Illegality Does Not Equate to Non-Adjudicability

In recent years, with open policies towards crypto assets in regions such as the United States and Hong Kong, and the gradual exploration of blockchain technology within China, the global wave of crypto assets has continued to heat up. Many financial institutions, traditional capital, and even certain government departments have recognized the asset and investment attributes of crypto assets, no longer viewing them solely as air scams or frauds. Meanwhile, an increasing number of people are eager to participate; many, attracted by stories of friends and relatives "getting rich quick" through trading crypto assets, have attempted to engage in crypto asset transactions.

Since the "September 24 Announcement" in 2021 characterized crypto asset trading as illegal financial activities, domestic policy has not relaxed at the regulatory level. However, four years later, a significant divergence between policy and judicial practice is emerging. On one hand, regulatory standards remain strict; on the other hand, courts in first-tier cities have begun to attempt layered handling of disputes related to crypto assets in civil judgments, partially supporting relevant civil claims, reflecting a trend of "prudent acceptance."

Today, we will analyze these cases to examine the latest perspectives of courts across various regions in China on cases involving crypto assets this year.

(Friendly Reminder: China is not a case law country. While courts may refer to past precedents when deciding cases, this is not absolute.)

 

Borrowed USDT and Failed to Repay? The Court Orders Repayment!

In June 2024 and January 2025, Wen borrowed 6,500 USDT and 14,400 RMB from Mao respectively for the purpose of trading crypto assets. Mao agreed to lend the funds and transferred them in multiple installments to Wen's USDT account. As the saying goes, "borrowing USDT is easy, but repaying USDT is difficult." After Mao repeatedly urged Wen to repay the USDT without success, Mao filed a lawsuit against Wen in court, presenting the IOU. [Case No.: (2025) Zhe 0109 Min Chu 4938]

The Xiaoshan District People's Court of Hangzhou determined that the private lending relationship between the two parties was legal and valid, and ordered Wen to repay Mao the full principal and interest.

From the perspective of Mankun Law Firm, this represents a relatively bold judicial decision in recent years, acknowledging the validity of borrowing USDT. In the judgment, the 6,500 USDT was converted into fiat currency value at the exchange rate of 1:7.3 at the time, and Wen was ordered to return the corresponding amount in RMB. Compared to previous years where claims were dismissed or cases were not accepted at all, the court's attitude towards crypto assets in this case has shown some improvement.

 

After Successfully Purchasing Crypto Assets, Can I Request a "Refund Only"? No!

In some past judicial cases, we have seen courts determine that transactions involving crypto assets are invalid due to violations of public order and good morals, requiring the return of completed crypto asset transactions.

Against this background, some buyers who successfully purchased crypto assets had ulterior motives, attempting to disguise the transfers for purchasing crypto assets as loans or fraud when filing lawsuits in court to try to get away with it. However, times have changed; many courts now possess knowledge regarding blockchain transfers. Even on the Shenzhen Court's mini-program, there is a service for verifying blockchain evidence.

Below, we share two recent cases to see how courts handle buyers attempting to request a "refund only."

  • Case 1: (2025) Yu 9001 Min Chu 3862

Facts of the Case: On February 2, 2023, Zheng transferred 10,000 RMB to Zhao via WeChat. Zheng filed a lawsuit claiming it was a loan and demanded Zhao return the principal. Zhao argued that there was no lending relationship between the parties, stating that the 10,000 RMB was part of the payment for Zheng's purchase of 2,100 USDT virtual currencies (at a unit price of 7 RMB, totaling 14,700 RMB), with the remaining 4,700 RMB unpaid, and that the USDT had already been delivered via the "Yi Shengtai Platform."

Court's Opinion: Zheng only provided WeChat transfer records and failed to prove the establishment of a lending relationship. Zhao provided evidence such as WeChat chat records, proving that the 10,000 RMB was payment for purchasing USDT and that 2,100 USDT had been delivered. Considering the background of the case, the court determined that the lending relationship was not established. Referring to the "Notice of the People's Bank of China and Nine Other Departments on Further Preventing and Disposing of the Risks of Speculation in Virtual Currency Transactions" (Yin Fa [2021] No. 237) and Article 157 of the Civil Code of the People's Republic of China, virtual currency transactions constitute illegal financial activities, and related civil acts are invalid. Losses shall be borne by the parties themselves.

Lawyer's Commentary: In this case, after paying part of the transaction consideration, the plaintiff attempted to claim restitution under the guise of a "lending dispute," which is a typical example of "regret-based rights protection."

After clarifying the factual background, the court did not support the plaintiff's claim, demonstrating an improved ability to identify the actual intent of virtual currency transactions and ascertain facts.

  • Case 2: (2024) Zhe 0122 Min Chu 4242 

Facts of the Case: The plaintiff, Wang, claimed that he was induced by the defendant, Li, to participate in USDT virtual currency investment. Between 2021, Wang transferred a total of 760,000 RMB to Li through various methods, entrusting Li to purchase USDT. After receiving the funds, Li transferred part of the money to third parties, such as Zhou and Hua, to purchase USDT.

The plaintiff claimed that the defendant did not actually purchase the USDT and that the changes in the platform account were due to data modification, demanding the return of the funds and interest. The court found that the plaintiff's entrustment of the defendant to purchase virtual currencies constituted an entrustment contract relationship. However, since virtual currency trading is an illegal financial activity, the contract was deemed invalid.

Court's Opinion: The court held that this case involves a dispute over an entrustment contract. The plaintiff, Wang, entrusted the defendant, Li, to purchase USDT. Participating in virtual currency investment constitutes an illegal financial activity, violating public order and good morals, rendering the contract invalid.

The bank statements provided by the defendant showed that after receiving the plaintiff's funds, he transferred them to third parties to purchase USDT. The plaintiff failed to prove that the defendant modified the platform data. Therefore, the court did not support the claim for restitution. According to the relevant provisions of the Civil Code, after a contract is declared invalid, the actor should return the property acquired due to the invalid contract. However, the defendant did not profit from it, and the funds were used to purchase USDT. The existing evidence was insufficient to support the plaintiff's claims, so all litigation requests were dismissed.

Lawyer's Commentary: In this case, Wang first claimed he was defrauded into buying USDT, and then claimed that the platform data was altered and the USDT did not arrive. This combination of arguments would likely confuse even Mike Tyson. The defendant merely helped Wang buy USDT and did not profit from it, yet faced the demand to return the huge sum of 760,000 RMB to the plaintiff, facing a situation of losing both money and coins.

Fortunately, after clarifying the facts of the case, the court made a fair judgment.

These are two typical cases of buying and selling USDT: one involves direct purchase from a USDT dealer, and the other involves indirect purchase through entrusting another person. Setting aside the crypto attributes, they are essentially a simple sales contract and an entrustment contract. We can see that in situations where both parties voluntarily and successfully complete the transaction, although contracts involving crypto asset transactions are invalid, courts will ascertain facts and restore the essence of the transaction by examining the transaction background, evidence materials from both parties, and their understanding of crypto assets. They flexibly apply corresponding legal provisions to properly handle disputes between the parties.

Therefore, after a successful transaction, if buyers wish to unilaterally recover fiat currency through various causes of action (such as unjust enrichment, loan contract disputes, invalidity of civil legal acts, etc.), attempting a "refund only" or "zero-dollar purchase," they should save their effort.

 

Isn't It Said That Risks Are Borne by Oneself? Why Did the Court Support a Refund!

  • Case 1: Principal Guarantee Constitutes Liability

Facts of the Case: Starting in September 2023, the defendant, Wang, induced the plaintiff to invest by claiming that investing in Tether (USDT) on a certain exchange would yield high returns. On September 19, October 21, and November 15, Wang issued "Letters of Guarantee," promising to compensate the principal and profits if the investment failed. The plaintiff transferred 1,589,900 RMB to Wang and designated accounts, and Wang purchased USDT worth 1,600,000 RMB for the plaintiff. In early 2024, the exchange ceased trading. The plaintiff sought recovery of the principal without success. Wang only returned 538,287.4 RMB, leaving 1,051,612.6 RMB unpaid. [(2025) Zhe 0127 Min Chu 331]

Court's Opinion: The plaintiff, Wang, entrusted the defendant, Wang, to invest in Tether (USDT). Since virtual currencies do not have legal tender status, the transaction violates financial security and public order and good morals, constituting an invalid contract. The plaintiff should bear the adverse consequences of the investment failure. However, the defendant induced the plaintiff to invest by promising to compensate the principal and profits through the "Letter of Guarantee," thereby committing fault and bearing corresponding liability. The court discretionarily determined that the defendant bears 60% of the liability for compensation for the remaining investment amount of 1,051,612.6 RMB, i.e., 630,967.56 RMB, and dismissed the plaintiff's other claims.

Lawyer's Commentary: When a contract is invalid and both parties are at fault, each shall bear corresponding liability. The plaintiff failed to exercise due diligence in entrusting the defendant to invest in crypto assets, thus bearing some fault. The defendant bore primary responsibility for inducing the investment. Ultimately, based on the principle of fairness, the court ruled that the defendant bear 60% of the liability for the principal.

  • Case 2: Taking Money Without Delivering Coins, Court Supports Refund

Facts of the Case: This case involves a contract dispute between the plaintiff, Xu, and the defendant, He. The core facts revolve around the purpose of the plaintiff's transfer of 10,000 RMB to the defendant in July 2023 and the subsequent dispute. The plaintiff claimed that the amount was a service fee for the defendant recommending high-yield stock investments. The defendant insisted that the 10,000 RMB was used by the plaintiff to purchase virtual coins (CG coins) on the CG platform for sports betting. [(2025) Yue 0104 Min Chu 16716]

Court's Opinion: The plaintiff's claim of stock investment service fees lacked sufficient evidence; mere transfer records were insufficient to prove the existence of a stock trading service agreement with the defendant. The defendant admitted receiving the 10,000 RMB and stated it was for virtual currency transactions, but such transactions violate China's financial policies, constitute illegal acts, and are not protected by law. However, the defendant could not prove that the virtual coins were delivered, and the platform was no longer accessible. Ultimately, based on the relevant provisions of the Civil Code, the court ordered the defendant to refund the 10,000 RMB.

Lawyer's Commentary: This is the counter-example to the so-called "zero-dollar purchase" mentioned in the previous cases. A seller who takes money but fails to deliver the coins is also not permitted to retain the funds.

  • Case 3: Post-Facto Commitment Is Valid

Facts of the Case: The plaintiff, Yi, and the defendant, Shen, had been friends for many years. Yi was engaged in foreign trade with Ukraine, and remittances became difficult due to the Russia-Ukraine war. In June 2023, the defendant, Shen, recommended a "reliable" remittance agency channel to Yi, introducing a third party, Zhong, claiming that Zhong had partners in Dubai to handle trade fund remittances. On June 27, as requested by Zhong, Yi instructed his employee "Dazhi" in Ukraine to convert 43,000 USD into USDT virtual currency and transfer it to Zhong, intending to exchange it for RMB to bring back to China. However, Yi did not receive the funds, and Zhong subsequently lost contact. On June 29, Yi went to Huzhou to communicate with Shen in person. In the early hours of July 3, Shen admitted to having "guaranteed" the safety of the funds and agreed to bear liability for 160,000 RMB, paying 60,000 RMB first and the remainder within three months. However, Shen has not paid to date. [(2024) Zhe 0502 Min Chu 3012]

Court's Opinion: An intermediary contract relationship was formed between the plaintiff, Yi, and the defendant, Shen. Shen introduced Zhong to provide remittance agency services to Yi, and Yi converted USD into USDT virtual currency and handed it over to Zhong for conversion into RMB. Since virtual currency transactions violate China's foreign exchange management system and public order and good morals, the intermediary contract is invalid. However, during the communication on July 3, Shen committed to paying 160,000 RMB and agreed on a payment time, forming a new valid contract. This commitment is independent of the invalid intermediary contract, does not violate public order and good morals, and should be protected by law. Shen failed to perform as agreed, constituting a breach of contract, and must pay 160,000 RMB plus corresponding interest.

Lawyer's Commentary: Private foreign exchange conversion is an illegal act and is not protected by law. However, in this case, there is a very important reason why the court supported the refund: the defendant's commitment to repay.

 

Lawyer's Summary

Judging from several precedents in 2025, although regulatory policies continue to maintain the characterization of "illegal financial activities," some courts have demonstrated more nuanced judicial judgments in specific cases:

  • If the crypto assets have been fully delivered, and the buyer claims restitution due to price fluctuations or other factors, the court tends to dismiss the claim.

  • If one party fails to fulfill the delivery obligation, the court supports the refund.

  • If one party engages in misconduct such as inducing investment or promising principal guarantees, the court may also discretionarily assign liability based on the principle of fairness under the Civil Code.

From these precedents, we can sense that judicial organs are attempting to seek a more refined adjudicatory balance between compliance baselines and realistic transactions.

For ordinary investors, when participating in transactions, it is still necessary to strengthen risk awareness and clarify the boundaries of responsibility. When necessary, one can fix the transaction process between both parties through contracts and written communication records, clarifying the substance of the transaction, to prepare for unforeseen circumstances.