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Source: Lawyer Shao Shiwei
Blockchain technology is constantly developing. As one of the application fields of blockchain, Web3 games are currently in a stage of rapid growth. At present, many traditional game manufacturers have transformed and developed Web3 games.
During the previous wild growth period, many gaming and capital chain games that appeared were constantly being eliminated by the market. At the current stage, blockchain games are constantly exploring in the direction of compliance.
Lawyer Shao mentioned in his previous article “The 10 Most Legal Issues That Web3 Game Entrepreneurs Should Pay attention to” that one of the risks that Web3 games may involve is pyramid scheme risks, which is also a comparison between entrepreneurs on many chain game platforms.Worrying: During the operation of the platform, it will inevitably innovate various game mechanisms, with the purpose of attracting more users to participate in the game.So in terms of gameplay design, if you are accidentally identified as a “pyramid scheme”, of course, it is something that platform operators do not want to see.So how to avoid the risks of pyramid schemes?
Regarding this issue, we take PlusToken, the largest case in the currency circle: a 40 billion virtual currency pyramid scheme case as an example, and analyze the compliance points that chain game platforms need to pay attention to during their operation.
01The whole story of the PlusToken case
According to official characterization, “This is the first major transnational online pyramid scheme crime cracked by the public security organs in my country that uses blockchain technology and uses digital currency as the trading medium.”
1.What is PlusToken?
In 2018, PlusToken launched a digital currency wallet, claiming to be the world’s second largest digital currency wallet, and its platform is spread in my country, South Korea, Japan and other countries.
In the name of providing digital currency value-added services, participants pay digital currencies worth more than US$500 and turn on “Smart Dog” (at the same time conducting arbitrage transactions on different exchanges to earn the difference), and they can obtain platform profits.Members form upper and lower-level levels according to the order of recommendation development. The platform has set up three main income methods to make rebates.
After identification, the number of users participating in this case reached more than 2.69 million, with about 3,200 levels.The market value of virtual currencies such as Bitcoin and Ethereum collected by the platform is equivalent to RMB 40 billion.
The first instance court ruled that Chen and others were guilty of organizing and leading pyramid schemes, and the persons involved were sentenced to 2-11 years in prison.
On November 19, 2020, the Yancheng Intermediate People’s Court of Jiangsu Province made a final ruling in the second instance, upholding the original first instance judgment against Chen and others.
02The business model of the PlusToken platform
According to the platform’s system introduction, users’ profit methods can be briefly divided into two categories: new recruitment and dividend income and smart dog brick-moving income.
First of allNewand dividend income.Members are divided into five levels: ordinary members, big players, big names, big names, big gods, and Creation. Members can get 100% of the profit from offline bricks in the first level of their development and 10% of the profit from the second to tenth levels.Members can add commissions, big players can add 5% commissions, big players can add 10% commissions, big players can add 15% commissions, and Chuangshi needs to directly recommend more than 10 members including three big players, and the platform will give monthly and annual dividends.
The second is smart dog moving bricks.The specific gameplay is: the user transfers $500 worth of Plus coins or equivalent digital assets into the PlusToken wallet on the designated network platform, and can obtain a “brick-moving robot” smart dog. After the smart dog is activated, it can be used for the user.Virtual currency exchanges earn the difference.There are more than 10% static returns every month, and you can even get a maximum of 60%.The platform said: The profit from moving bricks means integrating the trading prices of all virtual currency exchanges, buying them on a low-priced exchange with a virtual currency, and then selling the virtual currency to a high-priced exchange. This kind of profit isThe behavior of price difference is “not affected by the rise and fall of the currency market.”
03Legal analysis of the business model of PlusToken platform involving pyramid scheme crime
1. The criteria for judging pyramid scheme behavior
Pyramid schemes first need to distinguish between administrative violations or criminal penalties. According to Article 7 of the “Regulations on the Prohibition of Pyramid schemes”, pyramid schemes can be divided into three categories: head-pulling type, entry-level fee type, and team-based remuneration type.andPyramid schemes that pull people’s heads and entry-level fees are also called fraudulent pyramid schemes, Team-based pyramid schemes have become commercial pyramid schemes.Fraudulent pyramid schemes are regulated by the Criminal Law, and team-based pyramid schemes that are simply to increase performance are generally not treated as crimes.This article only discusses the crime of organizing and leading pyramid schemes involved in pyramid schemes.
Analysis using the Plustoken platform,How to determine whether a platform is suspected of pyramid schemes?
First, the platform needs to pay the entry fee.Only when users pay digital currency worth more than US$500 as threshold fees and turn on “smart dog” can they obtain platform benefits.Second, the method of calculating people’s heads is more than level three.Develop subordinate users and you can get commission income.Members are divided into five levels: ordinary members, big players, big names, big names, and great gods. Members can get 100% of the profit from offline bricks in the first floor of their development, 10% of the second to tenth floors, and 10% of the profit from Plustoken.The maximum level is up to more than 3,200 layers.For members of the Creation level, they can charge RMB 10 million per year by just paying offline dividends.Third, you can get a rebate by making profits from the offline line.According to the Plustoken brick-moving bonus system, the platform can obtain 10% of the online income.
2. Deceptiveness is an essential element for fraudulent pyramid schemes.
In addition to the above three points, an important feature of pyramid scheme crime is the act of defrauding others of their property.
If the operator provides real products or services to the user, it does not constitute this crime.If the user’s income comes from the “entry fee” of other subordinate users, it constitutes a pyramid scheme crime that actually defrauds property in the name of selling goods and providing services.
The types of user income set in the Plustoken platform can be divided into static income and dynamic income.
Static returns are smart dog brick-moving returns.After paying the threshold fee of $500 to start the smart dog, can it really bring users a static income of 10% per month?By moving bricks, buying low and selling high, earning the difference between major exchanges. If there is really such a high return, why has no one known so many great masters in the currency circle since the birth of Bitcoin in 2008?
Dynamic returns are new gains and dividend returns.According to the number of downlines developed and the profits made by downlines, you will enjoy the income commission of members at different levels according to the prescribed ratio.The income of the superior comes from the downline. According to the provisions of the Criminal Law, if there are more than 30 people participating in pyramid schemes within the organization and the level is above 3, the organizer and leader constitute a criminal offense.
04How do Web3 game entrepreneurs avoid pyramid scheme crimes?
1. Provide real products or services to users
The platform itself needs a reasonable economic model. The generation and consumption of tokens or props can form a scientifically completed economic internal cycle. In terms of game content settings, the platform can attract players to participate in the game in order to play the game itself., is for the players to have a better gaming experience, rather than a purely “play to earn”.If you only use games as a carrier, purely a money-making game, then the goods or services promoted by the project are just a name for attracting people to obtain entry fees. In this case, neither the platform operator nor the user will beIf you care about the actual value of the products or services provided by the platform, this is no different from the capital disk chain games.
2. Setting up new rebate mechanism
Not just blockchain game projects, many commercial projects will have a new rebate mechanism in the initial stage of acquiring users, and will give certain rewards to old users who recommend new users.On the premise of meeting the above 1, this business model is not illegal.In other words, hierarchy is not the same as suspected pyramid scheme crime.
However, a more compliant way is of course to limit the rebate mechanism to three levels (this three levels should be determined at the rebate level, not the organizational level. Due to space limitations, it will not be expanded here).
3. Source of user income
In the Plustoken platform, in addition to rebate on the head, it also promotes high static brick-moving income to users, but in fact, the so-called income is just a Ponzi scheme that attracts users to invest more principal.In blockchain games, if the NFTs in the game can be traded in the secondary market, they must follow the market rules and determine their value. When promoting game projects, operators must remember not to make money by playing chain games., such as guaranteed statements that can protect principal and interest, violate national policies.
05Written at the end
The new game experience and distribution mode of Web3 games provides opportunities for developers who are constantly pursuing innovation, but also brings many challenges.How Web3 games can be safely implemented in our country and achieve long-term and healthy development is a protracted war.But we believeThe future games will definitely be decentralized.
