Attorney Shao Shiwei | Is It Legal for Internet Celebrity KOLs to Issue Tokens Allowing Fans to Share in the Profits? Examining How Friend.tech and Time Store Leverage the Fan Economy

Introduction:

Have you ever considered that you yourself could become an NFT? The recently popular platforms Friend.tech and Time Store operate on this model. Key Opinion Leaders (KOLs) issue their own NFTs on these platforms, and fans can interact with the KOLs after purchasing them. Is this model truly permissible in China? This article provides an introduction and analysis.

Author: Attorney Shao Shiwei

01

Operational Model of the Friend.tech Platform

Friend.tech is a decentralized social platform built on Base, a Layer 2 network launched by Coinbase. It leverages strong integration with Twitter to obtain users’ Web2 identities, thereby creating opportunities for profit based on such identities[1].

The more popular a user is, the higher the price of their NFT. Friend.tech has clearly mastered the mechanics of the fan economy.

The specific operational model involves linking the platform with users’ Twitter accounts. For instance, when a Key Opinion Leader (KOL)—an internet celebrity or influential figure—joins as a new user, they activate their account by entering another user’s invitation code and paying 0.01 ETH. Upon registration, the KOL’s account generates tradable “keys” (tokens representing ownership and access rights on the platform). If other users subsequently purchase these keys, the price of the KOL’s keys increases; if users sell them, the price decreases. KOLs are priced by the market according to their influence, with their value tokenized in the form of NFTs.

Real-time prices for relevant accounts can be viewed on the official website:

According to data on Keys holdings, as of August 25, the latest price ranking for Friend.tech “Keys” showed that the founder, Racer, temporarily ranked first with a price of 2.91 ETH, generating approximately 90 ETH in revenue[2].

02

Revenue Models on Friend.tech

As a decentralized social platform, FRIEND.TECH possesses financial attributes. Its core mechanism converts Twitter connections into tradable “keys.” After purchasing a KOL’s keys, users gain access to the KOL’s friend list and can chat directly with the KOL in group chats. This provides ordinary users with a valuable opportunity to communicate directly with industry leaders. For example, those seeking better job opportunities can post their resumes directly in the group; those wishing to stay updated on industry trends can follow the viewpoints and ideas shared by the KOL in the group chat; or, simply based on optimism about a particular KOL and the expectation of future buyers, users may purchase the group’s keys to join.

After payment, users can enter the group chat to communicate with the KOL. Each user can only see the chat content between themselves and the KOL, not the conversations of other members in the group:

As a KOL, one can earn transaction fees from the buying and selling of their keys while operating their chat room. As an ordinary user, one can seek out potential high-value assets and profit from price differences by buying low and selling high.

03

KOL Time Trading Platform: Time Store

Similar to Friend.tech is the recently launched Time Store (whose predecessor was “Miao A,” launched in 2017—the platform claims to be the first time-trading platform in China). On this platform, users purchase tokens issued by KOLs to buy their time, thereby enabling online and offline interactions with the KOLs.

After users purchase a KOL’s time, both parties have opportunities for online and offline interactive communication:

04

Is It Legal for Individuals to Issue Tokens?

First, we need to clarify several concepts.

What is an NFT? An NFT (Non-Fungible Token) refers to a non-fungible token built on blockchain technology. Its counterpart is the fungible token, such as virtual currencies like Bitcoin and Ethereum. The characteristic of fungible tokens is that each unit has the same function and value and is interchangeable. In contrast, only one NFT can be generated per contract address; they are not interchangeable. NFTs can serve as carriers for storing real-world assets such as artworks, or they can function as virtual currencies.

According to the 2017 “Announcement on Preventing Risks Associated with Token Issuance and Financing,” no organization or individual may illegally engage in token issuance and financing activities. Furthermore, the April 2022 “Initiative on Preventing Financial Risks Related to NFTs” stated, “Resolutely curb the tendency toward financialization and securitization of NFTs, and strictly prevent risks of illegal financial activities,” and advised against “directly or indirectly investing in NFTs.”

The operational models of Friend.tech and Time Store are actually common in the Web2 world. For example, paid Q&A communities such as Teacher Liu Run’s “Evolution Island” allow users to enter community circles and observe discussions by industry leaders upon payment of membership fees.

However, in the Web3 domain, these two platforms tokenize social value by allowing users/KOLs to issue tokens for fans to purchase.

Nevertheless, relevant policies in China do not permit any organization or individual to issue tokens. Digital collectibles, as the localized product of NFTs in China, primarily emphasize their collection value as digital artworks and seek to prevent their financial attributes.

During platform operations, if false statements emerge in the market and guide public opinion, causing panic among users, the prices of certain KOLs’ tokens may drop rapidly, leading to a collapse. Users who purchased earlier may seize the opportunity to sell at high values, whereas later participants may become trapped, suffering significant financial losses.

If certain KOLs use hype, deception, price manipulation, or other methods to induce large numbers of users to purchase their NFTs, but fail to provide continuous, stable, and high-quality services, and then dump their NFTs to secure high profits after inflating prices, this will also result in substantial financial losses for many users.

Under such trading models, if a large number of user complaints arise, both the KOLs and the platform may face criminal risks involving illegal fundraising, pyramid schemes, and fraud.

05

Does Having an Overseas Development Team Provide Immunity?

It is understood that Time Store claims its entire team operates overseas. This raises the question: if the project and personnel are located abroad but primarily target Chinese users for registration and use, can they evade jurisdiction under Chinese Criminal Law? The answer is no.

Chinese Criminal Law stipulates territorial jurisdiction and personal jurisdiction. Territorial jurisdiction means that China has jurisdiction if the criminal act or its consequences occur within Chinese territory. Personal jurisdiction means that China has jurisdiction over Chinese citizens who commit crimes outside Chinese territory.

Therefore, China has the authority to exercise jurisdiction if the perpetrator is a Chinese citizen, or if the criminal act or its consequences occur within China.

06

Attorney’s Reminder:

The Web3 world allows for significant content innovation, which is why increasing numbers of people are focusing on blockchain, the metaverse, and related fields. Policies such as the “Guiding Opinions on Accelerating the Promotion of Blockchain Technology Application and Industrial Development,” jointly issued by the Ministry of Industry and Information Technology and the Cyberspace Administration of China in 2021, indicate that China encourages and supports such development. However, since the 2013 “Notice on Preventing Bitcoin Risks,” regulatory authorities have continuously issued documents expressing negative attitudes toward the issuance and trading of virtual currencies, mining, and related activities. Therefore, while Web3 entrepreneurs pursue various forms of content innovation, they must remember not to cross regulatory red lines; otherwise, they risk imprisonment.

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[1] Friend.tech: A Brief Analysis of the New Star in the SocialFi Sector - LD Capital - Medium

https://ld-capital.medium.com/friend-tech-%E6%B5%85%E6%9E%90socialfi%E8%B5%9B%E9%81%93%E6%96%B0%E8%B4%B5-203d43b61acb

[2] friend.tech Investment Research Report: Investment Logic, Valuation, and Potential Risks - Foresight News

https://foresightnews.pro/article/detail/41588