Legal professional Shao Shiwei analyzes the inherent dangers for entrepreneurs operating in emerging, minimally regulated industries such as Web3, virtual currencies, and digital collectibles. Drawing from extensive experience in defending economic criminal cases, Shao emphasizes that business models within regulatory gray areas, though seemingly logical and profitable, carry significant and complex legal risks.
The analysis highlights a common perspective among entrepreneurs: many enter industries perceived as lucrative and low-risk because competitors are profiting and no explicit legal prohibitions exist. However, this rationale becomes problematic in sectors lacking clear regulatory frameworks. Shao notes that practitioners often are not willfully violating the law but are operating in legally ambiguous zones during periods of explosive industry growth.
Specific examples include the digital collectibles (NFT) sector, which saw approximately 2,270 new platforms emerge in 2022—a period coinciding with a spike in fraud cases. Similarly, the practice of loan facilitation apps charging membership fees, widespread since 2018 with few initial legal challenges, has recently resulted in severe sentences, including life imprisonment for some platform operators. Cases involving virtual currency exchanges and Web3 platforms accessible via VPN in mainland China further illustrate the extreme variance in judicial outcomes for similar facts.
Shao points to the inherent limitations of law—its stability, conservatism, and dependence on proper execution—as key factors. In the absence of specific regulations, the correct application of law relies heavily on the understanding and interpretation by legal enforcement personnel. This creates a situation where judicial discretion plays a decisive role, leading to vastly different conclusions in different jurisdictions, even for comparable cases.
Operating in a regulatory vacuum is a double-edged sword. From a commercial standpoint, it allows for rapid experimentation, growth, and profit with lower compliance costs. From a legal perspective, it poses a severe threat. The absence of clear rules often leads to a lack of compliance awareness among entrepreneurs. When regulatory actions eventually occur or judicial authorities intervene retroactively, entire business models can be deemed illegal overnight, resulting in business suspension and serious criminal charges for founders.
The article concludes with strategic advice for entrepreneurs: the most prudent approach is to proactively engage with regulatory requirements from the outset, establish self-regulatory mechanisms, and seek professional legal counsel. Maintaining open communication with regulators and exploring compliant pathways during development is essential for sustainable, long-term business growth.
