Romance Hurts; So Does Losing USDT
Recently, a friend in the crypto circle has been somewhat distressed. Last year, he met a young and beautiful girlfriend at an offline event, and they hit it off well. Their relationship was sweet and inseparable. To express his affection, he frequently sent gifts to his girlfriend. Naturally, the romance of crypto enthusiasts must be on-chain (primarily because cross-border fiat transfers are inconvenient). Therefore, the "red packets" this friend sent to his girlfriend were all in USDT (Tether).
Unexpectedly, this spring, his girlfriend initiated a "hard fork" and demanded a breakup. Amidst the heartbreak, this friend is concerned with only one question:Can I recover the nearly 1 million USDT I previously transferred to her?
My initial reaction to this question is: while it may not be technically feasible, it is certainly worth discussing from a legal perspective.
The Legal Nature of Tether (USDT)
According to Quark Encyclopedia, Tether (USDT) is a token called Tether USD launched by Tether Company, based on the stable-value currency, the US Dollar (USD). It is a virtual currency held in foreign exchange reserve accounts, pegging cryptocurrencies to the fiat currency, the US Dollar. This mechanism effectively prevents significant price fluctuations in cryptocurrencies, meaning basically one Tether is equivalent to one US Dollar.
On September 24, 2021, the People's Bank of China issued the Notice on Further Preventing and Disposing of the Risks of Virtual Currency Trading and Speculation. The Notice pointed out that virtual currencies do not have the same legal status as fiat currencies. Virtual currencies such as Tether have main characteristics including issuance by non-monetary authorities, the use of cryptographic technology and distributed ledger or similar technologies, and existence in digital form. They lack legal tender status and should not, and cannot, be circulated and used as currency in the market.
Article 127 of the Civil Code of the People's Republic of China stipulates that "Where laws have provisions on the protection of data and network virtual property, such provisions shall prevail." This provides a certain legal basis for the protection of virtual currencies under the law. Meanwhile, in specific cases, court judgments have also affirmed the property attributes of virtual currencies.
Thus, it can be seen thatalthough China prohibits virtual currencies such as Tether from being circulated and used as currency in the market, it does not prohibit the holding of virtual currencies.
Therefore, we need to further understand the nature of the act of transferring 1 million Tethers to a girlfriend.？
Under What Circumstances Will It Be Deemed a Gift?
According to Article 657 of the Civil Code, a gift contract is a contract whereby the donor gives their property to the donee without compensation, and the donee indicates acceptance of the gift.
Meanwhile, according to Article 143 of the Civil Code, a civil juristic act is valid if it meets the following conditions:
(1) The actor has the corresponding capacity for civil conduct;
(2) The intention expressed is genuine;
(3) It does not violate the mandatory provisions of laws and administrative regulations, nor does it contravene public order and good morals.
Therefore, if all the above conditions are met, the gift act is valid.
Premised on the validity of the gift, it is necessary to further distinguish whether the gift is a conditional gift or a general gift.
Typically, necessary financial expenditures inevitably occur between couples in love to maintain and develop their relationship and cohabitation. General property gifts implemented by both parties within the limits of daily life needs and the donor's economic conditions can be presumed to be unconditional gifts. However, if one party unilaterally gifts large amounts of valuable property to the other, presuming it to be an unconditional general gift across the board may encourage the undesirable social trend of reaping without sowing, violating the principles of fairness and good faith, and adversely affecting good customs.
Therefore, if during the relationship, both partiesfor the purpose of marriageengage inlarge-value property giftsthat far exceed personal income and consumption levels, courts typically consider factors such as the duration of the relationship, financial interactions, and family incomes of both parties, and comprehensivelydetermine whether it is a general gift or a conditional gift。
Under What Circumstances Will It Be Deemed a Loan?
Of course, it may also fall under another scenario, namely a loan. If it constitutes a conditional gift or a loan,after the breakup, the man may request the return of the 1 million Tethers transferred to his girlfriend.However, it should be noted that whether claiming a conditional gift or a loan,the man must fully collect and organize relevant evidence materials in advance when requesting the woman to return the Tethers; otherwise, the desired outcome will be difficult to achieve.
If It Is a General Gift, Can It Be Revoked?
In this regard, Article 663 of the Civil Code stipulates that the donor may revoke the gift if the donee commits any of the following acts:
The donor's right of revocation shall be exercisedwithin one year from the date the donor knows or should have known the cause for revocation.According to Article 665 of the Civil Code, if the person with the right of revocation revokes the gift, they may request the donee to return the gifted property.
Generally speaking, the woman merely accepting the virtual currency gifted by the man does not amount to "seriously infringing upon the legitimate rights and interests of the donor or the donor's close relatives." If there is no clear agreement between the parties regarding the obligations to be borne for receiving the gift, and the woman does not have a support obligation towards the donor, it would be difficult to apply the aforementioned legal provisions to revoke the gift after it has been made.
Under What Circumstances Will It Be Deemed Financial Management?
According to Article 8 of the Civil Code, civil subjects engaging in civil activities shall not violate laws or contravene public order and good morals. Chinese laws and administrative regulations do not prohibit the holding of virtual currencies,but when virtual currencies serve as the subject matter of entrusted financial management, such mutual consent for entrustment will be deemed invalid due to violation of public order and good morals.
For instance, in the Civil Ruling on Retrial Review and Trial Supervision in the Contract Dispute between Zhang and Hu ((2023) Jing Min Shen No. 463) by the Beijing High People's Court, the court held that the parties agreed on investment terms, investment return standards, investment remuneration standards, etc., regarding entrusted financial management, forming a contractual relationship for entrusted financial management. However, the subject matter of the entrusted financial management agreed upon by the parties was virtual currencies. The virtual currencies involved in this case, including Bitcoin and Tether, are not digital currencies recognized by China that can be exchanged with fiat currencies. Ministries and commissions including the People's Bank of China have issued documents such as the Notice on Preventing Bitcoin Risks (Yin Fa [2013] No. 289) and the Announcement on Preventing Risks of Token Issuance and Financing (2017), explicitly denying the legal status of virtual currencies as fiat currencies. Although Chinese laws and administrative regulations do not prohibit the holding of virtual currencies, when virtual currencies are used as the subject of financial management, their attributes assume the role of fiat currency.
In this case, the act of Zhang and Hu using virtual currencies as the subject of entrusted financial management equated virtual currencies with fiat currency, aiming to obtain profits through virtual currency transactions. The second-instance court accordingly determined that this act substantially disrupted public order and would disturb the national financial order, and thus ruling the entrusted financial management contract invalid was appropriate. Zhang's claim that the state had not explicitly determined during the period when the disputed facts occurred that virtual currencies were not protected by law lacked basis. Zhang further claimed that the delivery for entrusted financial management was in Renminbi, merely directed towards investing in virtual currencies, and thus should be protected by law, which had no factual or legal basis. Since virtual currencies do not have the same legal status as fiat currencies, when virtual currencies assume the role of fiat currency for entrusted financial management, the relevant rights and interests of virtual currency holders are not protected by law. Therefore, in the circumstance where the entrusted financial management contract involved in the case was invalid, the second-instance court's determination that Zhang should bear the consequences caused by his entrusting Hu to conduct virtual currency transactions was also appropriate.
In the Civil Judgment on the Sales Contract Dispute between Ma and Liu ((2022) Min 07 Min Zhong No. 1026) by the Nanping Intermediate People's Court of Fujian Province, the court held that the subject matter of the transaction involved, "Tether," is not a currency issued by authorities but a type of virtual currency, lacking the same legal status as currency. According to the spirit of relevant provisions in documents issued by ministries and commissions including the People's Bank of China, such as the Notice on Preventing Bitcoin Risks (2013) and the Announcement on Preventing Risks of Token Issuance and Financing (2017), the circulation and use of virtual currencies such as Tether as currency in the market and token issuance and financing activities are essentially prohibited. Therefore, the purpose of the contract involved in the case was illegal and disturbed the socio-economic order, and the contract should be deemed invalid. Article 157 of the Civil Code of the People's Republic of China stipulates that "After a civil juristic act is determined to be invalid, revoked, or ineffective, the property acquired by the actor as a result of such act shall be returned; if return is impossible or unnecessary, compensation at value shall be made. The party at fault shall compensate the other party for the losses suffered thereby; if both parties are at fault, they shall bear corresponding responsibilities respectively. Where laws provide otherwise, such provisions shall prevail."
Finally, it is noteworthy that Article 84 of the Minutes of the National Courts' Financial Trial Work Conference (Draft for Comments), released by the Supreme People's Court in April this year regarding the trial of disputes over entrusted investment in virtual currencies, clarified the determination of entrusted investment contracts and distinguished based on time nodes, namely:If the entrusted investment contract was signed after the release of the Announcement on Preventing Risks of Token Issuance and Financing (September 4, 2017), the people's court shall deem the entrustment contract invalid because the agency matter is illegal.Regarding the losses suffered by the principal thereby, the cause of the occurrence of the entrusted matter may be taken as the primary factor in determining the degree of fault, to be shared by the parties.
Therefore, if the purpose of transferring Tether to the girlfriend at that time was for her to assist in investment and financial management, it is necessary to examine whether the date when the mutual consent for entrustment was reached was after September 4, 2017. If it was reached after the release of the Announcement on Preventing Risks of Token Issuance and Financing on September 4, 2017, the people's court shall deem the entrustment contract invalid because the agency matter is illegal; if it was reached before the release of said announcement, the entrustment contract is legal and valid.
Mankun Lawyer's Recommendations
Feelings are priceless; Bitcoin has a price.To all friends in the crypto circle: when making external transfers, regardless of whether the recipient is your own girlfriend or someone else's, you must complete the following preparations in advance when transferring your virtual currencies to the other party:
1. Clarify the purpose,i.e., is the coin transfer behavior you are about to undertake intended to maintain the relationship and please the other party, or do you intend to lend it to them, or is it for other considerations? If it is to please the other party, you might use auspicious numbers like 520 or 1314; if it is a loan, it is advisable to use round numbers plus remarks.
2. Reach mutual consent,As it is a bilateral act, effectively communicate your purpose and considerations with the other party in advance, for example, via WeChat (rather than in Telegram groups or other software with disappearing messages). Respecting the other party is also a better way to protect yourself; after all, even brothers keep clear accounts.
3. Leave a trail,The process of generating mutual consent and the process of the act's occurrence must be traceable. As the old saying goes, oral statements are no proof; written evidence stands. Do not delete WeChat contacts and chat information as soon as a conflict arises between you two. Remember: what you are destroying is not the relationship, but the evidence.
