Meme Tokens Issuance and Legal Risks: An Analysis of a Controversial Case

In the cryptocurrency space, in addition to mainstream coins such as Bitcoin and Ethereum, there are also a large number of "non-mainstream" cryptocurrencies directly issued by individuals or organizations, which are commonly referred to as "meme tokens." Most meme tokens do not even have a white paper, and their essence is a high-risk speculative tool.

Recently, a criminal case involving the issuance of meme tokens has attracted widespread attention. In the case, a post-2000s university student was convicted of fraud by our country's judicial authorities after issuing meme tokens on an overseas public chain. Such cases are actually not uncommon, but the controversy in this case lies in whether the investment losses caused by the withdrawal of liquidity constitute fraud.

Case Summary

According to public information, the case mainly involves the following facts:

On May 2, 2022, the suspect Yang, born in the year 2000, ( issued a meme token called BFF on a certain overseas public blockchain. Yang then added liquidity to the BFF coin project, creating a liquidity pool.

At the same second that Yang added liquidity, the victim Luo immediately exchanged 50,000 BSC-USD for 85,316.72 BFF coin.

After 24 seconds, Yang withdrew the liquidity of BFF coin, causing the value of BFF coin to plummet. The value of the BFF coins purchased by Luo dropped from 50,000 BSC-USD to only 21.6 BSC-USD.

Mr. Luo subsequently found Mr. Yang through a network of connections and reported to the police on May 3rd, claiming he was defrauded of over 300,000 RMB. The police opened an investigation for suspected fraud and arrested Mr. Yang in November of the same year.

Does it constitute a crime of fraud?

There are different views on whether Yang's behavior constitutes the crime of fraud:

The prosecuting agency believes that Yang's issuance of false cryptocurrency and rapid withdrawal of funds constitutes fraud. They believe that Yang lured investors to invest by creating false coins with the same name as other projects, and then quickly withdrew funds, resulting in losses for the investors, which meets the elements of the crime of fraud.

However, there are also views that Yang's behavior may not constitute fraud. Reasons include:

1. The victim may not have fallen into a misunderstanding. According to the transaction records, Luo completed the purchase at the exact second Yang added liquidity, and this speed of operation was likely achieved through an automated trading program rather than manual operation.

2. Luo's trading records show that he is likely a professional "coin circle sniper", frequently engaging in high-frequency trading and arbitrage operations. This suggests that he may fully understand the risks of meme tokens, rather than being deceived.

3. If Mr. Luo's trading actions were executed automatically by a program, then his decision to dispose of the property was not based on a misunderstanding of Mr. Yang's actions.

Legal Risk Warning

Although there is controversy over whether Yang's behavior constitutes fraud in this case, the issuance of meme tokens is still a high-risk activity. It may involve the following legal risks:

1. Illegal Business Operation Crime
2. Illegal fundraising crimes
3. Gambling-related crimes

It is particularly noteworthy that even if tokens are issued on overseas public chains, as long as the project party is based domestically, it may still constitute the crime of illegally absorbing public deposits. This is because our country's relevant regulatory policies remain in effect.

Overall, although the cryptocurrency field is rapidly innovating, legal risks still exist. Participants should fully understand relevant laws and regulations and act with caution.