In the Web3 industry, the rise of each new concept brings entrepreneurial opportunities, but it also comes with legal uncertainties in model design. From blockchain games, NFTs to DeFi and stablecoins, almost all popular sectors have seen projects that rapidly expanded, accompanied by the attention of judicial authorities.

The Chengdu "GUCS Qilin Mining Machine" case is one of the larger cases in recent years. In 2023, the court ruled on the case: the main perpetrator was sentenced to life imprisonment for fundraising fraud, core members received 15 years for organizing and leading pyramid schemes, and some individuals were also held criminally responsible for concealing and hiding criminal proceeds and for assisting in information network crime activities. The amount involved reached over one billion yuan, with participants spread across the country.

It should be noted that there are many charges involved in this case, but this article focuses on two types of risks closely related to Web3 entrepreneurial teams, CTOs, and technical positions:

First, the judicial identification of the crime of organizing and leading pyramid schemes; second, the potential involvement of some auxiliary positions in the crime of assisting information network crime activities.

After all, for most compliant entrepreneurs, there is no subjective intent to commit fraud, but the way they promote or design their models may inadvertently touch on pyramid scheme risks. Additionally, if technical personnel fail to identify the compliance of the project itself, they may also face accountability.

I Author of this article: Lawyer Shao Shiwei

1. Review of the GUCS Case: Legal Qualification of Pyramid Scheme Models

(Source: Weibo released by Chengdu Public Security)

The "GUCS" platform initially promoted itself with "Blockchain + Mining Machine Rental" as its selling point, claiming to "surpass Ethereum," attracting a large number of participants to invest funds. Conditions for entering the platform included paying a "disciple fee" or purchasing the so-called "Qilin Mining Machine," supplemented by a "master-disciple" format, forming a hierarchical relationship in the organizational structure.

In terms of the profit mechanism, the platform set both fixed "static returns" and guided participants to develop downlines through "direct push rewards" and "team rewards." As the model expanded, participation spread across 26 provinces and cities nationwide, attracting over 29,000 investors, with the amount involved reaching 1.794 billion yuan. Until the platform announced the closure of its mainland operations due to "policy reasons," related funds were transferred abroad, and the case was ultimately filed for investigation by public security authorities, dealing with multiple charges including fundraising fraud, organizing and leading pyramid schemes, concealment crimes, and assisting in information network crime activities.

The qualification of this case shows that if the operational logic possesses the legal characteristics of a pyramid scheme, it may be subject to criminal prosecution, regardless of whether it involves virtual currency or mining machine concepts.

2. Judicial Identification Standards: The Boundary Between Administrative Violations and Criminal Offenses

When understanding pyramid scheme risks, it is necessary to distinguish the boundary between administrative violations and criminal offenses.

At the administrative level, according to the "Regulations on Prohibiting Pyramid Schemes," if any of the following situations exist, it can be identified as an illegal act:

• The number of personnel developed is used as the basis for calculating rewards;

• Sales performance is used as the standard for rebates;

• Payment of fees is a condition for obtaining membership.

Such situations are usually dealt with primarily through fines and confiscation of illegal gains.

At the criminal level, Article 224-1 of the Criminal Law stipulates that if the behavior involves payment for entry, forming levels, using the number of people developed as the basis for remuneration, and the organization exceeds thirty people and levels exceed three, it is suspected of organizing and leading pyramid schemes. Especially when the so-called products or services do not genuinely exist or are significantly overvalued, the criminal risk will significantly increase.

In the GUCS case, the platform required payment to obtain participation qualifications, formed a multi-level network, and determined rebates based on the number of downlines. Judicial authorities thus determined that the project met the elements of pyramid scheme crimes.

3. Common Risk Links in Web3 Projects

From an industry perspective, some Web3 projects do not subjectively intend to engage in pyramid schemes but introduce designs with "hierarchical" or "rebate" elements for user growth or market expansion considerations. However, in legal evaluations, if these links are overly magnified, they may trigger criminal risks.

Common risk manifestations include:

• Setting payment, token purchase, or mining machine acquisition as necessary conditions for entry;

• Directly linking rebates to the number of personnel developed in community incentives, rather than to actual transaction amounts or service usage;

• Using promotional language that includes "fixed returns" or "guaranteed returns," which can easily be seen as evidence of high-yield inducement.

If these elements coexist, they may be viewed by judicial authorities as important characteristics of a pyramid scheme model. For project teams, even if the starting point is to expand the user base, careful design is necessary; otherwise, they may be mistakenly regarded as fundamentally no different from pyramid scheme cases.

4. Differences in Responsibilities Across Positions: Distinguishing Pyramid Scheme Crimes from Assisting Crimes

In pyramid scheme cases, judicial authorities have different identifications for different positions. Project initiators are usually seen as organizers and leaders, bearing direct criminal responsibility. However, in practice, management, promotional personnel, and even technical staff may also be recognized as having key roles due to their functions.

For example, in technical positions, if the person in charge develops or maintains a profit-sharing system or backend management module, and is aware that the system serves hierarchical rebates, yet continues to provide support for a long time, they may be recognized as an accomplice and bear criminal responsibility for pyramid scheme-related crimes. Even outsourced teams, if they play a significant role in critical aspects of system operation, may also be held accountable by judicial authorities for "assisting in information network crime activities."

It is particularly important to emphasize that judicial authorities usually distinguish between two levels when identifying the criminal responsibility of technical personnel.

Accomplices in organizing and leading pyramid schemes: When the technical person in charge is in a core position, deeply involved in the design of system rules, and knowingly supports its use in a pyramid scheme, they may be seen as jointly committing the crime with the initiator.

Assisting in information network crime activities: When technical positions or outsourced teams only provide services at a functional level, lacking control over the overall model, but are aware of illegal risks and still support system operation, they may touch upon "assisting crimes."

In other words, technical personnel, even if they do not hold an "organizing or leading" position, cannot completely distance themselves from responsibility. Judicial authorities will consider their awareness, level of involvement, and nature of work to determine what kind of criminal responsibility they bear.

5. Compliance Identification and Risk Response Pathways

For legally compliant entities conducting Web3 business, a more important question is: how to distinguish themselves from pyramid schemes? If questioned by judicial authorities, what aspects should they clarify to demonstrate their differences?

First, the profit logic of compliant projects should stem from real business activities. For example, some virtual asset platforms in overseas regions charge transaction fees for facilitating trades, and some on-chain applications rely on payment mechanisms during usage, such as in-game purchases in Web3 games or Gas fees in certain public chains (it should be noted that these models are not permitted in mainland China and are only referenced to explain the differences in profit logic). In contrast, the profits of pyramid scheme projects often primarily depend on the investments of new participants, which are fundamentally different.

Second, in the design of incentive mechanisms, care should be taken to avoid directly linking rewards to the number of downlines. If community nodes or dividends need to be established, they should be based on transaction volume or contribution rather than using "number of personnel developed" as the core standard.

Third, in external promotions, restraint should be maintained to avoid expressions like "fixed returns" or "guaranteed profits." Such language is often seen as false promises and can become unfavorable evidence if an investigation arises.

Finally, once an investigation occurs, project teams need to be able to submit complete operational records and data to prove that profits indeed come from real transactions or services. For example, transaction records, user purchase records, contract documents, compliance review opinions, etc., may become important materials to distinguish between pyramid schemes and compliant operations.

6. Insights for Entrepreneurs and Technical Teams

The insights from the GUCS case remind us that legal judgments do not change due to new concepts in the industry; they ultimately return to whether the model touches upon the elements of a pyramid scheme.

For Web3 entrepreneurs and CTOs, the focus should be on establishing clear business logic during the model design phase and building compliance review mechanisms.

For technical leaders and development teams, boundary awareness is also necessary. When undertaking development work, contracts, communication records, and version submission records should be preserved to prove that they are merely providing neutral market services rather than being the main designers of the model. These materials may become important evidence to avoid criminal liability in the future. More critically, before engaging with a project, they should possess preliminary compliance identification capabilities to recognize whether the business logic exhibits characteristics of "remuneration based on the number of personnel developed," thus avoiding high-risk projects.

7. Conclusion: Balancing Innovation and Compliance

The "GUCS Qilin Mining Machine" case once again reminds the industry that practitioners need to find a balance between innovation and compliance. Innovative models lacking compliance constraints may still touch upon the criminal boundaries of pyramid schemes. The focus of judicial identification lies in whether the operational model relies on payment for qualification and hierarchical rebates, rather than the technology or concepts used.

For Web3 projects, the real challenge is not technical implementation but how to ensure that the profit model is built on real products and services while maintaining growth. For technical positions and entrepreneurial teams, establishing compliance awareness, boundary awareness, and evidence awareness in advance is key to reducing legal risks.

Special Statement: This article is an original piece by Lawyer Shao Shiwei, representing the author's personal views and does not constitute legal consultation or legal advice on specific matters.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。