meme tokens: the gray area of the Crypto Assets market

In the Crypto Assets field, in addition to mainstream tokens like Bitcoin and Ethereum, there is also a category known as "meme tokens". These are usually issued directly by individuals or small organizations, often lacking formal whitepapers and comprehensive project planning.

Recently, news about a post-00s student being convicted of fraud for issuing meme tokens has sparked widespread discussion. Such cases are not uncommon in the Crypto Assets space, but they reveal the legal risks associated with issuing and trading non-mainstream Crypto Assets under the current regulatory environment.

Case Review

In May 2022, a senior student named Yang issued a meme token called BFF on a certain overseas public chain. He injected 300,000 BSC-USD and 630,000 BFF as initial liquidity into the project. However, in the same second that liquidity was added, an investor named Luo immediately exchanged 50,000 BSC-USD for a large amount of BFF coin.

Just 24 seconds later, Yang withdrew the liquidity from the project, causing the value of BFF coin to plummet. Luo's investment evaporated in an instant, leaving only a negligible value. Subsequently, Luo found Yang through connections and reported to the local public security bureau. Ultimately, Yang was arrested on suspicion of fraud.

Legal Disputes

The prosecution alleges that Yang created a fraudulent Crypto Asset with the same name as another well-known project and induced investors to fall for it by adding and withdrawing liquidity. However, this accusation is contentious.

Some viewpoints suggest that this case should not be simply classified as fraud:

1. Investors may not have been scammed, but rather participated in speculation using automated trading programs. Mr. Luo completed the transaction at the exact second when Mr. Yang added liquidity, a speed that is nearly impossible to achieve through manual operation.

2. The survey shows that Luo may be a professional Crypto Assets trader, frequently participating in high-risk meme tokens trading. This indicates that he may be fully aware of the associated risks.

3. In the Crypto Assets market, quickly adding and withdrawing liquidity is controversial, but it is not an uncommon operation. Many participants regard it as a high-risk investment strategy.

Legal Risk Reminder

Although there is controversy over whether Yang's actions constitute fraud, issuing meme tokens is still a high-risk activity. It may involve multiple legal risks such as illegal operations, illegal fundraising, or gambling. Especially under the current regulatory environment, any form of ICO (Initial Coin Offering) activity, whether conducted domestically or internationally, may face legal risks as long as the project party is within China.

For ordinary investors, participating in meme tokens trading also carries significant risks. This includes not only the risk of financial loss but also potential legal risks. It is advisable for investors to proceed with caution, fully understand the relevant laws and regulations, and avoid participating in potentially illegal financial activities.