8 Legal Challenges Faced by Web3 Entrepreneurs

In recent years, the rapid development of blockchain technology has attracted numerous entrepreneurs to the Web3 field. However, domestic Web3 entrepreneurs not only need to address issues related to their business but also face complex legal compliance challenges. This article summarizes common legal issues in Web3 entrepreneurship, hoping to provide some ideas and inspiration for entrepreneurs.

1. The Red Line of Domestic Web3 Entrepreneurship

Currently, there are three clear forbidden areas for engaging in Web3-related entrepreneurial projects within our country: issuing tokens, operating virtual currency exchanges, and mining. These activities are considered illegal financial activities, and entrepreneurs must strictly avoid them.

Token issuance projects are prone to risks of illegal fundraising. In September 2017, seven ministries issued a notice to halt all domestic ICO activities. The exchange of fiat currency for virtual currency in virtual currency exchanges was also deemed illegal. Furthermore, "mining" activities for virtual currencies were banned due to high energy consumption and carbon emissions.

2. Legal Risks of Web3 Project Models

The crimes of operating a casino and organizing and leading pyramid schemes are common criminal legal risks associated with Web3 projects. Taking Web3 games as an example, the issuance of tokens is prohibited in the country, and withdrawals of in-game tokens are also not allowed. If game developers directly or indirectly reclaim game items, there may be a risk of gambling involvement. If multi-level distribution or recruitment promotion models are used, there may be a risk of pyramid schemes.

3. Preventing Financial Crime Risks

Web3 platforms may be exploited for money laundering activities. The anonymity of transactions and their cross-regional characteristics increase the difficulty of tracing. As an industry closely related to funds, Web3 entrepreneurs will face higher requirements in anti-money laundering regulations. Establishing an effective anti-money laundering internal control system and fulfilling relevant legal obligations are issues that Web3 entrepreneurs must prioritize.

4. Legal Applicability of Overseas Projects

Even if the project is registered overseas, if it is essentially operated by Chinese nationals and aimed at users in mainland China, it may still be subject to the jurisdiction of Chinese criminal law. Adding foreign factors to the business model cannot completely avoid domestic legal risks.

5. Compliance of Overseas Fund Repatriation

Web3 entrepreneurs often face the issue of how to legally repatriate overseas income. One viable way is through foreign direct investment (FDI). Except for certain specific fields, foreign investors can enjoy the same rights and obligations as domestic investors in most Web3-related areas.

6. Information Protection and Data Security

Although blockchain emphasizes decentralization, the operation of Web3 projects still involves data management and cross-regional data linkage. Projects must comply with relevant laws and regulations and establish comprehensive data security management systems. Overseas projects must also comply with the relevant regulations of the country in which the project is located.

7. Risks of Virtual Currency Entrusted Investment Services

Although relevant policies classify virtual currency business as illegal financial activities, related disputes still occur in practice. It is recommended that both parties sign a written investment delegation agreement to clarify jurisdictional clauses in order to reduce potential risks.

8. Issues with Domestic Employees of Overseas Registered Companies

If the company's business violates our criminal law, it is difficult to completely avoid domestic criminal risks even if registered overseas. The main risks faced by domestic employees include insufficient job stability and the potential leakage of company confidential information.

Conclusion

Web3 entrepreneurs should fully understand the legal bottom line before starting their business. Even for overseas operations, if targeting domestic users, they must comply with the relevant regulations of both the domestic market and the country where the project is located. It is hoped that this article can provide clear ideas and practical suggestions for industry practitioners to support the steady development of the Web3 industry.