YesCoin Revelation: Legal Risks Ignored by 90% of Web3 Startup Teams and Lawyers' Advice
TechFlow Selected TechFlow Selected
YesCoin Revelation: Legal Risks Ignored by 90% of Web3 Startup Teams and Lawyers' Advice
The YesCoin controversy is not merely a business dispute arising from unequal internal profit distribution, but also a legal disaster caused by a lack of legal compliance management.
Navigating Web3 tides with focused insightsAuthor: Shao Jiadian
Recently, the YesCoin controversy has stirred significant turmoil across the entire crypto ecosystem. As a lawyer who has long focused on Web3 entrepreneurship and compliance, I believe this incident not only exposes governance flaws within individual projects but also reflects widespread legal and regulatory blind spots currently prevalent in the Web3 space.
This article offers a comprehensive analysis and interpretation from four perspectives—incident review, common legal issues in Web3 projects, criminal law implications, and legal recommendations—with the aim of providing practical reference and insights for entrepreneurs, investors, and professionals in the industry.
Incident Review: From Business Dispute to Criminal Case
(1) Chronology of Events
According to multiple media reports, YesCoin gained immense popularity within the TON ecosystem last year, amassing tens of millions of users. However, recently, internal conflicts between founder Zhang Chi (also known as Zoroo) and partner Wang Mouxin (commonly referred to as "Old Wang") escalated dramatically. Initially, disagreements arose over project control, capital investment, and equity distribution. Public information indicates that during internal disputes, Zhang Chi unilaterally removed part of Wang's team’s access rights, triggering an increasingly intense confrontation. The situation rapidly escalated into a legal case—Zhang Chi was arrested by police in Hangzhou on February 12, 2025, suspected of “illegally obtaining data from computer information systems,” and transferred to Shanghai for further investigation the following day.
(2) Underlying Causes Behind the Incident
On the surface, this appears to be merely an internal business dispute. In reality, however, it reveals deeper governance deficiencies and legal risks. The conflict extends beyond operational models, profit sharing, and technical management; it involves fundamental legal issues such as corporate governance, contractual agreements, and equity structure. Particularly in the early stages of startup development, teams often rely solely on verbal promises without formal legal documentation or clear equity arrangements. While this may accelerate initial progress, it becomes highly vulnerable to利益 conflicts and management breakdowns when the project scales up and external capital flows in—potentially escalating into legal disputes or even criminal cases.
Common Early-Stage Issues in Web3 Projects: Governance Deficiencies and Compliance Risks
(1) The Contradiction Between Decentralization and Legal Compliance
A core principle of Web3 projects is decentralization—the pursuit of self-organizing ecosystems independent of traditional centralized management. Yet in practice, this ideal often results in situations where co-founders collaborate closely but lack clearly defined roles and responsibilities. Many projects, prioritizing speed and flexibility during their early phases, neglect to establish standardized governance frameworks, failing to implement clear equity distribution, decision-making mechanisms, or legally binding contracts. These governance gaps tend to surface dramatically when conflicts arise over funding, profit allocation, or control of the project.
(2) Unclear Capital Contributions and Equity Arrangements
In the case of YesCoin, public information shows that early team members primarily invested through "sweat equity," with substantial internal funds flowing outside formal corporate structures, relying instead on oral agreements and informal understandings. While this model can reduce administrative overhead and accelerate launch timelines, it inevitably intensifies internal tensions as the project grows and financial stakes increase—often culminating in legal disputes. As numerous industry examples have shown, teams lacking formal legal documents and equity agreements frequently face major disagreements over profit distribution and decision-making authority, sometimes leading to criminal liability.
(3) Abuse of Internal Technical Control
Another critical issue lies in the concentration and misuse of technical and data control. For Web3 projects, control over core systems, user data, and operational platforms represents vital assets. When such control is concentrated in one party, it creates opportunities for abuse. In the YesCoin incident, Zhang Chi leveraged his technical privileges to unilaterally revoke the partner team’s access to data, gaining an upper hand in the struggle for project control. This act raises serious ethical concerns and potentially violates national laws regarding data security and computer information system management.
Criminal Escalation: The Charge of Illegally Obtaining Data from Computer Information Systems
(1) Understanding the Criminal Charge
Under China's Criminal Law, the offense of “illegally obtaining data from computer information systems” targets acts that violate state regulations by intruding into unauthorized computer systems or using other technical means to obtain stored, processed, or transmitted data. The law distinguishes between “serious circumstances” and “particularly serious circumstances,” with sentencing standards based on the nature of the violation, economic losses incurred, and societal impact. Media reports suggest that Zhang Chi is suspected of abusing his system privileges during the internal conflict to remove data accounts belonging to his partners—an action preliminarily classified as illegal data acquisition.
(2) Practical Risk Assessment
In practice, whether an act constitutes this crime depends on several key factors:
1. Volume and type of data accessed: For example, whether sensitive authentication data related to payments, securities trading, or large volumes of personal information were obtained.
2. Illegal gains and resulting economic loss: If illicit profits exceed statutory thresholds or cause measurable financial damage to others, penalties are enhanced accordingly.
3. Subjective intent and purpose: In commercial disputes, if one party uses technical means to seize control of a project, the behavior may go beyond mere business disagreement and demonstrate clear illegality and infringing intent.
In the YesCoin case, due to the absence of formal contracts and equity agreements at the project’s inception, Zhang Chi’s unilateral technical actions—based on his control over system data—led directly to escalation. Regardless of civil or commercial context, such conduct easily crosses into criminal territory and provides grounds for legal accountability.
Legal Recommendations: Three Essentials for Web3 Entrepreneurs
Based on the above analysis, Manqin Lawyers offer the following recommendations for Web3 founders:
(1) Execute Written Contracts: Clarify Rights, Responsibilities, and Interests
The YesCoin incident underscores how many Web3 projects overly rely on trust and verbal commitments in their early days, neglecting written legal agreements. While team passion and mutual trust are important at the outset, once significant capital or third-party investment enters the picture, comprehensive and rigorous legal documentation becomes essential to define each party’s rights and obligations and prevent future disputes arising from unsubstantiated claims. Key documents include:
1. Partnership and financing agreements: Whether among co-founders or with external investors, these must be drafted or reviewed by qualified legal counsel to ensure enforceability.
2. Token incentive and profit-sharing mechanism agreements: Clearly outline contributions and entitlements early on to avoid problems stemming from unfulfilled “verbal promises.”
3. Technology and data usage agreements: Establish strict protocols governing access rights, maintenance duties, and liability for breaches concerning core project data and systems.
(2) Establish Robust Legal Entities: Implement Risk Isolation and Rights Protection
For Web3 projects, setting up well-structured legal entities is crucial. A sound Web3 project should typically incorporate the following legal structures:
1. Development Lab Company
The development lab company serves as the core of a blockchain project, responsible for R&D, testing, deployment, team management, and payroll. It usually employs professional technical personnel such as software engineers and blockchain experts, tasked with developing and maintaining the underlying technology to ensure smooth project operations.
2. Product and Token Distribution Company
This entity acts as the bridge between the blockchain project and the market, handling marketing, sales, and customer service. It typically collaborates with cryptocurrency exchanges and launchpads to bring tokens to market and provide trading services for investors. Common jurisdictions include offshore locations like the British Virgin Islands (BVI) and Cayman Islands, or onshore hubs such as Singapore and Hong Kong.
3. DAO Entity
The DAO entity provides legal protection and enables participation in decentralized governance for DAO members, shielding them from potential legal, tax, financial, and other liabilities. This entity manages DAO registration, member administration, and fund oversight. It supports true decentralized autonomy while ensuring regulatory compliance. Additionally, establishing sound financial controls and risk management mechanisms is essential to safeguard DAO funds and ensure compliant operations.
(3) Timely Intellectual Property (IP) Rights Confirmation: Prevent Theft and Misappropriation of Innovations
In the YesCoin controversy, the lack of IP protection may be an overlooked yet critical factor. Without clear ownership and usage rights defined for technological achievements, internal disputes can quickly escalate into battles over control of core innovations. Such conflicts not only deepen rifts among team members but also risk leakage and misuse of technology, ultimately harming the entire project.
Manqin Lawyers recommend building a robust IP protection framework in the following ways:
1. Prompt IP Rights Confirmation
Securing IP rights is foundational to protecting innovation. Startup teams should proactively apply for appropriate forms of IP protection, ensuring timeliness and accuracy. This includes auditing and categorizing all technical outputs, brand identifiers, and trade secrets to determine which should be protected via patents, copyrights, trademarks, or kept confidential under trade secret regimes. For instance, the底层 architecture and core algorithms of a blockchain project may warrant patent applications; UI designs and documentation can be registered for copyright; and brand names and logos should be trademarked promptly.
2. Sign IP Ownership Agreements
To prevent internal disputes over IP ownership, founding teams should execute clear IP assignment agreements. These should specify exactly which innovations belong to the team collectively, which belong to individual contributors, and how IP will be handled upon team dissolution or member departure.
Conclusion by Manqin Lawyers
The YesCoin incident serves as a wake-up call for the entire Web3 ecosystem. It is not merely a commercial dispute caused by unequal benefit distribution, but a legal disaster rooted in inadequate compliance and governance. In this high-potential yet high-risk emerging market, the importance of legal risk prevention cannot be overstated. Founders should learn from this case and establish rigorous legal frameworks and governance systems from day one—closing management loopholes before they lead to conflict and securing the long-term sustainability of their projects. We hope this article offers profound insight and actionable guidance for Web3 entrepreneurs and practitioners alike, contributing to a healthier, more transparent, and regulated future for the blockchain industry.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
