Original Author: Gao Mengyang - Senior Lawyer at Shanghai Mankun Law Firm

01. Virtual currency encounters sales pressure

Recently, the police in a northern province cracked a case involving cryptocurrency-related organized and leading pyramid selling activities. Because some clients had consulted us about this case, the Mankun team is quite familiar with the details. There are some aspects of this case that are worth the attention of the general public, so I will discuss them here.

The general plot of the case that consulted Mankun lawyers is as follows: the person involved learned about a certain project on the internet, where the project claimed that investing RMB to purchase USDT on the platform would result in unlocking and high returns every month. With a trial mentality, the person made an initial investment, and sure enough, the principal and interest were returned after 6 months. After successful verification, the person chose to increase the investment. In the first few months, the release was normal, but the person felt that the speed of capital recovery was a bit slow. At this point, the project staff told the person that inviting others to join would accelerate the unlocking process.

Thinking that it was a good investment opportunity to invite others to join and accelerate their own unlocking, the person recommended the platform to several friends.

As expected in a typical public service drama, an unexpected incident occurred. The project team was collectively arrested, and the person's investment of several hundred thousand RMB is currently uncertain whether it can be recovered.

This project involved the locking of virtual currency. "Locking" is a familiar term to us. In a positive sense, it is a common method used by cryptocurrency projects to increase security and circulation stability. Some lock for a certain period of time, some lock a certain quantity, and some rely on conditions for unlocking.

During the previous bull market, many fundraising projects in the cryptocurrency industry relied on the locking strategy to control the market. They usually promised a decent interest in cryptocurrency, such as an annualized 20%. After a rough calculation, users felt that they were making substantial profits, so they eagerly joined to "seek locking."

Then, they were harvested…

You don't need to wait for your assets to be unlocked; the market makers have already completed market-making, cashed out at high prices, and left, leaving users to reluctantly bear the consequences of forced selling.

Of course, times are changing, and that was the play of the previous generation. Everyone has become desensitized to the old methods. If the scams don't evolve, the scammers will also experience FOMO.

Returning to this case, it is indeed keeping up with the times. After experiencing a cycle of bull and bear markets, it is now very difficult to persuade users to participate in locking by offering interest returns.

02. "Go back and change the stretcher, and sell it next year"

Just like the case mentioned at the beginning of the article, many project teams are now using a new tactic to attract players. The new tactic is that while locking is still required, as long as you introduce new people, you can accelerate the unlocking process. The more people you introduce, the faster the unlocking. The people you introduce can also introduce new people, and a whole set of rules will be attributed to you, which will eventually be realized as benefits. In short, the more people you introduce, the sooner you can cash out, regardless of the impending disaster.

Doesn't it sound familiar? This is very similar to the core gameplay of the very famous MMM Ponzi scheme from the early years.

The so-called 3M scam was invented by a Russian named Mavrodi. The essence of the scam is that the platform issues a virtual item called "Mavro," and investors need to purchase this item first. After purchasing, there is a 15-day freeze period, during which you need to find other investors to enter and wait for them to buy your "Mavro" so that you can cash out and leave. The system automatically matches investors, with a matching period of 1 to 14 days. During the waiting period, there is a daily interest of 1%, so you can earn 30% interest in 30 days. Orders cannot be canceled during the 15-day freeze period, otherwise the account will be frozen. After 15-30 days, you can withdraw your principal and interest at any time.

Looking at it this way, the new tactic is just what's left of the 3M scam, a (technical) reincarnation of filth. Of course, even so, it cannot stop the enthusiasm of the majority of users to get rich overnight, and they continue to rush into this project. The result is that only the earliest users successfully withdrew their funds, and the subsequent game of passing the buck will definitely collapse due to the project's unsustainability. When the older generation enters the market, the scam will soon be exposed.

I wonder if many users standing at the police station reporting window recalled the hot and humid summer afternoon in 2018 when the investment advisor recommended a P2P project to them.

Of course, the 3M scam also has familiar elements— they also issued a "Morgan coin," claiming to be jointly named by the Morgan Group, and investing in it will make you profit. Just listen, what an advanced tactic, so it's not just fashion that's a circle, even scams are.

03. Positive advice

After all the rambling above, the intention is not to mock our users, but to emphasize that it is actually very simple to discern whether a project is a scam.

First, if a project's problems are obvious at first glance, it's better not to participate. Many people think they won't be the last "bag holder," but often things don't go as planned, and they end up being used as fuel. Even if someone around you manages to profit from it, don't blindly follow. Rest assured, what comes easily will also go easily.

Second, if the project's claims sound too good to be true, and you find yourself listening eagerly, nodding constantly, and fantasizing about getting rich overnight and reaching the pinnacle of life, then 97.40% of the time, the project is trying to scam you. Always remember, the cryptocurrency market is more volatile than the stock market, and risk always accompanies returns. If a project promises huge returns, then its risk is definitely extremely high, either a risk you may not have noticed, or one that has been carefully hidden.

Finally, whether a project can make money is actually unknown, but whether a project is compliant can be investigated. When in doubt, you can consult a lawyer. The Mankun team has conducted compliance evaluations of many projects currently on the market, which can be referred to.

In short, a compliant project may not necessarily make you money, but it can reduce the probability of being scammed. Seeking stability is always the right choice at present.

Special Statement:

This article is an original work of Shanghai Mankun Law Firm, representing the personal views of the author and does not constitute legal advice or opinions on specific matters.

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