Regardless of whether you are a new player in Web3 or an experienced veteran, if you are a Chinese investor, there is inevitably a long-standing question that troubles you: Is participating in #Web3 illegal?
First, here's an answer: it's not.
So, under the current regulatory framework, how can Chinese investors participate in Web3 in compliance? Which tracks are compliant in China? In this article, Portal Labs will outline the compliance pathways to help Chinese investors find feasible Web3 tracks.
Compliance red lines in the domestic Web3 industry
Currently, the regulation of Web3 in mainland China is mostly still in a gray area; as long as you do not cross the red line, there shouldn't be any major issues.
So what is the red line?
First, cryptocurrency mining is definitely not allowed. Since 2021, our country has introduced a ban on cryptocurrency mining and strictly enforced it, so you can see that there are basically no mining-related enterprises or projects in China (of course, this does not exclude illegal projects mining secretly).
Secondly, projects involving cryptocurrency financial services, including DeFi, token issuance, trading platforms, etc., are all illegal. Regardless of whether you participate in overseas projects or mainland projects, as long as you provide trading and other financial services for users in mainland China, it is non-compliant.
So, what tracks are still available for participation? Actually, it's quite simple: invest in what the country is vigorously developing; regardless of whether you make a profit or not, the project itself is compliant.
Blockchain underlying technology & SaaS services
If we are to talk about the safest Web3 tracks in China, blockchain infrastructure, especially blockchain technology, must be the first choice.
Not to mention other factors, blockchain, as part of technological innovation, has long been recognized by multiple government departments in China and has been incorporated into the digital economy development strategy. The Ministry of Industry and Information Technology of China pointed out in the (2021 China Blockchain Industry Development White Paper) that blockchain technology is becoming part of the digital economy infrastructure and encourages enterprises to explore its application in government affairs, finance, supply chains, and other areas. Furthermore, the ('14th Five-Year' Digital Economy Development Plan) also explicitly states the need to promote blockchain technology innovation and industrial application. In addition, in 2023, the (Blockchain Technology Application Development White Paper) jointly released by the Ministry of Industry and Information Technology and the Central Internet Information Office further refined the compliance application directions for blockchain, clearly supporting the development of consortium chains, government blockchain, financial technology, and other areas.
Currently, many well-known domestic blockchain projects, such as Chang'an Chain and Ant Chain (especially consortium chains), are continuously providing development platforms for domestic blockchain technology and applications under policy support.
At the same time, technologies such as digital identity (DID), privacy computing, decentralized storage, zero-knowledge proof (ZKP), multi-party secure computing (MPC), and trusted computing (TEE) are also being applied in government affairs, finance, healthcare, data security, and other fields, promoting the improvement and upgrading of China's digital economy infrastructure.
In addition, blockchain SaaS services are also gradually maturing. Tech giants such as Huawei Cloud, Tencent Cloud, and Alibaba Cloud have launched their own BaaS (Blockchain as a Service) solutions to help enterprises quickly deploy and apply blockchain technology, thereby lowering the threshold for enterprises to use blockchain.
However, although technological projects are highly supported, it is crucial to avoid involving cryptocurrencies and financial aspects. After all, regarding Web3, the current policy in our country still insists on eliminating cryptocurrency financial services.
Digital collectibles
There are no NFTs in China that can be bought and sold for profit; China only has digital collectibles that combine brand and art, which have collectible value.
Especially during the 2021-2022 period, the domestic digital collectible industry was booming, giving rise to numerous domestic digital collectible platforms such as Whale Exploration, Baidu Super Chain, iBox, Unique Art, and Cloud Whale, as well as well-known digital collectibles such as (Nine Color Deer), (Thousand Miles of Rivers and Mountains), and (Sanxingdui Bronze Mask).
At the same time, the national level also provides support for the development of digital collectibles.
For example, in March 2022, the Industrial Culture Development Center of the Ministry of Industry and Information Technology of China issued a (Notice on Collecting the First Batch of Industrial Culture Digital Collectible Materials), planning to launch the first batch of industrial culture digital collectibles; in July 2022, the National Press and Publication Administration's Key Laboratory of Science and Standards for Blockchain Copyright Applications published (Digital Collectible Application Reference), providing guidance and theoretical reference for the digital collectible industry.
However, this support is not unconditional encouragement.
In April 2022, the China Internet Finance Association, the China Banking Association, and the China Securities Association jointly issued the (Initiative on Preventing Financial Risks Related to NFTs), which pointed out that digital collectible projects cannot provide trading services and must eliminate tendencies toward financialization and securitization of digital collectibles. Therefore, if you pay attention to the domestic digital collectible track, you will find that basically well-known platforms do not provide trading services, with some only offering transfer services.
Metaverse
In our country, the metaverse track emerged around the same time as digital collectibles.
Since the outbreak of the 'metaverse' concept in 2021, multiple local governments in China have introduced relevant policies to support the development of the metaverse industry. For example, in January 2022, Beijing proposed in the (Beijing's '14th Five-Year' Digital Economy Development Plan) to explore innovative applications of the metaverse in urban planning, public services, manufacturing, and other scenarios; in July 2022, the (Shanghai Action Plan for Cultivating a New Track of 'Metaverse' (2022-2025)) also mentioned that by 2025, the scale of Shanghai's metaverse-related industries should reach 350 billion yuan, promoting the integration of technologies such as virtual reality, blockchain, and artificial intelligence.
Driven by policies, domestic tech companies are also actively laying out technologies related to virtual reality (VR), augmented reality (AR), digital twins, and artificial intelligence (AI) to support the landing of the metaverse ecosystem.
Currently, the application of the metaverse is commonly seen in cultural and tourism projects in some regions, such as the 'West Lake Metaverse' project in Hangzhou, which creates a digital scenic area where visitors can tour online and experience immersive interaction; the Dunhuang Research Institute launched the 'Digital Dunhuang' project, using metaverse technology to recreate Dunhuang murals and provide an online immersive viewing experience; the Confucius Temple in Nanjing utilizes AR and VR technology to launch the 'Metaverse Confucius Temple' experience, allowing visitors to explore ancient architecture and historical culture digitally.
However, although there is significant support for the metaverse industry domestically, there are still a few compliance points that need attention:
It must not involve cryptocurrencies or token economies. This is the primary premise for all Web3 projects to develop compliantly in China, and will not be elaborated further.
Content must comply with regulatory requirements. When it involves virtual people, digital content, and other applications, it needs to comply with national regulations concerning online culture, data security, information security, etc., such as (Regulations on the Governance of Internet Information Content Ecosystem).
Data privacy compliance. The metaverse involves user data collection and processing, so it must comply with relevant laws such as the (Personal Information Protection Law) and (Data Security Law) to ensure data is used compliantly.
#RWA (Real World Asset tokenization)
In our country, although cryptocurrency trading and finance are prohibited, RWA (Real World Asset tokenization) stands out. Especially in the second half of 2024, the first RWA financing completed by Ant Chain and Langxin became the hottest topic in the domestic Web3 industry.
So, why is it that RWA belongs to the compliant category while issuing tokens is not?
First of all, RWA essentially digitizes real-world assets (such as accounts receivable from supply chains, bills, warehouse receipts, real estate, data, etc.) and circulates them on the chain, thereby enhancing the transparency and liquidity of financial assets. Unlike traditional cryptocurrencies, RWA has clear asset sources, and its value is anchored to real-world assets, thus having a higher regulatory acceptance.
Secondly, our country has long included asset digitization, data rights confirmation, and blockchain + supply chain finance into the category of policy support. For example, the ('14th Five-Year' Digital Economy Development Plan) proposes to promote data assetization, digital rights confirmation, and digital financial services, laying a policy foundation for the compliant development of RWA. Additionally, the (Blockchain Technology Application Development White Paper) clearly supports the landing applications of blockchain + real economy such as supply chain finance, bill rights confirmation, and product traceability, and encourages trusted asset circulation based on consortium chains.
However, not all projects claiming to be RWA in China are compliant.
Therefore, to find compliant projects, focus on several dimensions:
First, it must anchor real and valuable assets;
Secondly, most domestic RWA projects are based on consortium chains rather than uncontrolled public chains;
Third, it must comply with financial and data regulatory requirements;
Finally, the project leaders are best to be licensed financial institutions or platforms with government endorsement.
Conclusion
In China, there is indeed a path for Web3 investment; the key lies in complying with policies and clarifying compliance boundaries. Whether it’s blockchain underlying technology, digital collectibles, the metaverse, or RWA, as long as the track itself aligns with the country's development direction, exploration and investment can be conducted within a compliant framework. Of course, policy support does not mean there are no risks; investors still need to continuously pay attention to domestic regulatory dynamics to ensure their investment direction does not cross the red line.