Original Author: Gao Mengyang - Senior Lawyer at Shanghai Mankun Law Firm

01, Virtual Currency Encounters Selling Pressure

Recently, the police in a northern province of China cracked a case involving currency-related organized and leading MLM activities. As the case had been consulted by clients, the Mankun team is quite familiar with the details. The model of this case has some points that are worth the attention of users. Let me talk about it.

Regarding this case that consulted Mankun lawyers, the general plot is as follows: the person involved learned about a certain project on the internet, where the project claimed that by investing Chinese Yuan into the platform's USDT, the investment can be unlocked and generate high returns on a monthly basis. With a mindset to give it a try, the person made an initial investment and indeed, after 6 months, the principal and interest were returned. After verifying its success, the person decided to increase the investment. In the first few months, the funds could be released as usual, but the speed of fund withdrawal seemed a little slow. At this point, the project staff suggested to the person that they could invite others to join, which would speed up the unlocking process.

Thinking that it is a good investment opportunity to have others participate and also accelerate the unlocking process, the person recommended several friends to join the project.

As commonly seen in law-related TV series, unexpected events happened. The project leaders were collectively arrested, and it is currently unknown whether the person can recover the hundreds of thousands of Yuan they invested.

This project involves the lock-up of virtual currency. We are all familiar with "lock-up." Speaking positively, it is a means commonly used by cryptocurrency projects to increase security and stability in circulation. Some lock-up for a certain period of time, some lock a specific quantity, and some unlock based on certain conditions.

In the previous bull market, many fundraising projects relied on the lock-up strategy to control the market. They usually promised a decent interest rate based on the value of the cryptocurrency, for example, an annualized return of 20%. Users felt that they could earn a significant profit and thus eagerly entered the market, seeking to lock up their funds.

Then, they were harvested...

You don't need to wait until the unlocking time arrives. The manipulators have already completed market making, selling at a high point, and harvested the gains, leaving users forced to suffer the pain of loss.

Of course, times are advancing, and that was the gameplay of the previous generation. Everyone has become desensitized to the old tricks. If scams don't update, scammers will FOMO too.

Returning to our case, it is indeed keeping up with the times. After experiencing a cycle of bull and bear markets, it is now difficult to persuade users to enter the market and lock up funds based on interest returns.

02, "Go back and change the stretcher, and sell it to him next year."

Just like the case mentioned at the beginning of the article, nowadays many project parties, in order to attract players, have a new trick: the tokens can still be locked, but as long as you introduce new people, you can accelerate the unlocking process. The more people you introduce, the faster the unlocking process. The people you introduce can also introduce new people, and a whole set of rules will be applied to your account, which can be redeemed as benefits in the end. In short, the more people you introduce, the sooner you can cash out, regardless of the consequences afterwards.

How about that, does it sound familiar? It is very similar to the famous MMM financial community scam (3M scam) that was popular in the past.

The so-called 3M scam was invented by a Russian named Sergey Mavrodi. The essence of its trick is that the platform issues a virtual item called "Mavro" and investors need to buy this item first. After purchasing, after a 15-day freezing period, you can find other investors to participate, waiting for others to buy your "Mavro" so that you can cash out. Investors are automatically matched by the system, with a matching period of 1 to 14 days. During the waiting period, there is an interest rate of 1% per day, and you can earn 30% interest in 30 days. Orders cannot be canceled during the 15-day freezing period, otherwise the account will be frozen. After 15-30 days, you can cash out at any time with principal and interest.

Looking at it this way, the new trick is exactly what was left of the 3M scam, it is a (technology-based) reincarnation. Of course, even so, it can't stop the enthusiasm of a large number of users getting rich overnight, rushing into this project one after another. The result is that only the earliest users can successfully withdraw funds, while the later users who join in the game of passing the buck will definitely be burned once the project is unsustainable, and when the elderly enter the project, the case will be exposed soon.

At this point, I wonder if the friends among the users have remembered the hot and humid summer afternoon in 2018, when they were recommended P2P projects by investment consultants at the police station.

Of course, the 3M scam also has familiar elements for us-they also issue a kind of "Morgan Coin," claiming to be co-branded with Morgan Group, and investing in it will make money. Just listen, what an advanced trick, so fashion is not the only circle, even scams are.

03. Positive suggestions

After all the gibberish above, it's not to ridicule us users, but to say that it's actually very simple to distinguish whether a project is a scam.

First of all, if you can see a problem with a project at a glance, it's better not to participate. Many people think that they won't be the "bagholder" in the end, but more often than not, they become fuel. Even if there are people around you who can benefit from it, don't blindly follow suit. Rest assured, whatever is earned from somewhere will eventually be lost.

Secondly, if the project party is talking big and you are listening eagerly, nodding constantly, fantasizing about getting rich overnight and reaching the pinnacle of life, then this project is 97.40% trying to deceive you. Always remember that the cryptocurrency market is an even more volatile field than the stock market, and risk always goes hand in hand with returns. If a project promises huge returns, then its risk must be extremely high. It's just that this risk either hasn't been discovered by you yet, or it has been carefully hidden.

Lastly, whether a project can make money or not is actually unknown, but whether a project is compliant can be explored. When uncertain, you can consult a lawyer. The Man-Kun team has conducted compliance evaluations on many projects currently on the market, which can be referred to.

In conclusion, a compliant project may not necessarily make you money, but it can reduce the probability of being deceived. Stability is always the right choice in the current situation.

Special Disclaimer:

This article is an original article by Shanghai Man-Kun Law Firm, representing the personal views of the author of this article and does not constitute legal advice or legal opinions on specific matters.