Not long ago, a consultant reached out to me.
He said that a friend of his had set up a Web3 project studio and recently posted a promotional link for a new project in his social circle.
The gameplay seemed incredibly simple—stake 500U, receive 30% back in a month, and invite friends to earn promotional rewards.
He told me that the number of participants in this project was rapidly increasing, and many veteran players were sharing screenshots of their earnings, making it look like a guaranteed profit.
So he was tempted to join his friend's studio to make money. However, he hesitated: although he had heard terms like "staking," "referral," and "token dividends," he was completely unclear about whether such gameplay was legally safe.
“Lawyer Shao, is there any risk for me in this model?” he asked.
I, the author of this article: Lawyer Shao Shiwei
1. Token Staking Gameplay: Revenue Mechanism and Propagation Logic
From the project mechanism perspective, the design of such Web3 projects is not complex; it essentially follows the common logic of “staking + rebates + referrals.” In various Web3 communities, QQ groups, and social circles, similar projects usually appear under the guise of “on-chain finance” or “high-yield staking plans,” often accompanied by revenue displays or operation tutorials to attract user attention. Overall, this model resembles a growth system that uses token staking as an entry point and promotional incentives as an extension.
On the operational level, users need to connect their wallets at the project party's official website and interact with its DApp to complete the staking operation. According to the consultant, the minimum staking threshold is 500U, with a lock-up period of one month, after which users can receive token rewards issued by the project party. Although it formally belongs to “staking for tokens,” the return period and revenue level depend on market fluctuations in token prices. If the token price drops during the unlock period, the value of the USDT that users receive back will correspondingly decrease.
To stimulate user growth, project parties often layer promotional incentive mechanisms. Participating in staking is a prerequisite for entering the promotional system. When existing users invite new users to participate, the system calculates the reward ratio based on the number of new users added daily. For example, if the number of new users increases by 30% compared to the previous day, a token reward of 30% of the staking amount can be obtained; if the target is not met, the reward ratio will decrease accordingly. This setup is formally represented as “dynamic incentives,” but structurally exhibits characteristics of a hierarchical relationship.
The method of distributing rewards is that the project party directly sends the reward tokens to the participants' wallet addresses, while the incentives for lower-level users are distributed by higher-level users, forming a chain-like profit-sharing path.
It is worth noting that, according to the consultant, although the token has been listed on mainstream exchanges and is open for trading, the aforementioned staking and promotional activities are conducted within the DApp ecosystem independently deployed by the project party, with no direct connection to the trading matching mechanism of the exchanges.
So, as a Web3 studio, if one participates in such projects, will there be legal risks?
2. Comparative Analysis: Using Binance Launchpool's Compliance Framework as an Example
Before diving into the analysis, it is important to clarify: according to policy documents such as the 924 notice, virtual currency-related businesses are classified as illegal financial activities in mainland China. The cases mentioned below are solely for comparative analysis to better illustrate risk differences and do not constitute any investment advice or participation guidance.
Let’s compare this with Binance's Launchpool to identify the main issues in such Web3 token staking gameplay.
Formally, both emphasize “staking tokens to earn rewards,” but there are essential differences in operational methods, asset security, and sources of income.
In Binance's Launchpool, the assets staked by users (such as BNB, USDT, etc.) are held in custody by the Binance platform, and the project party cannot directly access users' funds. The rewards partly come from a token incentive pool reserved by the project party, which Binance distributes according to established rules. The entire process has relatively complete information disclosure, clear fund flow, and users can withdraw their principal at any time after the staking period ends. For users, the biggest risk is token price volatility, not fund security or redemption issues.
In many token staking Web3 projects, the project party often requires users to stake USDT directly in their deployed DApp to exchange for project tokens. This means that users' funds go directly into a wallet address controlled by the project party, without third-party custody or independent security audit mechanisms. The project party typically promises “high rebates after the lock-up period” and may even display profit curves on the user interface to create an impression of “stable returns.”
In fact, the essence of such staking behavior is highly similar to the early common practice of ‘Initial Coin Offering’ (ICO)—the project party raises funds by issuing or releasing its own tokens and uses ‘staking rebates’ or ‘monthly unlocks’ for redemption. The appearance has merely shifted from “token issuance financing” to “staking finance,” making it more covert while still possessing fundraising characteristics.
The token rewards from Binance Launchpool come from the project party's predetermined token distribution ratio, such as reserved ecological incentives or market promotion shares; whereas in these “staking mining” activities, the tokens issued by the project party are often new coins that have not yet formed a market price, lacking stable value support and clear issuance limits. When subsequent participants continuously join and the fund pool expands, the project party can cash out by controlling prices and concentrating sales (commonly known as “dumping”). The price's wild fluctuations often depend on the project party's internal operations.
Additionally, there is another often-overlooked comparison point—the referral mechanism.
Binance does have an invitation rebate program, but its core design incentivizes user registration, deposits, or trading behavior, rather than specific token “invitation rebates.” Referrers typically receive a small amount of token vouchers or fee rebates, which come from the platform's marketing budget, do not affect the market price of any project token, and do not constitute a profit promise.
In contrast, the “referral rebates” mechanism in these Web3 projects is often directly linked to token issuance: existing users invite new users to participate in staking to obtain additional rewards, even setting a requirement that “the number of new users must exceed the previous day.” This practice allows the project party to achieve user growth at a very low cost while creating a positive feedback loop between token rewards and new funds. In the short term, it appears active, but in essence, it uses the funds invested by new users to pay out the earnings of old users. Once user growth stagnates, the token price immediately loses support.
From the above comparison, it is evident that the core purpose of such Web3 projects is not long-term operation, but rather to rapidly gather funds and traffic through the “staking + rebates + referrals” model, and then sell off at a high price point.
Their operational paths often exhibit the following characteristics:
Circumventing regulation: Collecting USDT directly from users without going through exchanges to avoid scrutiny;
Lock-up control: Delaying selling pressure with “one-month unlock” to maintain superficial stability;
User growth through referrals: Promoting user growth through hierarchical incentives, replacing market deployment costs;
Cashing out: Once the token gains liquidity on external exchanges, the project party concentrates sales to recover funds.
On the surface, this appears to be an on-chain staking activity; but in essence, it is closer to a fundraising process mediated by tokens.
In contrast, the essence of Binance Launchpool is that the exchange helps the project party “transfer tokens and attract users” within a compliant framework through custody and regulated distribution; whereas these staking rebate projects are self-designed and controlled circular systems for fund flow by the project party.
One relies on platform disclosure and audit operations, while the other depends on the project party's credit and promises, making the risk levels vastly different.
3. Legal Risk Analysis for Web3 Project Studios
In many token staking projects, Web3 project studios often directly participate in the operational aspects of the project with the core goal of obtaining rebates or token rewards.
They may personally engage in token staking, build communities, promote referrals, create and publish traffic-generating content, and even establish “team hierarchies” to calculate rebate ratios.
In other words, the studio and the project party have become a community of interest formed based on revenue incentives.
This model is quite common in the early Web3 market.
To quickly gather users and funds, project parties often provide these studios with additional token rewards, node incentives, or high rebate ratios; while studios, in turn, actively build their own community systems to guide new users to register, stake, and deposit.
Many studio leaders are also participants in staking; they play dual roles as both investors and promoters within the project.
As this mechanism is continuously replicated, the entire system can easily evolve into a hierarchical propagation model resembling a “pyramid structure,” where the earnings of old users come from the continuous financial input of new users.
This model bears a high degree of similarity to virtual currency pyramid scheme cases that have been clearly identified by judicial authorities in the past.
For example, in the 2014 “Darkcoin case,” the project party raised funds under the guise of “mining rebates,” where participants earned profits by developing members and guiding them to purchase “mining machines.” The so-called “static earnings” received by members came from virtual coins allocated by the system based on levels, while “dynamic earnings” depended on the number of members and level commissions, ultimately forming a typical hierarchical pyramid scheme structure.
Similarly, in the 2018 “EOS ecological platform case,” participants received static earnings based on the number of EOS coins they invested, as well as dynamic earnings based on the number of downline members and their investment amounts. The court ultimately determined that the platform was essentially a pyramid scheme using virtual currency as a medium.
In judicial practice, the risks for personnel in Web3 studios mainly focus on promotional and traffic-generating activities.
They help the project continuously expand its user base through community growth, issuing invitation codes, organizing online training, or creating revenue display content.
If these activities are coordinated with the project's fundraising efforts, they may be viewed as “providing assistance in committing a crime.”
For instance, in the “GUCS Qilin Mining Machine” case, some peripheral participants, although not core members of the project, were held accountable by judicial authorities for organizing fundraising and assisting in guiding users to invest.
Such cases indicate that as long as participants help the project expand its funding sources and attract investors through their actions, even if they are not the main responsible parties, they may still be deemed to have substantial assisting roles at the criminal level.
For Web3 project studios, this means that the risks they face are far greater than those of ordinary investors.
They not only earn profits from the project as participants but also bear promotional responsibilities;
the outcomes of their actions directly affect the formation and continuation of the project's funding chain.
Therefore, once a project is classified as suspected of fundraising fraud, illegal public deposit acceptance, or organizing and leading pyramid schemes, studio members are likely to be drawn into criminal investigations and become suspects of complicity or assistance.
4. In Conclusion: High Returns Often Come with High Risks
From the perspective of regulation and judicial practice, token gameplay primarily characterized by “staking rebates,” “node incentives,” or “referral rewards” is essentially a variant of fundraising social capital under the guise of virtual assets. Regardless of whether it emphasizes technological innovation or ecological construction, as long as the distribution of returns relies on the continuous input of subsequent participants, it possesses characteristics of illegal financing or hierarchical rebates.
In the actual operation of such projects, the project party often controls the fund entry and token issuance rhythm, while Web3 project studios are both participants and promoters. Studio members, while helping new users stake, disseminate project information, and organize community operations, are effectively involved in the entire process of fundraising and incentive distribution. As the project scales, this participatory relationship can easily bind the interests of the studio to the project party, making it difficult to completely absolve responsibility once the project is under regulatory scrutiny or investigation.
Therefore, for practitioners, the key to assessing risk lies in whether the value support and redemption sources of the tokens are clear and transparent. If the project's revenue structure is unclear and the flow of funds cannot be verified, any earnings obtained from participation should be regarded as high-risk income, indicating potential legal risks.
[i] [Learning from Cases] Mysterious “Darkcoin” Organization Absorbs 1.5 Billion; Jiangsu Prosecutor's Office Prosecutes and Sentences _ Jiangsu Procuratorial Network https://www.jsjc.gov.cn/toutiao/201706/t20170609_150654.shtml
[ii] Chen Mouzhi and Others Organized and Led Pyramid Scheme Case—Determining the Nature of Behavior Requiring Investors to Purchase Coins and Join Under the Pretext of Providing Virtual Currency Appreciation Services https://mp.weixin.qq.com/s/gFJGDHgYOQlaR4fzKD-4iQ
Special Statement: This article is an original piece by Lawyer Shao Shiwei, representing only the author's personal views and does not constitute legal consultation or legal advice on specific matters.
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