Mainland Web3 entrepreneurship: what can be done? What cannot be done?

Author: Liu Honglin

Over the past few years, Lawyer Honglin has interacted with many friends interested in the Web3 industry through offline sharing sessions and closed-door courses. Almost every exchange, someone would ask me a highly similar question:

Under China’s existing legal and regulatory framework, if you want to avoid crossing the red line, what can Web3 entrepreneurs still do?

This question is simply a soul-searching inquiry. It directly hits the real situation faced by many Web3 entrepreneurs in mainland China. On one hand, we see the rapid evolution of DeFi, NFTs, stablecoins, RWA, AI+Crypto in overseas markets; on the other hand, we have to confront the current regulatory environment in mainland China: the Web3 narrative centered on financial innovation and token mechanisms has no direct space for replication and implementation within China.

It is precisely because of this “visibly seeing that Web3 is inevitably the future, but looking down and feeling like there’s nothing to do” kind of magic and gap that people repeatedly doubt and generate the same question: under the premise of not touching legal red lines, in what ways can Web3 continue to evolve?

To save everyone’s mobile data, let’s put the conclusion upfront: in mainland China, Web3 entrepreneurship is not “impossible,” but it is not allowed to revolve around “issuing tokens, trading tokens, fundraising, or transactions.” Once you completely detach these four actions from your business model, the remaining space becomes much clearer.

The first category, still with practical space, is pure technology and infrastructure-level Web3.

If you regard blockchain as a “new type of distributed database, collaboration tool, or system architecture,” rather than a financial instrument, then it is not denied in mainland China. Whether it is consortium chains, permissioned chains, or solutions under the names of “blockchain technology services,” “distributed ledger systems,” or “trusted data infrastructure,” they all fundamentally belong to information technology services.

At this level, what entrepreneurs can do is very specific and very traditional: build systems for enterprises, develop platforms for governments, create middle platforms for industries. Data rights confirmation, data circulation, evidence preservation and traceability, cross-entity collaboration, supply chain coordination, judicial evidence preservation, administrative evidence preservation—these scenarios are not new in themselves, but using blockchain to do them can indeed provide clearer structures in responsibility division, audit tracking, and post-event evidence.

The key here is not whether “you use blockchain or not,” but: who are your clients, what is your charging model, and whether you are offering anything with investment expectations to the general public. As long as the business model involves B-end payments, project-based or subscription-based, this path is relatively clean.

The second category is Web3 applications that are explicitly de-financialized but retain the “digital asset” shell.

The evolution path of NFTs in mainland China has already demonstrated this clearly. As long as it does not involve secondary market trading, does not emphasize investment returns, and does not promise appreciation potential, but instead returns to the scenarios of “digital content, digital rights, digital certificates,” regulation has not outright denied them.

Digital collectibles, brand membership credentials, event passes, digital copyright labels, digital identity badges—all are essentially “using the chain to issue an immutable, verifiable certificate.” These projects are not about “telling Web3 narratives,” but about solidly solving issues related to brand operation, user relationships, and content rights confirmation.

Many entrepreneurs get stuck here, often not because of legal issues, but because of business judgment: does using the chain really make things better than not using it? If the answer is just “looks more Web3,” then this project is unlikely to last long.

The third category involves surrounding businesses around compliance, risk control, and industry services.

As regulations become clearer, a large demand for “services” will emerge. Exchanges, project teams, overseas expansion teams, content platforms, and tech companies all need legal, compliance, risk control, audit, data analysis, on-chain monitoring, and anti-money laundering support.

A prominent feature of this type of business is that it does not stand at the center of the wind, but exists long-term and is increasingly in demand. For those familiar with the industry and capable of explaining complex logic clearly, this is a typical “slow business.”

Therefore, everyone should understand why Mankun Law Firm has long been deeply involved in the Web3 niche and plans to do so for ten or twenty years.

From legal consulting, compliance architecture design, overseas entity setup, to on-chain fund path analysis, risk investigation, and制度建设, these tasks may not be glamorous but are very real.

The fourth category is Web3 entrepreneurship based on “going overseas,” but completing non-core links within mainland China.

This path often tests entrepreneurs’ structural design capabilities and legal boundary awareness the most. Its core logic is not “pretending not to do Web3 domestically,” but very clearly splitting: which parts are within the scope of mainland Chinese law and can be accommodated, and which parts must be completed under an overseas compliant framework.

In practical terms, mainland teams can legally undertake activities such as R&D, product design, protocol auditing, system operation and maintenance, risk control models, data analysis, compliance research, and content support. These are essentially technical or intellectual services and do not directly involve issuing, trading, or transferring virtual currencies. As long as they do not promote tokens to the general public, do not participate in fundraising, and do not engage in trading matchmaking, these roles are relatively controllable legally.

What truly needs to be “moved abroad” are the front-end activities with financial attributes: token issuance, stablecoin design, on-chain trading, clearing and settlement, user fund custody, and profit distribution mechanisms. Once these activities occur within mainland China, the risks are almost non-discussable. But if they are handled by overseas entities, with services, market promotion, and user acquisition all abroad, and mainland teams only as technical or support roles, the overall structure has cases and room in practice.

This model often manifests as a layered structure: overseas as the business entity, compliance entity, and the location of the commercial closed loop; mainland as more of an “engineering department + research institute + back-office support center.” It is not glamorous, and hard to package into a grand narrative, but it is sustainable. This may not be the ideal state of Web3 entrepreneurship, but it is a repeatedly validated practical path under the current legal framework.

Of course, this path presupposes that entrepreneurs truly understand “going overseas,” rather than just registering an overseas company or hosting an overseas website. Where the market is, who the users are, who bears the compliance responsibilities, and how funds are closed-looped—if these questions are not clear, even a well-structured setup can easily go off track in execution.

Finally, I want to repeatedly remind friends who want to start a Web3 business: in the legal context of mainland China, the following activities are almost certainly high-risk or even illegal: issuing or covertly issuing tokens in any form; fundraising under the names of “nodes, partners, whitelist”; promising returns or implying profit; providing virtual currency trading matchmaking, pricing, or promotion for others; promoting investment-oriented activities with encrypted assets in WeChat groups, communities, or live streams.

In mainland China, treating Web3 as a “technology and tool” rather than “finance and assets” makes the entrepreneurial path longer but safer. This is certainly not the most lively route, but it might be the least prone to accidents.