An Analysis of the Remedial Dilemma in Crypto-Related Disputes

Introduction: The Risks in Crypto-Related Cases Are Concentrated at the 'Remedy Stage'

When handling crypto-related cases, you will repeatedly encounter a very typical sentiment among clients:

"I know I was defrauded, the funds were indeed transferred, and the transactions are visible on-chain. Why is no one taking action, and why can't the funds be recovered?"

The problem often lies not at the factual level, but at the procedural level—

The clearer the facts, the more likely clients are to mistakenly believe that "remedies can be initiated." However, in crypto-related cases, whether remedies can be initiated depends first on three factors: legal characterization, jurisdiction, and the admissibility of evidence.

In recent years, the nature of crypto-related disputes has also changed:

Initially, cases mostly involved "theft of crypto assets" or "exit scams"; now, they more frequently involve structures thatappear quite formal(such as token listing services, USDT exchange services, and NFT investment platforms), butfeature more complex asset paths, more dispersed entities, and routine cross-border elements.Consequently, when cases progress to the "remedy stage," they commonly hit three walls:

  • The assets have value, but their nature and the transactional relationships are not easily characterized quickly:Do they constitute property, the subject matter of a contract, investment interests, or "instruments" within a suspected criminal chain?
  • Cross-border and multi-entity structuresturn jurisdiction and evidence collection into practical difficulties: On-chain data is here, the exchange is there, servers are overseas, and the individuals have fled?
  • Interplay between civil and criminal proceedings: Once a case is deemed to "potentially involve criminal offenses," civil proceedings are easily stalled or even transferred to criminal authorities, meaning the pace of remedies is entirely beyond the client's control.

Below, we use three relatively typical cases to clarify "why cases stall" and "what lawyers can do."

 

Review of Real Cases

Case 1: Cross-Border "Token Listing Service Fee" Fraud

A company from Country H planned to list its token on an exchange in Country S and liaised with a Chinese sales representative of the exchange. The parties agreed to pay800,000 USDTas a token listing service fee.

After payment, the sales representative became unreachable. The exchange stated that the individual had resigned and that the service fee had not been received.

Key Obstacles in Case Progression

  • The case involves significant cross-border elements, making it difficult to directly initiate civil remedies. In terms of procedural choice, the principle of criminal priority requires first resolving the issue of whether a criminal case should be filed.
  • The cross-border flow characteristics of crypto assets create practical difficulties for evidence collection and judicial jurisdiction, such as wallet transaction records distributed across different blockchains and exchange servers located overseas.
  • There is a divergence in legal characterization of the conduct: Whether it constitutes criminal fraud or civil breach of contract directly determines which procedural path the case enters and whether remedies can be initiated.

What Can Lawyers Do?

Step One: Do not rush to write a "narrative of being defrauded." First, map out "how the funds moved":Transfer chains, wallet addresses, timelines, counterparty identity materials, communication records, and feedback from the exchange.

Simultaneously prepare two sets of arguments:

For criminal proceedings: Highlightthe anchors for territorial/personal jurisdiction,and emphasize key facts demonstrating "intent for illegal possession" (inducement, fabrication of identity/authority, service promises, refusal to perform, loss of contact, etc.).

For civil proceedings: Compress the dispute into "payment of service fees—non-performance of services—unjustified possession by the counterparty," laying the evidentiary foundation for subsequent negotiations or property preservation.

Do not treat "exchange responses" as conclusions, but as entry points for evidence:It is common for exchanges to deny liability, but lawyers must transform this into leads regarding "the counterparty's internal management, authority, and business relationships."

Case 2: USDT Exchange Fraud

An investor met an "investment advisor" online and was recommended to exchange USDT through a USDT dealer. The investor cumulatively transferredover three million RMBto multiple accounts, but the funds never arrived. Later, the USDT dealer was arrested, but provided only exchange services and had no direct connection to the upstream fraud syndicate. The police ultimately terminated the investigation.

Key Obstacles in Case Progression

First conduct a "recoverability assessment" before discussing pathways. This assessment is harsh but necessary: Which accounts can still be frozen? Which entities can be located? Which evidence can form a closed loop?

Split the "fund flows" into two lines running simultaneously:

  • Banking side: Transfer chains, identities of recipient accounts, and fund destinations (whether concentrated or dispersed in the short term).
  • On-chain side: Whether there are nodes related to known wallets involving aggregation, consolidation, cross-chain transfers, or deposits into exchanges.

The core variable in such cases often lies not in "whether a lawsuit can be filed/a case opened," but in "whether asset control can be achieved at key nodes." We will simultaneously explain to clients the feasibility and risks at each node during the process, ensuring decisions are based on executability.

Case 3: NFT Investment Fraud

A client purchased a series of high-value NFTs through an online platform. The platform claimed that the relevant NFTs would yield future dividends from art sales and scarce digital rights. After the client paid approximately5 million RMBin total, the platform suddenly shut down, the website became inaccessible, and the person in charge became unreachable. Subsequent investigations revealed that the NFT smart contract code contained a backdoor, allowing assets to be transferred arbitrarily.

Key Obstacles in Case Progression

  • As derivative rights of digital assets, NFTs possess both investment and trading attributes. Their legal characterization remains highly uncertain under existing rules.
  • The high degree of anonymity of platform entities and smart contracts, combined with cross-border deployment, creates practical obstacles for asset tracking, entity identification, and judicial jurisdiction.
  • Even if technical tracking is possible through contract logs, on-chain records, or IP information, cross-chain assets often involve multiple jurisdictions, making actual recovery extremely difficult.

Expanded Practical Perspective

Translate technical facts into language understood by the judiciary:A contract backdoor means control does not lie with the client; "arbitrary transferability" corresponds to a key factual pillar for "intent for illegal possession."

Do not focus solely on on-chain evidence:Bank statements, recharge records, platform promotional promises, dividend mechanisms, chat logs, contract terms, and backend screenshots often persuade investigating authorities more effectively than "on-chain analysis reports."

More importantly, clarify the probability of recovery in advance:Contract backdoors + cross-chain transfers + anonymous structures essentially maximize the difficulty of asset recovery. Criminal proceedings may not necessarily "save" the assets, but they can at least strive to control key nodes.

 

Core Reasons for Hindered Civil Remedies

Reviewing the three cases above reveals that, although the case types varied, all encountered highly similar institutional obstacles on the civil path after entering the remedy stage.

1. Principle of Criminal Priority

  • Acts involving criminal offenses must first be investigated and filed as criminal cases; civil litigation usually must wait for the completion of criminal proceedings.
  • Once a criminal judgment disposes of property rights and interests, further civil suits will trigger the principle of "ne bis in idem" (no double jeopardy/res judicata).
  • If a civil case is to be transferred to public security organs because the court deems the conduct suspected of constituting a crime, the civil path is forcibly interrupted.

2. Difficulty in Cross-Border Accountability

  • Involved funds and suspects are distributed across multiple countries, severely limiting cross-border evidence collection, investigation, and enforcement.
  • Anonymity and programmability allow assets to be split and transferred within a short time, further weakening the possibility of recovery.

3. Complexity in Asset Identification and Conduct Characterization

  • Crypto assets may serve as payment tools or carry investment or derivative rights. Differences in characterization directly impact the remedial path.
  • Even if civil proceedings are initiated, courts often struggle to support return requests due to dispersed assets, insufficient evidence, or unclear application of law.

Practical Implications

Limitations on civil remedies are not merely procedural issues but institutional constraints.

In crypto-related cases, the criminal path remains the most realistic and feasible remedy. The core role of lawyers lies in helping clients reasonably plan their path and avoid exhausting the sole remedial space through poor procedural choices.

 

Implications for Lawyers: Do Not Just "Pile Up Materials," But Exercise "Path Control"

Combining the problems exposed at different stages in the aforementioned three cases, the core capabilities of lawyers in crypto-related cases can be summarized into three levels:Front-end risk identification, evidence and structural control during the process, and a clear understanding of institutional boundaries.

(I) Front-End: Identify Risks in Advance, Rather Than Remedying After the Fact

  • Judgment of Transaction Legality: Analyze whether the transaction touches upon illegal fundraising, fraud, or illegal business operations, with a focus on whether the token possesses securities-like characteristics.
  • Distinction of Asset Attributes: Payment or utility tokens are more easily included in the framework of "circulatable property"; tokens with return promises are more likely to trigger criminal intervention.
  • Prediction of Cross-Border Structures: Whether overseas entities, exchanges, or wallet addresses are involved directly determines the subsequent difficulty of accountability.

(II) Process: Construct Evidence Chains Acceptable to the Judiciary

  • Standardization of Contracts and Transaction Records: Clarify transaction purposes and rights/obligations, and systematically preserve on-chain flows and operation records.
  • Preservation of Cross-Border Communication Evidence: Bank statements, platform emails, chat logs, etc., require attention to formation times and continuity.

(III) Understanding Institutional Boundaries: Path Selection Is Strategy Itself

  • Most crypto-related cases cannot bypass criminal proceedings; the feasibility of the criminal path should be prioritized.
  • Civil litigation serves more as an auxiliary tool for negotiation and fund recovery, rather than the primary reliance.
  • Lawyers need to clearly manage client expectations, avoiding the misconception that "existence of procedure" equals "inevitability of result."

(IV) Advanced Practice: Moving Towards "Critical Judgment"

Many cases may still stall even if materials are prepared to perfection. The reason usually lies not in the level of effort, but in several "critical judgments":

  • How the nature of the conduct is understood(fraud vs. dispute; organizer vs. intermediate link; beneficiary vs. instrument);
  • Whether the risk structure can be identified in advance(return promises, aggregation nodes, exchange entry points, evidence of control);
  • Whether the window of opportunity was seized(freezing nodes, assistance investigation nodes, entity identification nodes).

These judgments are not written in statutes, but they determine the direction of the case.

 

From "What Can Be Done" to "When It Can Be Achieved": Turning Key Judgments into Reusable Methods

Returning to the previous three cases, a commonality emerges: Many crypto-related cases do not lack "rules," but ratherhave gaps between rules—characterization, jurisdiction, evidence, and asset control nodes, any of which can halt case progression.

A more realistic point is:

Even if lawyers prepare materials comprehensively, the case may still stall at a certain node—not due to capability issues, but because several types of "critical judgments" are encountered:

  • Is this fraud or a transactional dispute?
  • Can the liable entity be identified?
  • Is the window for asset control still open?

These judgments are difficult to explain with a single sentence of "experience" and cannot be directly deduced from a few statutory provisions. They resemble a "craft" of case handling:With the same facts, some can structure them into a case eligible for filing; others can only present them as a "suspected dispute." The difference often lies in how evidence is organized, how paths are prioritized, and how nodes are accurately targeted.

Therefore, the closed-door seminar/practical training we are arranging in Zhengzhou this year aims not to "repeat concepts," but to dismantle these judgments into work methods that lawyers can directly apply:

  • Focusing on nodes that are most prone to misjudgment and most impactful on results: When to prioritize criminal proceedings, when to strive for preservation, when to use civil proceedings as an auxiliary tool, and when to adjust strategy.
  • Systematically dismantling criminal entry points, jurisdictional anchors, asset control nodes, and the organization of evidence loops;

Clarifying the basic logic of the industry and transaction systems, while creating reusable frameworks for high-frequency risk structures in crypto-related cases, application of charges and defense angles, and methodologies for key nodes in case progression. The goal is simple—to enable you, in practice, tohandle consultations effectively and manage crypto-related criminal cases with greater stability.

 

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