The Defining Question

Over the past few years, Attorney Hong Lin has encountered many individuals interested in the Web3 industry during offline presentations and closed-door courses. In nearly every session, someone would ask a highly similar question, either midway through or at the conclusion:

Under the current legal and regulatory framework in mainland China, what can Web3 entrepreneurs actually do without crossing red lines?

This question strikes at the core, directly reflecting the real predicament faced by many Web3 entrepreneurs in mainland China. On one hand, we observe the rapid evolution of DeFi, NFTs, stablecoins, real-world assets (RWA), and AI+Crypto in overseas markets; on the other hand, we must confront the regulatory reality in mainland China: the Web3 narrative centered on financial innovation and token mechanisms does not have room for direct replication or implementation within mainland China.

It is precisely this surreal disconnect—seeing clearly that Web3 is inevitably the future, yet finding seemingly no viable actions upon closer inspection—that leads people to repeatedly doubt and gives rise to the same question: Without touching legal red lines, in what ways can Web3 continue to develop?

To save your mobile data usage, we will present the conclusion upfront: In mainland China, Web3 entrepreneurship is not “prohibited,” but ratherit cannot revolve around “issuing tokens, speculating on tokens, fundraising, or trading.”Once you completely strip these four activities from your business model, the remaining space becomes much clearer.

Category One, which still has realistic potential, ispurely technical and infrastructure-layer Web3。

If you treat blockchain as a “new type of distributed database, collaboration tool, or system architecture” rather than a financial instrument, it has not been rejected in mainland China. Whether consortium chains, permissioned chains, or solutions labeled as “blockchain technology services,” “distributed ledger systems,” or “trusted data infrastructure,” they essentially fall within the scope of information technology services.

At this level, the actions available to entrepreneurs are highly specific and decidedly traditional: building systems for enterprises, developing platforms for government agencies, and creating middle-office solutions for industries. Scenarios such as data rights confirmation, data circulation, evidence preservation and traceability, cross-entity collaboration, supply chain coordination, judicial evidence preservation, and administrative evidence preservation are not new in themselves. However, implementing them through blockchain technology can indeed provide a clearer structure for allocating liability, enabling audit trails, and facilitating ex post facto evidentiary production.

The key issue here is not whether you have used blockchain, but rather:Who your customers are, what your fee structure is, and whether you are marketing anything with investment expectations to the unspecified public.As long as the business model relies on B2B payments, project-based engagements, or subscription fees, this path is relatively clean from a compliance perspective.

The second category comprises Web3 applications that explicitly de-financialize their operations while retaining the outer shell of “digital assets.”

The evolution of NFTs in mainland China has already provided a clear demonstration. As long as secondary market trading is not involved, investment returns are not emphasized, and appreciation potential is not promised, but instead the focus returns to use cases involving “digital content, digital rights, and digital certificates,” regulators have not issued a blanket prohibition.

Digital collectibles, brand membership credentials, event passes, digital copyright identifiers, and digital identity badges are, in essence, “using the blockchain to issue tamper-proof, verifiable credentials.” What such projects truly need to do is not to “promote a Web3 narrative,” but to solidly address issues related to brand operations, user relationships, and content rights confirmation.

Many entrepreneurs get stuck at this point, often not due to legal issues, but due to problems of commercial judgment: Does using blockchain truly offer advantages over not using it? If the answer is merely that it “looks more Web3,” the project is unlikely to have long-term viability.

The third category consists of Web3-adjacent businesses centered on compliance, risk control, and industry services.

As regulations become increasingly clear, substantial “service demands” will emerge. Exchanges, project sponsors, teams expanding overseas, content platforms, and technology companies all require support in legal affairs, compliance, risk control, auditing, data analysis, on-chain monitoring, and anti-money laundering.

A significant characteristic of this type of business is that, while it does not stand at the center of the hype cycle, it possesses long-term viability and is becoming increasingly essential. For those who are familiar with the industry and can clearly articulate complex logic, this represents a typical “slow-growth business.”

Therefore, everyone should be able to understand why Mankun Law Firm has long been deeply engaged in niche sectors such as Web3, and intends to continue doing so for the next ten to twenty years.

From legal consultation, compliance architecture design, and establishment of overseas entities, to on-chain fund path analysis, risk identification, and institutional framework development—these tasks may not be glamorous, but they are profoundly real.

The fourth category comprises Web3 ventures that proceed on the premise of "going global," while completing non-core activities within mainland China.

This pathway most rigorously tests entrepreneurs' capabilities in structural design and their awareness of legal boundaries. Its core logic is not to "pretend that Web3 activities are not conducted domestically," but rather to clearly delineate which activities qualify as technical and service operations permissible under mainland Chinese law, and which must be carried out within an overseas compliance framework.

In practical terms, functions that mainland teams can legitimately undertake are typically concentrated in research and development, product design, protocol audits, system operations and maintenance, risk control modeling, data analysis, compliance research, and content support. These activities are essentially technical or intellectual services and do not directly involve the issuance, trading, or fund flows of virtual currencies. Provided that such roles do not directly promote tokens to the unspecified public, participate in fundraising, or engage in transaction matching, they remain relatively controllable from a legal perspective.

What truly needs to be "offshored" are the front-office functions with financial attributes: token issuance, stablecoin design, on-chain trading, clearing and settlement, custody of user funds, and yield distribution mechanisms. If these activities occur within mainland China, the associated risks are virtually beyond discussion. However, if they are conducted by overseas entities, with target markets, marketing efforts, and user acquisition all located outside mainland China, and the mainland team serves solely in a technical or support capacity, this overall structure has precedents and room for operation in practice.

In reality, this model often manifests as a layered structure: the overseas entity serves as the business operator, compliance holder, and locus of the commercial closed loop; whereas the mainland operation functions more like an "engineering department + research institute + back-office support center." It may not be glamorous, nor easily packaged into a grand narrative, but it excels in sustainability. While this may not represent the ideal state for Web3 entrepreneurship, it is a pragmatic pathway that has been repeatedly validated under the existing legal framework.

Of course, the prerequisite for this path is that entrepreneurs must have a genuine understanding of what "going global" entails, rather than merely registering an overseas company or maintaining an overseas-facing website. If critical questions—such as where the market lies, who the users are, who bears compliance responsibilities, and how funds form a closed loop—are not clearly addressed, even the most elegantly designed structure can easily spiral out of control during execution.

Finally, we reiterate our caution to friends considering entrepreneurship in the Web3 industry: under the legal context of mainland China, the following activities almost certainly fall within high-risk or unlawful categories: issuing tokens in any form, including disguised issuances; fundraising under the guise of "nodes," "partners," or "whitelists"; promising returns or implying yields; providing matching, pricing, or promotional services for virtual currency transactions on behalf of others; and conducting promotions with crypto-asset investment orientations in WeChat groups, online communities, or live streams.

In mainland China, treating Web3 primarily as a "technology and tool" rather than as "finance and assets" may ultimately enable a more sustainable entrepreneurial journey.This may not be the most sensational route, but it is likely the one least prone to catastrophic failure.