Attorney Shao Shiwei | Practical Insights on Legal Risk Prevention and Control for Web3 Entrepreneurs

On June 20, 2025, Mankun Law Firm successfully hosted the "Exclusive Course for Web3 Entrepreneurs." Shao Shiwei, a senior attorney at Mankun Law Firm, delivered a practical compliance-focused presentation titled "How Can Web3 Entrepreneurs Manage Legal Risks?" The session addressed four key areas: judicial trends, typical cases, identification of project structures, and the establishment of compliance systems, tailored specifically for Web3 practitioners.

The event attracted numerous Web3 industry professionals, including Web3 project founders, chief technology officers (CTOs), heads of DeFi product design, NFT platform founders, technical leads of blockchain protocols, initiators of decentralized organizations, and smart contract architects.

The lecture focused on core challenges faced during the early stages of entrepreneurship, helping attendees understand from a systemic perspective the causes of legal risks underlying Web3 projects and viable pathways for risk mitigation. It addressed the cognitive dilemmas practitioners face when navigating between compliance design and legal red lines.

Course Highlights

1. The Evolution of Awareness Regarding Criminal Risks in Web3 Entrepreneurship

Attorney Shao began by reviewing the phased changes in criminal risks within the Web3 sector in recent years. She pointed out that the awareness of legal risks among Chinese Web3 practitioners has evolved in tandem with changes in regulatory policies, the emergence of landmark cases, and the intertwining of gray-market activities within the industry.

Since the issuance of the "September 4 Ban" in 2017, virtual currencies and Web3 have gradually come under regulatory scrutiny. Following the release of the "September 24 Notice" in 2021, entrepreneurs shifted their focus from "evading regulation" to exploring practices of "compliant structural segregation." However, in reality, the core teams of many projects continue to operate within mainland China, resulting in significant exposure to local jurisdiction.

Entering 2022, regulatory policies continued to tighten. Instances such as frequent involvement of NFT platforms in legal cases, developers being characterized as providers of criminal tools for coding anonymous transaction modules or Ponzi scheme contracts, and criminal liability being pursued for over-the-counter (OTC) trading activities have become increasingly common. Furthermore, Attorney Shao noted that law enforcement logic is shifting from "post-facto crackdowns" to "structural piercing." Even if a project is established overseas and its code is open-source and transparent, it may still fall within the scope of criminal prosecution if it serves Chinese users or if its fund flows involve mainland China.

2. High-Frequency Types of Criminal Risks in Web3 Startup Projects

During the "Five Key Questions on Risk" interactive session, Attorney Shao guided attendees through the identification of the following five high-frequency types of criminal risks, drawing on real-world cases:

• Suspected Gambling: For instance, NFT blind box mechanisms that incorporate designs such as "probability-based outcomes combined with high-price resale";

• Suspected pyramid selling: for example, the establishment of a "node partner" system or a fission-based commission rebate structure;

• Suspected illegal fundraising: for example, initiating whitelist subscriptions and promising high returns before the platform has gone live;

• Suspected illegal business operations: for example, an OTC platform facilitating the exchange of RMB for crypto assets such as USDT;

• Suspected fraud: for example, the use of inducive expressions in marketing scripts, such as "guaranteed profits with no risk" or "high rebates."

Attorney Shao Shiwei emphasizes that whether these acts constitute crimes is not determined by a one-size-fits-all approach, but rather depends on whether the structural design, fund flows, and promotional language cross legal boundaries. Once core elements such as "fabricated returns," "tiered rebates," or "illegal fundraising" are established, criminal liability is highly likely to be incurred.

3. Logic for Identifying Risks in Web3 Project Structures

Attorney Shao summarizes that criminal risks in Web3 projects are often "embedded in the structure," and identifies five key dimensions for assessment:

• Target Audience: Does the project target users in mainland China (e.g., Chinese-language interface, RMB transactions, Chinese-language customer support)?

• User Acquisition Mechanism: Does it employ incentives such as airdrops, invitation codes, or commission rebate systems, thereby forming a structure involving "payment + tiers + rebates"?

• Product Design: Does it contain gambling-like features, such as lotteries, point-staking returns, or game-of-chance mechanisms?

• Fund Flow: Does it accept fiat currency deposits? Are funds collected through personal accounts? Does it involve illegal conversion between USDT and RMB?

• Marketing Scripts: Do they contain misleading content, such as "expectations of doubling returns" or "logic of guaranteed profits"? Is there reliance on KOLs to mislead users?

These high-frequency trigger points constitute the critical junctures at which a project transitions from “technological neutrality” to “risk exposure.”

4. Establishing a Compliance and Risk Prevention Framework for Web3 Projects

Finally, Shao proposed a five-step compliance strategy grounded in “structural design and compliance as the guiding principle,” and offered recommendations to address typical pain points encountered during project implementation:

Attorney Shiwei Shao

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• Clarify geographic positioning and user profiling: Determine from the outset whether the project may fall within the criminal jurisdiction of China;

• Architectural segregation design: Including segregated arrangements for equity structure, operating entities, fund accounts, and contractual control rights;

• Obtain compliant licenses or connect to lawful channels: For example, applying for relevant financial compliance permits or engaging whitelisted custodial institutions;

• Compliance segregation in technical pathways: Severing links with high-risk jurisdictions through measures such as language selection, domain names, KYC configurations, and front-end presentation;

• Implementation mechanisms and operational controls: Including KYC/KYA procedures, risk disclosure mechanisms, refinement of user agreements, establishment of risk management systems, and exit mechanisms.

She emphasized that compliance is not a static label but a dynamic mechanism. Even the most comprehensive initial structural design may still expose the project to piercing liability if it lacks ongoing operational management, internal risk controls, and remedial mechanisms.

Course Summary

This lecture not only systematically outlined the common types of criminal legal risks in Web3 startup projects, but also provided project founders and technical leads with structured, actionable response strategies, receiving high acclaim from the audience.

Against the backdrop of a rapidly evolving regulatory environment and increasingly penetrating criminal justice enforcement, Web3 projects no longer face merely the question of "whether it can be done," but also the practical challenges of "how to build sustainable operational mechanisms" and "how to respond in an orderly manner when risks materialize."

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How to establish a clear structure to avoid unintended liability? How to set up loss-limitation mechanisms at an early stage? How to delineate the boundary between business models and legal liabilities? These questions are becoming the fundamental compliance concerns that are of genuine interest to an increasing number of entrepreneurs.

If you are also contemplating these issues, or wish to learn more about the risks and response strategies in project implementation through real-world cases, please follow Attorney Shao Shiwei’s subsequent series of shares to access more real-world cases and practical analysis.