In criminal cases involving virtual assets on the Chinese mainland, exchangesperpetual swapsare no longer merely a product name.
After many cases enter the investigation stage, case files will contain statements such as: users deposit funds USDT, select trading pairs such as BTC and ETH on the platform, predict price movements, open leveraged positions, and experience liquidation when market movements go against their positions. Subsequently, long and short positions are described as "betting on rises or falls," forced liquidations are described as "losses from losing bets," and platform employees may be included in narratives of "assisting in the operation of a casino."
But what exactly are perpetual swaps? Why do public security organs include them within the review framework for crimes such as operating a casino, illegal business operations, or even fraud? For different roles within exchanges, including technology, product, operations, customer service, and finance, which facts and evidence should be examined in these cases? These questions are more important than simply debating whether "perpetual swaps constitute gambling."
This article first provides a basic assessment: perpetual swap trading in virtual assets is not a compliance business that can be normally conducted in mainland China. Domestic entities providing contract trading, promotional traffic direction, payment and settlement services, and related intermediary services to domestic users face significant criminal risks.
However, "non-compliance" does not automatically equate to "operating a casino."
Although all referred to as perpetual swaps, they may involve unauthorized high-risk financial derivative transactions, gambling schemes organized under the guise of contracts with fixed outcomes, or controlled-market fraud involving fake prices, fake depth, and restrictions on withdrawals. The factual circumstances, directions of charges, structures of evidence, and individual liabilities differ across these three types of cases. If criminal characterization focuses solely on terms such as "price rises and falls," "leverage," and "liquidation," it is easy to compress different types of exchange cases into a single charge.
Why do public security organs describe perpetual swaps as "betting on rises or falls"?
Perpetual swaps are easily misinterpreted because their user interface indeed resembles a straightforward statement: go long if you expect prices to rise, and go short if you expect prices to fall.
Users select trading pairs such as BTC and ETH, set leverage multiples, deposit margin, and establish contract positions. If prices move in the predicted direction, the account shows unrealized profits; if prices move in the opposite direction, the account shows unrealized losses; if margin is insufficient, the system triggers forced liquidation.
If only this layer is considered, investigators may easily interpret the activity as "betting on price direction." However, the key distinction between financial trading and gambling activities lies not in whether price fluctuations are displayed on the interface, nor in whether users possess a speculative mindset, but in whether users can manage risk after opening a position.
In genuine contract trading, users hold a position that changes continuously. If market conditions move unfavorably, they may close the position to limit losses; if margin is insufficient, they may add margin; if leverage is too high, they may reduce it; and if their assessment changes, they may reduce their position, open an opposite position, or hedge. Even if market conditions are favorable, as long as the user has not closed the position, paper profits remain unrealized gains rather than settled proceeds.
The structure of gambling platforms differs. After placing a bet, users typically can only await a fixed outcome. Upon expiration, the result is determined, wins and losses are finalized, and funds are transferred. During the interim, users cannot alter their risk exposure by adding margin, reducing positions, hedging, or exiting early.
This constitutes the difference between a "contract position" and "placing a bet."
What truly warrants caution in case handling is that such linguistic shifts may subtly alter the direction of the case. Actions originally described as going long, going short, adding margin, or closing positions to limit losses on a contract trading interface may be reduced in investigation records merely to "buying for rises or falls"; situations where forced liquidation was triggered by insufficient margin may be reframed in loss descriptions simply as "losing a gamble." Once the case file begins to be constructed from this perspective, subsequent evidence collection may tend to retroactively support charges of operating a casino, rather than first clarifying the platform's trading mechanisms.
How to distinguish perpetual contracts from gambling? The key lies in determining whether the model operates on a "bet placed, hands off" basis.
In discussions regarding the boundary between perpetual contracts and gambling, Guiding Case No. 146 of the Supreme People's Court, Chen Qinghao et al. Operating a Casino Case, is frequently cited. This case is often invoked to illustrate that "leveraging financial market data may constitute operating a casino," but retaining only this conclusion may lead to misapplication.
The platform involved in the case was not a regulated foreign exchange trading platform. The perpetrators installed and downloaded software to receive market data, integrated foreign exchange market data into self-developed websites and plugins, and allowed users to select a specific foreign exchange instrument and choose to "buy for a rise" or "buy for a fall" within a period ranging from one minute to one hour. When placing an order, users were required to determine the amount and direction in advance, with the outcome determined by the direction of price movement upon expiration. If the prediction was correct, users received profits according to the platform's rules; if incorrect, the principal was entirely lost.
On the surface, this scheme involved foreign exchange instruments, candlestick charts, and market data software, and users did indeed make judgments on market movements. However, the court's determination of operating a casino hinged not on the presence of financial market data, but on the fact that the platform transformed foreign exchange prices into a binary outcome: whether the price would rise or fall upon expiration. After placing an order, users did not genuinely hold a manageable foreign exchange position, nor could they close positions, add to positions, reduce positions, or adjust leverage in response to price changes. Prior to expiration, users' ability to act was essentially exhausted; upon expiration, wins and losses were settled in a single instance.
In other words, Guiding Case No. 146 primarily targeted not the act of "making judgments using candlestick charts" per se, but rather the practice of "packaging a 'bet placed, hands off' model with candlestick charts." Foreign exchange market data served merely as a tool for determining outcomes; the platform was not operating foreign exchange trading services, but rather running a gambling operation centered around deposits, betting, expiration settlement, and the distribution of wins and losses.
The adjudicative significance of this case lies not in reclassifying a specific type of financial product, but in identifying forms of online gambling disguised under the guise of financial market data. As long as a platform transforms market volatility into a binary outcome with fixed timing, fixed win/loss results, and fixed settlement, and users are unable to manage risk during the process, criminal law may pierce through its financial packaging.
Applying this logic back to cases involving perpetual contracts clarifies the boundary. If a platform's so-called "perpetual contracts" merely allow users to bet on price rises or falls within a fixed timeframe, offering fixed returns for correct predictions and total loss of principal for incorrect ones, without allowing position closure, additional margin deposits, or position adjustments during the term, and with unified settlement by the platform upon expiration, such arrangements would likely fall within the analytical framework of Guiding Case No. 146.
However, if users can maintain open positions and are able to close positions, reduce position sizes, or post additional margin, with profits and losses directly tied to the opening price, position size, leverage ratio, and changes in the underlying asset’s price, it is inappropriate to equate such arrangements merely because they also feature a “buy long/buy short” interface withbinary options-style bets on outcomes.
Accordingly, Case No. 146 should not be simplistically construed as establishing that “any arrangement that uses derivative instruments to speculate on price movements constitutes gambling.” The genuine issue for review in perpetual contract cases is whether users retain risk control rights after placing orders, and whether the platform settles a continuously fluctuating trading position or a fixed win–loss outcome at a predetermined point in time.
Whether perpetual contracts constitute gambling depends first on whether users have risk control rights
In exchange-traded contract cases, debating solely whether “perpetual contracts are futures” is of limited significance. Criminal cases ultimately hinge on several verifiable facts.
The source of pricing must be clearly identified.
Does the platform use externally verifiable price indices, spot market prices, and clearing rules, or does it unilaterally manipulate prices, insert price spikes, or alter candlestick charts through its backend? If prices are controlled unilaterally by the platform, the purported trading lacks a foundational basis.
Whether users can exit and adjust their risk exposure must also be examined based on system records.
Can users close positions at any time, post additional margin, reduce leverage, or adjust their positions? If, after placing a bet, participants can only await settlement at a fixed time, the arrangement more closely resembles a gambling game; where risk dynamically changes during ongoing positions, it cannot be characterized as a “bet placed and final” scenario.
What revenue the platform actually earns is another key issue.
Does the platform primarily earn transaction fees, funding rates, and market-making profits, or does it primarily profit from user losses, take a rake, provide rebates, or share in agents’ wins and losses? The revenue structure directly reveals whether the platform is operating a trading service or operating a win–loss scheme.
Backend control authority must be segregated as a distinct component.
If the backend can modify balances, restrict withdrawals, manipulate market prices, or forcibly trigger liquidations, the case cannot be limited to an analysis of operating a casino; it must also examine whether there is a logic of fraud. Users believe they are facing the market, but in reality they are confronting platform manipulation, which is fundamentally different from genuine contract trading.
These facts are closer to the core of criminal characterization than questions such as “whether leverage exists,” “whether liquidations occur,” or “whether spot delivery takes place.”
Genuine Contract Trading, Gambling Platforms, and Manipulated Fraud: Three Types of Platform Evidence Are Entirely Different
When the transaction structure is disaggregated, perpetual contract cases typically follow three distinct paths.
The first category is the path of genuine contract trading.
The platform provides contract rules, price indices, margin requirements, funding rates, forced liquidation rules, and risk management systems, while users manage their positions based on market judgments. The platform’s revenue mainly derives from trading fees, funding rates, market-making profits, or other trading mechanisms. Although such business activities are not permitted in mainland China, criminal risks may primarily concentrate on illegal financial activities, assessments of illegal business operations, promotion to domestic users, and fiat on-ramp and off-ramp channels; however, its structure does not necessarily constitute a casino.
The second category is the gambling platform path.
The platform allows users to bet on price movements within a fixed time frame, offering fixed returns for correct predictions and total loss of principal for incorrect ones. Users cannot genuinely close, add to, or reduce positions, nor can they adjust risks in response to market changes. The platform operates around deposits, betting, result announcements, settlement, commission extraction, and agent rebates. In this context, K-line charts are merely materials for gambling, and contracts serve only as packaging.
The third category is the manipulated fraud path.
The platform lacks genuine trading depth and credible price sources; the backend can manipulate K-line charts, alter prices, modify balances, and restrict withdrawals. Users believe they are trading, but in reality they are induced to deposit funds, incur manufactured losses, and face restrictions on withdrawals within a fake market controlled by the platform. Such cases may sometimes resemble fraud more closely than operating a casino, or may involve concurrence of fraud with other crimes.
Such cases can initially be disaggregated along the following three paths:
Virtual Asset DerivativesProhibition Does Not Automatically Constitute the Crime of Operating a Casino
The regulatory stance of mainland China toward virtual asset trading and virtual asset derivatives trading is unequivocal. The Notice on Further Preventing and Disposing of the Risks of Virtual Asset Trading and Speculation, issued in 2021 by the People’s Bank of China and other departments, has classified business activities related to virtual assets as illegal financial activities and explicitly prohibited the conduct of businesses such as virtual asset derivatives trading.
This means that domestic entities conducting virtual asset contract trading, traffic diversion and promotion, payment and settlement, and related intermediary services for domestic users are inherently high-risk activities.
However, regulatory prohibition addresses the question of “whether this business may be conducted,” whereas the crime of operating a casino addresses the question of “whether the platform has organized gambling activities.” The former cannot automatically substitute for the latter.
If the case file can only prove that the platform conducted unauthorized virtual asset derivatives trading, but fails to prove that users were placing bets with finality on outcome draws, fails to prove that the platform took cuts from gambling funds, profited from user losses, controlled wins and losses, or established an agency system for participating in gambling, then directly applying the crime of operating a casino would conflate regulatory violations with gambling crimes.
The crime of illegal business operations cannot be resolved merely by stating that there is “no license.” This offense requires a violation of state regulations and must fall within the specific categories enumerated in Article 225 of the Criminal Law. Judicial application should strictly scrutinize whether novel business models constitute “other illegal business operations that seriously disrupt market order.” There may still be controversy in judicial practice regarding how virtual currency derivatives businesses are evaluated under the crime of illegal business operations; for such novel cases, it is even more critical to revert to considerations of legal hierarchy, regulatory basis, the substantive nature of the business, and procedural requirements.
Criminal characterization must not seek convenience. A judgment that directly characterizes genuine contract trading as a casino may subsequently affect the risk assessments of a large number of exchange employees, technical service providers, operational personnel, and ordinary contract users.
After Exchange Employees Are Detained, Focus Shifts to Their Roles, Authority, and Sources of Income
How the platform is characterized is the first-level issue; whether specific employees bear criminal liability is the second-level issue.
In exchange-related cases, the statement “I was just an employee” has limited effect. Criminal liability is not allocated evenly based on job titles in labor contracts, but depends on the specific position each individual occupies within the business chain.
The risks faced by technical personnel depend on whether they had access to basic login functions, routine operations and maintenance, and data dashboards, or to contract clearing, forced liquidation rules, backend risk control parameters, price controls, and data deletion. Writing code itself is not a crime, but if one long-term maintains modules that manipulate markets, insert price spikes, restrict withdrawals, or conceal the true trading logic, the nature of the conduct is entirely different.
The risk exposure of product personnel depends on what is expressly stated in the requirements documentation. Merely designing a trading interface is distinct from designing fixed-outcome mechanisms, loss-based rebates, forced liquidation with reinvestment, multi-tier agency structures, and user segmentation strategies designed to stimulate activity. In many cases, product documentation, requirements review records, and backend access privileges more accurately demonstrate the depth of involvement than oral confessions.
The risk exposure of operations and marketing personnel often centers on mainland China users, community promotion, agency rebates, "signal providers" leading trades, and deposit campaigns. If compensation is tied to user trading volume, deposit amounts, user losses, or agency performance, it becomes difficult to characterize such roles as ordinary internet operations.
Customer service and finance functions must be assessed separately. Handling routine account tickets, login issues, and failed identity verification is distinct from long-term handling of complaints related to forced liquidations, withdrawal anomalies, deposit rebates, and agency disputes. Personnel responsible for wallet consolidation, deposit and withdrawal audits, and fiat-to-USDT conversion channels are more closely linked to fund flows and settlement chains.
Therefore, defense strategies in such cases should not merely argue whether the platform committed a crime, but must disaggregate individual job roles, backend access privileges, sources of income, access to information, and timing of departure. The fact that a platform is characterized as illicit does not mean that all roles automatically constitute joint criminal liability; platform risk does not equate to uniform liability for every employee.
What should family members and the company organize first? Transaction structure matters more than slogans about charges
If a company, its employees, or their families are already involved in cases concerning exchange-based contracts, the priority is not to gather industry opinions, but to compile materials.
Platform mechanism materials should be prioritized: user agreements, contract rules, funding rates, forced liquidation rules, price index sources, matching records, order books, market maker agreements, risk control descriptions, and backend records regarding users' ability to close positions and add margin. These materials determine whether the platform operates more like a trading mechanism or a fixed-outcome mechanism.
Revenue structure materials should be compiled separately: whether platform revenue derives from transaction fees, funding rates, and market-making profits, or from user losses, rake, rebates, and shares of agency betting volumes. Many cases ostensibly dispute product features, but actually contest how the platform generates profit.
Backend control materials are indispensable: whether there are external market data sources, whether the platform can modify prices, insert price spikes, alter balances, or restrict withdrawals, who holds such privileges, and whether such privileges were actually exercised. The distinction between genuine contracts, gambling platforms, and fraud schemes often hinges on these factors.
Personal materials should also be secured early: employment contracts, offer letters, job descriptions, direct supervisors, code commit records, product requirements documents, backend access privileges, meeting minutes, work group chat logs, ticketing system records, salary statements, bonus calculation methods, and resignation materials.
Materials regarding subjective knowledge should be reviewed in reverse: whether employees were exposed to user complaints, withdrawal anomalies, agency rebates, "signal providers" leading trades, regulatory evasion, deletion of records, manipulation of market data, or restrictions on withdrawals. There remains a significant gap between knowing that the company offers contracts and knowingly participating in the organization of gambling or fraud.
These materials are not intended to fabricate a narrative, but to separate the characterization of the platform from individual liability. In perpetual contract cases, the greatest risk is not factual complexity, but the initial framing of "contracts equal gambling," which causes all subsequent evidence to be interpreted retroactively to support that conclusion.
Conclusion: Perpetual Contract Cases Cannot Determine Charges Solely by Inferring from "Price Fluctuations and Liquidations"
Virtual asset perpetual contracts do not constitute a safe business activity within mainland China. Domestic teams engaging in contract trading, promoting exchanges to domestic users, designing high-leverage products, or establishing fiat on-ramp and off-ramp channels may themselves cross regulatory red lines and expose participants to criminal risks.
Nevertheless, even high-risk businesses must be assessed under the correct criminal charges.
For genuine contract trading, the focus should be on illegal financial activities, disruption of market order, and domestic promotion issues. For gambling operations, the focus should be on fixed-bet mechanisms, bet settlement, commission-taking for profit, and agency structures. For manipulative fraud, the focus should be on fabricated market data, backend control, inducement of deposits, and restrictions on withdrawals.
Practitioners should not merely reassure themselves with claims such as "we are an exchange," "we have K-line charts," or "we benchmark against overseas platforms." What truly requires prior assessment includes price sources, trade matching mechanisms, revenue structures, user protection and risk management controls, fiat on-ramp and off-ramp channels, and agency rebate schemes.
For individuals already involved in cases, relying solely on the argument that "perpetual contracts are not gambling" is insufficient as a defense. The ultimate determination in such cases depends on how the platform operates, how funds flow, who controls the backend systems, the roles assumed by employees, and whether the evidence can link specific individuals to the core chains of gambling, fraud, or illegal business operations.
If already involved in a case, first organize the case stage, platform mechanisms, fund flows, backend permissions, job responsibilities, income structures, and existing legal documents into a statement of facts, and then determine the next steps for defense strategy. Under different factual structures, the conclusions may vary significantly.
*This article is an original work by Mankun Law Firm. It reflects only the personal views of the author and does not constitute legal advice or consultation on specific matters. We welcome contributions and disclosures from more Web3 practitioners. For reprint permissions and legal consultations, please contact our customer service at: mankunlawyer.
