The legal risks behind the popularity of ‘Internet celebrity KOL issuing coins and promoting the fan economy Friend.tech and TimeStore going viral.

The Legal Dangers Associated with the Popularity of 'Internet Celebrity KOLs Issuing Coins and Promoting the Fan Economy' as seen with the Viral Success of Friend.tech and TimeStore.

Introduction:

Have you ever thought that you could become an NFT yourself? Recently, the popular platforms Friend.tech and Time Store have made this possible. KOLs (Key Opinion Leaders) can issue their own NFTs on the platform, and fans can purchase them to interact and communicate with KOLs. Can this kind of gameplay really work in China? This article will introduce and analyze it.

(Image source: Time Store official website)

Friend.tech platform gameplay

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Friend.tech is a decentralized social platform, which is built on the second-layer network Base Chain launched by Coinbase. It obtains users’ Web2 identities through strong integration with Twitter, and based on these identities, it achieves the possibility of profit[1].

The more popular a user is, the higher the price of their NFT on Friend.tech. It’s a straightforward way of playing with the fan economy.

(Friend.tech Twitter account)

The specific gameplay is that the platform is connected to users’ Twitter social accounts. For example, a KOL (Key Opinion Leader) as a new participating user can activate their account by filling in someone else’s invitation code with 0.01 ETH. After registration, the KOL’s account will generate tradable keys (tokens representing the user’s ownership and access rights on the platform). If other users buy these keys later on, the price of the KOL’s keys will increase. If other users sell them, the price of the KOL’s keys will decrease. KOLs are priced by the market based on their influence, and their value is tokenized in the form of NFTs.

You can check the real-time prices of relevant accounts on the official website:

From the Keys ownership data, on August 25th, the latest data from Friend.tech’s “Keys” price ranking showed that the founder Racer ranked first with 2.91 ETH, with profits at around 90 ETH[2].

Friend.tech money-making methods

As a decentralized social platform, Friend.tech has financial attributes. Its core mechanism is to transform Twitter into tradable keys. After users purchase a KOL’s keys, they can obtain a friend spot and chat directly with the group owner in group chats. This is a good way for ordinary users to communicate directly with industry leaders. For example, if you want to find a good job, you can directly send your resume in the group; if you want to know the latest trends in the industry, you can follow the viewpoints and ideas shared by KOLs in the group chat; or if you simply believe in a certain KOL and think that there will be many buyers after them, you can buy keys to join the group.

After payment, you can enter the group chat and chat with KOLs. Each person can only see the conversation between themselves and the KOL, and cannot see the conversations of others in the group:

As a KOL, you can earn transaction fees by buying and selling keys during the operation of your own chat room. As an ordinary user, you can profit from price differences by finding potential stocks and buying low, then selling high.

Time Store: The KOL Time Trading Platform

Similar to Friend.tech, there is a recently launched platform called Time Store (formerly known as Miao Ah in 2017 – the platform claims to be the first national time trading platform). Users can purchase the time of KOLs by buying tokens issued by them, allowing for interactive communication with the KOLs.

(Image Source: Time Store Official Website)

Once users have purchased the time of KOLs, there are online and offline opportunities for interactive communication:

(Image Source: Time Store Official Website)

04

Is personal token issuance legal?

First, we need to clarify a few concepts. NFT (Non-Fungible Token) refers to non-fungible tokens built on blockchain technology. The opposite concept is fungible tokens, such as Bitcoin, Ethereum, and other cryptocurrencies. Fungible tokens have the same use and value, and can be exchanged with each other. On the other hand, NFTs can only be created once per contract address and cannot be exchanged. They can serve as a medium for storing real-world assets like artworks or as virtual currencies.

According to the 2017 Announcement on the Prevention of Risks in Token Issuance and Financing, organizations and individuals are not allowed to engage in illegal token issuance and financing activities. In the April 2022 Initiative on the Prevention of Financial Risks related to NFTs, it is also mentioned that efforts should be made to prevent the financialization and securitization of NFTs, and to guard against the risks of illegal financial activities.

The gameplay of the Friend.tech and Time Store platforms is actually quite common in the Web 2.0 world. For example, there are paid Q&A communities like Liu Run’s Evolution Island, where members can pay a membership fee to enter the community and witness the insights of industry experts. However, in the Web 3.0 realm, these two platforms tokenize their social value by allowing users/KOLs to issue tokens for fans to purchase. Nevertheless, relevant policies in our country do not allow any organizations or individuals to issue tokens. As a localized product of NFTs, digital collectibles primarily emphasize their value as artworks and aim to prevent them from being deemed as financial assets.

During the platform operation, if false statements manipulate public sentiment and create panic among users, the prices of certain KOLs may plummet rapidly, leading to a collapse. Early buyers may take the opportunity to sell at a high value, while latecomers may get trapped and suffer significant financial losses.

If certain KOLs use hype, deception, price manipulation, and other methods to entice a large number of users to purchase their NFTs but fail to provide sustained and reliable high-quality services, they may raise the prices and then sell off the NFTs to generate substantial profits, resulting in significant financial losses for many users.

Under this type of transaction model, if there are a large number of user complaints, KOLs and platforms maybe involved in criminal risks such as illegal fundraising, pyramid schemes, and fraud.

05

Is the development team safe overseas?

According to reports, Time Store claims that all members are going abroad. So here’s the question, if the project and personnel are all overseas but mainly targeting Chinese users for registration and use, can it avoid the jurisdiction of China’s criminal law? The answer is no.

According to China’s criminal law, jurisdiction is determined by territorial jurisdiction and personal jurisdiction. Territorial jurisdiction means that as long as the criminal act or result occurs within the territory of China, China has jurisdiction; personal jurisdiction means that as long as it is a Chinese person committing a crime outside the territory of China, China also has jurisdiction.

Therefore, as long as it is a Chinese person committing a crime, or the criminal act or result is within China, China has the right to prosecute.

Lawyer Mankun’s Reminder

In the world of Web3, there can be a lot of innovative content, which is why more and more people are starting to pay attention to blockchain, metaverse, and other concepts. From the joint release of the Ministry of Industry and Information Technology and the Cyberspace Administration of China’s guidance on accelerating the application and industrial development of blockchain technology in 2021, it can also be seen that China holds an encouraging and supportive attitude towards this. However, since the notification on preventing the risks of Bitcoin in 2013, relevant regulatory authorities have continuously issued documents expressing a negative attitude towards the issuance and trading of virtual currency, as well as mining. Therefore, while Web3 entrepreneurs engage in various content innovations, they must remember not to cross the regulatory red line, otherwise, they may end up in prison.

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[1] Friend.tech: An Analysis of the Rising Star in the SocialFi Track – LD Capital – Medium

https://ld-capital.medium.com/friend-tech-%E6%B5%85%E6%9E%90socialfi%E8%B5%9B%E9%81%93%E6%96%B0%E8%B4%B5-203d43b61acb

[2] friend.tech Research Report: Investment Logic, Value Evaluation, and Potential Risks – Foresight News

https://foresightnews.pro/article/detail/41588

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