What should be noted when joining a Web3 token issuance company?

Author: Lawyer Liu Honglin, Mankun Blockchain

Over the weekend, a friend searched for legal issues related to blockchain on Zhihu, read several articles shared by Lawyer Honglin in the past, and found the professionalism quite acceptable. He specifically scheduled a paid consultation with me, during which I answered some of his most pressing questions in half an hour. Afterward, I整理了问题，发现都是币圈的从业者朋友常常会遇到的困惑，不妨简要总结一些，供相关的朋友参考。

1. If a company wants to issue tokens, are there legal risks?

China encourages blockchain technology but does not welcome virtual currencies. As individual citizens, investing in and trading virtual currencies is generally a matter of self-bearing both profits and risks; the state does not encourage it but does not deny it either. The only concern is whether the buying and selling process involves gray or black market activities that could lead to the freezing of bank cards or exchange accounts. It is important to note that in the past two years, the crime of aiding and abetting has risen to the second highest in the country, with virtual currency players making up a significant portion.

According to our understanding of China's virtual currency regulatory policies, there are three things that are clearly prohibited in China: First, the issuance and fundraising of virtual currencies, which we refer to as token issuance. If a company wants to issue tokens and list them on an exchange, but its products and services are aimed at the Chinese market, then promoting the project to Chinese citizens would be a clear violation of the law.

Second, virtual currency mining is not allowed in China, especially mining that consumes a large amount of electricity, such as Bitcoin mining. As for the recently popular DePIN track, whether it will be uniformly classified as virtual currency mining, Lawyer Honglin personally holds a reserved opinion.

The third is the business of virtual currency exchanges. Any promotional and advertising activities for virtual currency exchanges targeting Chinese citizens are illegal in the country. This is something that many people overlook when they remotely assist virtual currency exchanges with project promotion in China; everyone should be aware of the risks. It is not that working in a dispersed manner eliminates risks, nor is it safe just because the company communicates via Telegram. This underestimates the capabilities of Chinese law enforcement in investigating cases.

2. If a company does not issue tokens, can it sell NFTs?

As a neutral technology, NFTs are not prohibited by law; whether NFTs can be sold depends on the corresponding rights and empowerment. If you are selling game item NFTs, membership card NFTs, or avatar NFTs, there should not be much of an issue, whether overseas or in mainland China. For example, the digital asset of the Bright Membership Card issued by the Shanghai Digital Exchange recently. I personally believe it is an NFT of a membership card.

However, it is important to note that NFTs issued and sold in mainland China can only be purchased with RMB and not with USDT or ETH.

3. Currently, there are no written agreements signed with the company, salaries are paid in USDT, and social security is paid by oneself. What are the legal risks?

Many Web3 companies adopt a distributed office model, which may seem appealing to those who "join" the company, as they enjoy flexible working hours without clocking in, and their salaries do not require social security contributions or tax deductions, resulting in noticeably higher take-home pay compared to those working honestly in China.

However, everything has two sides. From a financial perspective, not allowing the company to help with social security and tax deductions is actually welcomed by the company because it saves a lot of money. It is important to know that if the company pays you a salary of 10,000 yuan, the actual cost to the company is about 14,000 yuan. Where does the extra 4,000 yuan go? It is actually allocated to your personal accounts for social security and housing fund contributions. For workers, this money is essentially hidden income.

Moreover, tax and social security contributions relate to local resident benefits or policies regarding household registration. You may not feel it now, but when friends in the crypto space consider buying cars, houses, or getting married and having children, they will realize the downsides of not paying social security and housing fund contributions.

Of course, some friends may choose to find service providers to handle these payments, but in such cases, if the company decides to terminate your employment, you will clearly not be protected by Chinese labor law. Recently, a friend working in Web3 was dismissed without reason during her pregnancy and did not receive any compensation in terms of labor law. Such labor rights issues are something that those who only receive tokens should be aware of.

4. If I am in a basic position responsible for program development, what legal risks do I face if the company encounters issues?

Generally speaking, project owners or actual controllers in the crypto space often choose to live overseas for a long time or have already obtained overseas identities to mitigate their criminal legal risks in China.

However, due to operational and labor cost considerations, a large number of employees remain in mainland China.

Assuming the worst-case scenario occurs, if the company's project involves criminal activities, employees working domestically will naturally be implicated. This is particularly evident in Web3 startups in Shanghai and Shenzhen. It is common for core employees and management to be asked to assist in investigations and even be detained. According to the principle that greater ability entails greater responsibility, department heads and above usually face more significant criminal liability or pressure, while grassroots workers face lower risks. However, this division of responsibility is not absolute; it ultimately depends on your level of involvement and knowledge of the specific project as a company employee.

Previously, a friend who had been working in the crypto space consulted Lawyer Honglin offline because he recently participated in a project that was investigated by domestic public security. He spent a few days in detention before being released on bail. Afterward, he still planned to look for a Web3 job, simply because the salary offered was high. This friend even candidly stated: if I can earn a few million in this company, I could spend a few years in prison. This shocked me.

In Conclusion

For many professionals in various industries, criminal risks are likely to be something that has little to do with them throughout their lives. However, in the Web3 industry, the prevention of criminal legal risks has become a necessary knowledge point for the profession. The reason is simple: this industry is too close to money, and the financial risks are too high. Therefore, for friends considering joining a Web3 company or those in their current company planning to issue tokens, it is beneficial to learn more about relevant laws regarding virtual currencies in China. For uncertain matters, consulting a knowledgeable lawyer to identify potential pitfalls is very necessary.