Recently, the concepts of "stablecoins" and "RWAs" (tokenized real-world assets) have become quite popular. As these concepts collide, a wave of carefully disguised "Ponzi schemes" has quietly emerged. These schemes often tout "blockchain empowering the real economy" and "stable and high returns," attracting investors eager for wealth growth, even those who are new to the scheme. However, can these schemes truly create wealth? Drawing on the perspectives of attorney Liu Lei in a recent interview with Jiemian News, this article will delve into the operating models, background of their rise, and core risks of these "Ponzi schemes," and provide investors with a practical guide to avoiding pitfalls. 1. What are the schemes used in stablecoin and RWA-related Ponzi schemes? Amidst the accelerating evolution of global financial technology, stablecoins, due to their relatively stable prices and ease of cross-border transfer, have become a crucial bridge between the crypto and traditional finance worlds. RWAs, on the other hand, are seen as a key enabler for blockchain technology, enhancing the liquidity and efficiency of real-world assets. This is a promising financial innovation. However, some unscrupulous individuals, keenly sensing the potential for business opportunities, have crudely combined these two concepts to create elaborate scams. These Ponzi schemes generally possess the following three key characteristics, forming their survival strategies: (1) Magnificent "Conceptual Packaging" These projects often claim to tokenize assets like gold, real estate, and even carbon credits through blockchain technology. The blueprints painted by the project owners are extremely alluring, promising investors not only asset appreciation but also returns through decentralized collateralization. However, a thorough investigation of their technical implementation reveals a profound weakness. The claimed smart contracts have not even undergone contract audits. More importantly, the underlying "real assets" often do not exist or are significantly exaggerated. Do the assets actually exist? Can they be redeemed? Are there any custodial arrangements? These questions are largely unverified and are a classic case of "storytelling and promising big things." (II) Ponzi schemes: To quickly attract capital inflows, these schemes typically tout "high, stable returns." They often promise annualized returns far exceeding the market average, with guaranteed returns of 8%, 10%, or even higher commonplace. This is significantly higher than the approximately 5% yields currently offered by compliant DeFi protocols or traditional RWA projects. Even more alarming is the frequent use of secondary promotion and referral rebate mechanisms. Investors not only earn returns on their own investments but also receive substantial commissions by recruiting downline members. This design exhibits typical Ponzi scheme characteristics: the project itself lacks a sustainable, real source of profit, and the high returns for early investors are essentially dependent on the capital of new investors who continue to pour in. Once the market cools, the inflow of new funds slows or stagnates, and the funding chain breaks instantly. The project owner will abscond with the funds, leaving a mess behind. (III) Regulatory Arbitrage and Liability Avoidance These types of Ponzi schemes take great pains to establish their entities, with the core goal of evading scrutiny and crackdowns in highly regulated jurisdictions. These companies rarely register physical entities in mainstream, compliant markets with clear regulatory frameworks for virtual assets, such as Singapore, Hong Kong, and the European Union. Instead, they choose loosely regulated offshore jurisdictions like the Seychelles, the British Virgin Islands (BVI), and certain Dubai free zones. Furthermore, they employ technical camouflage to appear "decentralized," such as by claiming assets are held in smart contracts and using decentralized autonomous organizations (DAOs) for decision-making, to obscure legal responsibility. For example, they claim that assets are automatically held by "immutable smart contracts" and that investor voting determines profit distribution. These claims may sound highly technical, but in reality they serve to downplay or even deny the existence of a clear legal entity. When a project collapses and investors seek redress, they often discover that the so-called "project owner" is merely a shell company, with the core team hidden behind the internet. Cross-border legal proceedings are costly and difficult. 2. How have stablecoin + RWA Ponzi schemes developed in recent years? (I) Massive emergence in 2021 The concentrated emergence of stablecoin + RWA Ponzi schemes is not accidental. Based on the experience of project due diligence and compliance review, this type of Ponzi scheme under the banner of virtual currency, stablecoin, and RWA began to appear in large numbers in 2021. In particular, after USDT widely entered the active gray market in Asia, the Middle East, and Latin America, a wave of "pseudo-stablecoin wealth management" projects began to emerge. Why 2021? This year coincided with two key developments: First, after years of development, the DeFi ecosystem had already established a mature model. DEX, on-chain lending, and stablecoin minting protocols were largely established, with code readily available and reusable on GitHub. This facilitated the rapid and cost-effective construction of technical frameworks for Ponzi schemes. Second, due to the pandemic, central banks around the world adopted loose monetary policies, resulting in ample market liquidity and a significant influx of traditional funds into high-yield channels. Some Ponzi schemes began exploiting the convenience of stablecoins for cross-border payments, bypassing traditional payment systems and establishing offshore wallets to quickly attract funds. Under the guise of "stablecoin wealth management" and "on-chain interest generation," these schemes capitalized on people's financial anxieties during the pandemic and their lack of understanding of new technologies, launching their first round of harvesting. (II) 2022 to Present: Projects Become More "Professionalized" After 2022, with the volatility of the crypto market and the initial emergence of regulatory pressure, the survival space of early, extensive Ponzi schemes has been squeezed, and project operations have become significantly more "professionalized," enhancing the deceptive nature of the projects. Previously, this might have been done by a few engineers who could write contracts and a front-end. Now, these projects systematically establish offshore companies, hire third parties to hold shares, and use shell companies to secure media coverage and endorsements. These projects then advertise "blockchain gold standard, stable 8% returns, and unlimited deposits and withdrawals" on social media platforms and even at offline financial management meetings. While superficially similar to traditional finance, the core cash flow is still controlled by internal wallets, with no audits, no custody, and no so-called KYC/AML procedures. In recent years, the Hong Kong SAR government has actively promoted the development of the virtual asset industry, introducing a series of measures, including a licensing system for virtual asset service providers (VASPs), exploring a regulatory framework for stablecoins, and researching rules for security token offerings (STOs). These policies, intended to regulate the industry and foster genuine innovation, have been misused by illicit Ponzi schemes. Under the guise of "relying on Hong Kong's new policies to expand overseas" and "embracing regulatory compliance (RWAs)," these schemes exploit mainland investors' trust in Hong Kong's status as an international financial center and their lack of understanding of specific policy details. They engage in highly misleading advertising, portraying themselves as "compliance pioneers" while in reality engaging in illegal fundraising. This has lured many uninformed mainland SMEs and individual investors into the market. For example, some projects amassed significant amounts of USDT in just a few months. However, these funds were quickly transferred out through cross-chain bridges, shuffled, and then liquidated on exchanges, forming a strong "quick pump" model—a typical early-stage Ponzi scheme: quick draw, quick exit. Furthermore, many of these projects have begun to recruit traditional asset owners under the guise of "RWA tokenization," such as by recruiting a small Southeast Asian real estate developer to issue a "real estate income stablecoin" or using a carbon ticket resource pool to create an "ESG green stable income token." These asset owners are unaware of the on-chain risks but are misled by the narrative of "experimenting with Web3," effectively becoming part of illegal fundraising and false advertising. Therefore, the current stage isn't one of rampant growth, but rather a mature phase of "pseudo-compliance and institutionalization," making it more difficult to identify and more deceptive. For legal practitioners, the biggest challenge isn't identifying it as a "Ponzi scheme," but rather how to quickly expose this Ponzi structure beneath a "legal shell" from legal, financial, and technological perspectives. 3. Legal risks for investors in "Ponzi schemes": Victims or accomplices? A phenomenon worth pondering is that some investors aren't completely misled, but rather enter the market with a speculative mindset, like "knowing there's a tiger in the mountain, yet still heading for it." They're aware of the project's risks and can even identify the characteristics of a Ponzi scheme, but they believe they can "make a quick buck and run" before a crash. Their logic is simple: "I'm not greedy. I'll make 10% in three days and withdraw it and leave." "Whether it crashes later doesn't matter to me; I'll withdraw my funds first." Some even develop a "jump arbitrage" strategy between Ponzi schemes, using profits from one project to quickly invest in the next, a personalized strategy of "using one project to support another." This is no longer investment behavior, but rather a combination of a gambling mentality and liquidity arbitrage. This "semi-knowing gambling" mentality carries significant legal and personal risks: (1) Joint Risk: The potential transition from victim to accomplice. Ponzi schemes publicly promote and raise funds through WeChat groups, mini-programs, and offline seminars, inherently implying the crimes of illegally absorbing public deposits or fundraising fraud. Investors who merely invest capital may be deemed "fund participants" in judicial practice, and their losses are generally difficult to recover. Even more dangerous, however, is that if investors actively recruit downlines, establish communities, and organize promotional events in order to obtain higher commission returns, the nature of their actions may change. According to relevant laws and judicial interpretations, such active organizing, leading, and promoting activities can easily constitute being an "accessorier" or "accomplice" in the joint crime of illegal fundraising, and may even constitute the separate crime of organizing and leading pyramid schemes. This means not only will investors lose their invested capital, but they may also face criminal charges. Don't naively believe that "I just want to make a quick buck" and you can stay out of trouble. The law often does not solely rely on individual subjective motivations when determining the nature of an act. (2) Accomplices in "Harvesting" and Accelerating Project Deterioration The influx of early speculators provided valuable initial liquidity for the Ponzi scheme, creating the illusion of "prosperity" and "stable returns." This false prosperity spread rapidly through social media and personal networks, attracting a large number of ordinary investors, particularly those with low risk tolerance, who were truly unaware of the situation and were tempted by high returns. Project owners relied on these early, "knowledgeable" speculators as "seed users" and "living advertisements," creating market hype and paving the way for subsequent, larger-scale "harvesting." From an industry perspective, the actions of these speculators were tantamount to aiding and abetting the evil, objectively accelerating the expansion and destructive power of the Ponzi scheme and trapping even more innocent people. (3) The Black and Gray Ecosystem of "Project-Speculator Symbiosis" Many speculators espouse strategies of "quick in, quick out" and "jumping between markets for profit," believing they can accurately time their investments and exit unscathed. However, this mentality fosters a black and gray ecosystem of "project-speculator symbiosis." You can see that some so-called "community leaders" are actually professional speculators who "dip their toes" in each market, using rhetoric to lure others in. These individuals maintain a low profile while earning extra income through commissions or community management. Project owners view these "jumping between markets for profit" as mere "human traffic packs" creating a false prosperity. You meticulously use the profits from the previous project to feed the new one, gloating over your "easy win"; while the market makers sit back and relax, using vast sums of money, including your principal, to leisurely exit the market. In this game, the true market makers are always the project owners, while speculators are merely tools, vulnerable to abandonment or even liquidation at any moment. Under the increasingly stringent global regulatory framework for virtual assets, this kind of "cleverness" is extremely risky. Running fast doesn't guarantee a safe exit. When cross-border funds, USDT deposits and withdrawals, or illegal commission rebates are involved, even the funding chain can be targeted! Especially against the backdrop of increasingly stringent global regulation of virtual assets, many regions (including Hong Kong and the European Union) already consider participation in illegal virtual asset projects to be "facilitating fraud" or "evading financial regulation." At that point, it's not just "running slow gets ripped off," but "running fast might also get investigated." 4. How can novice investors protect themselves? Faced with increasingly sophisticated and innovative Ponzi schemes, ordinary investors, especially novice investors, often fail to understand the underlying mechanisms and, fearing missing out, fall prey to impulsive investments. So how do we protect our hard-earned wealth? The key lies in improving our understanding and returning to basic investment common sense and risk assessment. Before investing real money, it's crucial to clarify three core questions: First, where does the project require you to transfer your funds (whether fiat or cryptocurrency)? Is it a client trust account at a reputable, strictly regulated, licensed custodian? Or an anonymous personal wallet address? Or perhaps an obscure shell company account registered in a distant offshore location? If the recipient is a personal wallet, an unlicensed institution, or an offshore shell company account, and the project fails to provide a clear and verifiable custodial agreement (preferably with a reputable third-party), the security of your funds is extremely risky. For truly compliant projects, custodial custody is paramount and will never be ambiguous. For example, in Hong Kong, the upcoming stablecoin regulatory framework requires issuers to ensure that stablecoins have sufficient backing assets and to properly safeguard these assets. Secondly, are project claims of regulation necessarily reliable? If a project claims to be regulated by a particular country or region's financial regulator, it's recommended to be cautious. First, find out whether it's the Monetary Authority of Singapore (MAS), the Securities and Futures Commission (SFC), the Hong Kong Monetary Authority (HKMA), the U.S. Securities and Exchange Commission (SEC), or the U.S. Financial Crimes Enforcement Network (FinCEN). It's recommended to check the official website of the relevant regulator to find out its registration information, license status (such as Hong Kong's VASP license list), and whether any warnings or notices have been issued regarding the project. Remember: truly compliant projects will proactively and clearly disclose their regulatory status and license numbers. If a project is registered in a tax haven and lacks effective oversight in any mainstream jurisdiction, the risks are self-evident. Third, is the project's company background truly reliable? Before investing in a project, investors are advised to ask: What is the full name of the company operating the project? Where is it registered? Does it have a publicly verifiable, real office address (not a virtual office)? Who are the core team members? Are their backgrounds genuine and verifiable? Do they have professional experience and a good reputation in the blockchain or financial fields? Be wary of claims such as "strategic partnership with a well-known institution" or "investment from a top venture capital firm" in project promotional materials. A genuine strategic partnership or investment will inevitably be officially announced on the official websites of both parties, in official press releases, or in reputable financial media. This can be verified through regulatory filings (such as the SEC's EDGAR database) and company registration information. If the project is evasive or the "partnering institution" they provide is unsubstantiated or questionable, it is likely a carefully crafted smokescreen. Lawyer Liu has something to say: Currently, very few companies have successfully completed RWA projects and launched them in Hong Kong, and they are almost always led by "big companies" with extensive resources and global backgrounds. Many mainland entrepreneurs and service agencies boast and blindly follow trends, but their understanding of overseas laws and industry realities is very limited. In particular, packaging Web3 projects as "RWA going global" is extremely misleading. Their real purpose is to take advantage of the trend and "cut the scalping" of hungry businesses! Therefore, for investors, don't just jump in because someone you know recommends it or everyone in your group is investing. Fund security is always more important than profit. If you don't understand how a project makes money or where its funding comes from, it's best to avoid it. Truly legal and compliant projects are not afraid of your questions or inquiries, nor will they urge you to invest immediately. Take your time and learn more, so you can avoid those seemingly profitable but actually dangerous pitfalls.
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Hui Xin
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