What crime is involved in launching a meme coin?
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What crime is involved in launching a meme coin?
Launching dog-themed cryptocurrencies could likely constitute illegal business operations, illegal fundraising crimes, and gambling-related offenses.
Navigating Web3 tides with focused insightsAuthor: Xiao Sa's Team
What is a "dog coin"? Simply put, it refers to non-mainstream cryptocurrencies directly issued by individuals, legal entities, or unincorporated organizations—excluding major cryptocurrencies like Bitcoin and Ethereum that have large market capitalizations and high liquidity. Most dog coins don't even have a white paper.
Recently, Xiao Sa’s team noticed that a certain poker-related news outlet published an article titled "Controversy Over First Criminal Case Involving Virtual Currency Issuance: Does Withdrawing Liquidity and Causing Trader Losses Constitute Fraud?" The article reports on a post-00s student who was criminally convicted in China for fraud after issuing a dog coin on an overseas public blockchain. Frankly speaking, such criminal cases in the crypto space are actually not uncommon—and it's hard to say this is truly the first case in China. In fact, our team has handled numerous similar cases involving allegations of criminal liability due to withdrawing liquidity. Today, drawing from recent developments in this type of case, we will explain whether issuing dog coins may constitute a crime, and if so, what kind of crime.
Case Summary
Xiao Sa’s team reminds readers that all information below comes from publicly available sources: The suspect in this case, Mr. Yang (born in 2000), was a senior university student at a Zhejiang-based institution about to graduate—an experienced player in the cryptocurrency space. In May 2022, Yang learned about a DAO called Blockchain Future Force (BFF) promoting its ICO overseas, with plans to launch its token on May 2, 2022.
At exactly 4:41:46 PM on May 2, 2022, Yang issued his own version of the BFF dog coin on an overseas public blockchain, using the same English name as Blockchain Future Force. A little over ten minutes later, acting as a liquidity provider, Yang added 300,000 BSC-USD and 630,000 BFF tokens into a liquidity pool (in simple terms, injecting funds to enable trading of the BFF coin). At the very same second Yang added liquidity, Luo immediately exchanged 50,000 BSC-USD for 85,316.72 BFF coins.
Twenty-four seconds later, Yang withdrew all liquidity from the BFF pool, retrieving 353,488.115 BSC-USD and 508,069.878 BFF coins. This caused the value of the BFF coin to plummet—the 81,043 BFF coins Luo had purchased with 50,000 BSC-USD were now worth only 21.6 BSC-USD.
After the incident, Luo managed—through a mutual friend—to uncover Yang’s real identity ("doxxing") and demanded repayment. After contacting Yang, Luo filed a report on May 3, 2022, with the Nanyang High-Tech Industrial Development Zone Public Security Bureau in Henan Province, claiming he lost over 300,000 RMB (equivalent to 50,000 USD) investing in a virtual currency. The Nanyang police opened an investigation for suspected fraud and arrested Yang in November 2022.
Does Yang’s Conduct Constitute Fraud?
With the development of digital assets, the barrier to launching new tokens has become extremely low. Meme coins, dog coins, and vaporware projects flourish across overseas blockchains, and incidents like the one described above are increasingly common. While these dog coins may resemble pump-and-dump schemes or "harvesting韭菜" (a metaphor for exploiting retail investors), many within the crypto community view them as speculative games or capital contests. Indeed, there are professional traders who use automated programs and large amounts of capital to rapidly buy and sell dog coins for profit—a practice colloquially known as “rushing into dog coins.”
So, does Yang’s behavior constitute fraud? According to Article 266 of China’s Criminal Law, fraud involves the act of defrauding public or private property when the amount involved is significant. In judicial practice, the following elements must be met for someone to be found guilty of fraud:
(1) The suspect must have the intent to unlawfully possess another person’s property;
(2) The suspect objectively carried out a fraudulent act, typically involving fabricating facts or concealing the truth;
(3) The victim suffered property loss because they were misled by the suspect’s fraudulent conduct into making erroneous decisions regarding their assets.
Therefore, the key issue in determining whether Yang committed fraud lies in whether there is evidence proving: (i) his intention to illegally obtain the victim’s property; (ii) that he engaged in fraudulent conduct; and (iii) that the victim made financial decisions based on mistaken beliefs induced by Yang’s actions.
(I) Perspective of Chinese Judicial Authorities
In this case, the Nanyang High-Tech Industrial Development Zone People's Procuratorate alleged that defendant Yang created a fake BFF coin with the same name and promotional materials as the legitimate Blockchain Future Force project, injected 300,000 USDT as bait, lured victim Luo into depositing 50,000 USDT, then withdrew both his own and Luo’s funds—totaling over 350,000 USDT—thereby defrauding Luo of 330,000 RMB. Such conduct, the prosecution argues, constitutes fraud.
From the prosecutor’s perspective, Yang’s act of creating a fake cryptocurrency with the same name as the legitimate DAO project constitutes a "fraudulent" act. Adding liquidity and then instantly removing it is seen as executing a scam using the fake token as bait. The victim Luo allegedly developed the mistaken belief that Yang intended to sustainably operate a crypto project, leading to his financial loss. Therefore, Yang’s actions amount to fraud.
(II) Xiao Sa Team’s Viewpoint
The Xiao Sa team believes that the conclusion reached by prosecutors and the first-instance court—that Yang’s conduct constitutes fraud—is questionable. Although this case superficially resembles fraud, a proper and objective evaluation requires deeper understanding of how cryptocurrencies function. Overall, based on the following facts, we do not believe Yang’s actions constitute the crime of fraud.
We argue that the victim likely did not fall into any subjective misunderstanding, nor did he personally make the decision to dispose of his assets. Instead, the transaction was almost certainly executed automatically by a computer program. Records show that Luo bought BFF tokens in the exact same second that Yang added liquidity. Our team agrees with the defense attorney in the first trial: such speed is highly unlikely to be achieved manually. It is far more plausible that Luo used (or purchased) an automated trading bot specifically designed for rapid "dog coin" speculation—no human, regardless of reflexes, could reliably execute such a trade within one second, especially without insider knowledge, and precisely at the moment liquidity was added.
Further investigation by third-party members of the crypto community revealed that Luo has a history of frequent investments in dog coins, often completing buy-sell arbitrage trades within seconds or tens of seconds. These operations are highly sophisticated, strongly suggesting that Luo is either a professional trader or a "crypto sniper."
Therefore, the Xiao Sa team concludes that the victim was not actually "defrauded"—in other words, he did not form a mistaken belief due to Yang’s actions, and his disposal of assets was not a personal decision. As such, Yang’s conduct does not meet the legal criteria for fraud.
Final Thoughts
While we believe Yang’s actions in this case may not constitute fraud, launching dog coins remains a high-risk activity that could potentially lead to charges including illegal business operations, illegal fundraising, or gambling-related offenses. Particularly concerning are illegal fundraising crimes: under the still-effective September 4 announcement and September 24 notice, conducting ICOs—even overseas—can still result in prosecution for illegal absorption of public deposits if the project team is based in China.
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