Why is it recommended to establish a crypto fund for Web3 investments?
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Why is it recommended to establish a crypto fund for Web3 investments?
From a legal compliance perspective, let's explore the importance of crypto funds for investors.
Navigating Web3 tides with focused insightsAuthors: Iris, Bai Qin
About half a month ago, Manqin Lawyers published an article titled "What's the Difference Between Funds and Foundations? A Must-Read for Web3 Project Compliance," which provided a detailed introduction to the concept of crypto funds and their applicable scenarios. In short, a crypto fund is a form of collective investment where investors contribute capital and track returns, while the crypto fund identifies Web3 projects to invest in and generate profits.
On the surface, crypto funds should be a highly attractive investment vehicle. However, in practice, many clients that Manqin Lawyers have worked with—especially non-native Web3 investors—are unclear about "why crypto funds are needed" or "what benefits establishing a crypto fund brings."
Therefore, Manqin Lawyers wrote this article to help readers understand, from a legal compliance perspective, the importance of crypto funds for investors.
Limits of Individual Investing
In recent years, waves of investment in Web3 have continued to surge, drawing increasing numbers of individuals and institutions into the space. From cryptocurrencies to NFTs, DeFi to GameFi, new projects emerge constantly, seemingly offering endless opportunities. Yet Web3 investing is far more complex than it appears on the surface, with underlying legal and compliance issues often catching investors off guard.
For high-net-worth individuals (HNWIs) in particular, while individual investing may seem flexible and free, in practice, the solo approach often fails to meet sophisticated investment needs—whether in depth of information access or systematic risk management. More importantly, in a field characterized by rapid technological iteration and shifting regulatory landscapes, individual investors require not only substantial time and expertise but also the ability to navigate significant compliance risks, placing higher demands on their investment capabilities:
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Information asymmetry. The Web3 landscape evolves rapidly, with new projects launching daily, but quality varies widely. Many projects outwardly promise to "transform the future," yet may in reality be scams disguised with technical jargon. For Web3 investors, identifying truly valuable long-term investments among countless options is a major challenge. This problem intensifies in cross-border investments, where complex legal environments and cultural differences further deepen information gaps.
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Risks of high volatility. The Web3 investment market is known for its extreme volatility. While it offers massive wealth creation potential, it also comes with equally high failure rates. Individual Web3 investors, constrained by resources, often concentrate their capital in just a few projects. This strategy may appear lucrative in the short term but exposes them to excessive risk due to lack of diversification.
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Compliance challenges. The global nature of Web3 results in an extremely complex legal and regulatory environment. Individual investors must contend not only with project-specific risks but also with cross-border compliance issues such as foreign exchange controls, tax reporting, and the legal classification of tokens. Mishandling any of these can lead to unexpected legal consequences.
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Lack of professional support. Web3 investing goes beyond simple "buy low, sell high" trading. It involves professional processes like due diligence, technical evaluation, and market analysis. Without dedicated team support, individual investors cannot fully assess potential risks and opportunities.
Time and energy constraints. Web3 investors—especially non-native users—often have busy schedules and struggle to dedicate sufficient time and effort to managing their Web3 investments. Yet Web3 investing requires real-time monitoring of market trends and handling intricate technical and legal matters, demanding significant personal bandwidth.
Advantages of Crypto Funds
The limitations of individual investing create numerous barriers for HNWIs entering the Web3 space. Crypto funds, with their professional operations and systematic management, offer a powerful solution to these challenges.
First, through in-depth due diligence conducted by professional teams, crypto funds systematically identify high-quality projects, overcoming information asymmetry. Investment analysts evaluate target projects from multiple angles—technical architecture, team background, market potential—and use on-chain data to monitor ecosystem health, ensuring every investment decision is grounded in solid data. Additionally, a fund’s global network enables access to top-tier projects across regions, allowing investors to easily tap into cutting-edge Web3 opportunities.
Second, crypto funds employ diversified investment strategies to hedge against the high volatility of the Web3 market. By allocating capital across stablecoins, DeFi, NFTs, and other sectors, funds avoid concentrated exposure to single areas. Meanwhile, fund managers continuously monitor market dynamics and dynamically adjust portfolios, using professional methods to deliver more stable return expectations.
More importantly, the team-based operation of crypto funds provides end-to-end support for HNWIs—from due diligence to portfolio management—covering all stages of the investment lifecycle. Fund teams assist investors in navigating complex technical evaluations and legal compliance issues, while regularly issuing detailed investment reports. This allows investors to stay informed without having to dedicate extensive time and energy themselves.
Compared to going it alone, crypto funds leverage professional team support to effectively mitigate issues like information asymmetry and risk concentration, better meeting HNWIs’ heightened demands for financial security. This gives crypto funds a natural edge in the Web3 investment landscape.
Compliance Is Key
In past Web3 investment consultations, Manqin Lawyers are frequently asked: "Is investing in Web3 illegal? How can I invest safely?" Whenever this question arises, our consistent advice is: establish a crypto fund.
Beyond solving project selection and risk management through professional operations, crypto funds play a crucial role in enabling investors to enter this complex and fast-changing market in a legal and compliant manner. For Chinese HNWIs especially, where virtual asset transactions face strict restrictions, compliance becomes particularly critical—and here, crypto funds demonstrate unique advantages.
1. Legal Structure
Crypto funds typically operate by registering professional investment entities and adopting legally recognized fund structures. These frameworks comply with international regulations and provide clear legal protection for investors. For example, as Manqin Lawyers have previously shared, many leading crypto funds choose to register in jurisdictions like the Cayman Islands, Singapore, or Hong Kong—regions that offer relatively favorable legal environments for crypto asset investments, along with tax incentives and convenient capital flows that reduce investor costs.
Notably, due to China’s foreign exchange control policies, individual investors face greater difficulty directly engaging in cross-border investments. Crypto funds overcome this by setting up compliant RMB capital pools, converting funds legally into foreign currencies, thereby helping investors professionally connect with international markets and avoid legal risks arising from incomplete personal procedures.
2. Compliant Operations
The global nature of Web3 leads to a highly complex regulatory environment, with significant differences between countries in how virtual assets are defined and regulated. For instance, the U.S. has strictly defined certain tokens as securities, whereas China explicitly bans cryptocurrency trading activities.
To provide comprehensive compliance support, fund teams typically collaborate with legal experts familiar with local regulations. Manqin Law Firm has previously assisted numerous Web3 investors with setting up crypto funds. During the setup process, we provide detailed legal analysis and compliance recommendations tailored to specific investment targets in different jurisdictions, ensuring all investment activities adhere to local laws.
3. Strict Anti-Money Laundering and KYC
Due to its decentralized nature, the Web3 investment market is often a high-risk zone for illicit activities such as money laundering. Individual investors may find it difficult to verify the backgrounds of project teams or counterparties, making them vulnerable to unintentional involvement in illegal acts.
Crypto funds must strictly follow anti-money laundering (AML) and know-your-customer (KYC) protocols, verifying investor identities and monitoring fund flows to ensure the legitimacy of funding sources and transparency of investment activities. This not only reduces the fund’s own legal risks but also creates a safer investment environment for participants.
4. Liability Distribution
Individuals directly participating in Web3 investments may face direct legal liability if a project violates regulations or laws change. In contrast, when investing via a crypto fund, investors act as limited partners, bearing liability only up to their contributed capital. The fund management team assumes responsibility for actual investment operations and legal compliance. This separation of liability enhances legal safety for investors.
Additionally, the asset segregation mechanism in crypto funds strictly separates investor funds from those of the fund management team. This prevents the manager’s debts from affecting investor rights and ensures the independence and security of investment capital, further strengthening HNWIs’ trust in fund operations.
Manqin Lawyers’ Summary
Faced with the high risks and high potential of the Web3 investment space, crypto funds stand out as the optimal choice for HNWIs, thanks to their professional management and compliant operations. However, selecting the right jurisdiction when establishing a crypto fund is crucial. Different regions vary significantly in regulatory requirements, tax policies, and operational flexibility, directly impacting the fund’s compliance posture and cost efficiency.
With Hong Kong gradually opening its policies in the virtual asset sector and rolling out various favorable measures, the region now offers strong support for crypto fund establishment. Moreover, Hong Kong’s strategic position at the intersection of East and West makes it an ideal bridge for global capital entering the Web3 market.
Currently, Manqin Lawyers have established an experienced professional team in Hong Kong, capable of providing one-stop crypto fund setup services for Web3 investors. From jurisdiction assessment and registration to cross-border compliance review, we combine localized policy insights with crypto-friendly legal frameworks to help investors achieve secure, compliant, and stable asset growth. If you’re considering setting up a crypto fund or would like to learn more, feel free to contact Manqin Lawyers at wechat ID: mankunlawyer. We’ll safeguard your journey into Web3 investing.
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