game is still a game, and games require genuine innovation. Relying solely on gambling mechanics without unique gameplay will inevitably lead to collapse. Making money isn’t shameful—but safety comes first. After all, what good is profit if you won’t live to spend it? Sometimes, small-scale experimentation is acceptable—just don’t end up fooling yourself along with everyone else.
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