China Warns Against Illegal Fundraising Risks in Stablecoins

An industry body in China has issued a warning regarding the risks of illegal fundraising activities linked to stablecoins amidst the cryptocurrency boom.

The Beijing Internet Finance Association stated that certain institutions and individuals are enticing investors into stablecoin and other crypto ventures, promising inflated returns under the facade of "financial innovation."

"High returns come with high risks," the association cautioned, urging investors to be wary and avoid unauthorized crypto projects. The warning emphasizes that some schemes resemble traditional Ponzi schemes, using funds from new investors to pay off earlier participants.

Key Takeaways:

• Investor Beware: Be highly cautious of crypto investments promising unrealistically high returns.
• Regulation is Key: Regulatory frameworks are still being developed for stablecoins worldwide, including in China's Hong Kong.
• China's Stance: Cryptocurrency trading is banned in mainland China due to financial stability concerns, however Hong Kong is pursuing the concept.
• Ponzi Scheme Risk: The association specifically warns against schemes paying early investors with money from new investors.
• Potential Crimes: The activities can evolve into illegal fundraising, fraud, pyramid schemes, and money laundering.

Reflecting the hype, Indexes tracking the stablecoin concept in China has surged over the past three months.

The association cautioned that investment schemes are attracting investors by using buzzwords like "stablecoins", "DeFi", and "Web 3.0". These schemes operate by paying early investors with money from new joiners, a classic trait of Ponzi schemes.

"These activities can easily evolve into crimes such as illegal fundraising, financial fraud, pyramid schemes, and money laundering, which would severely disrupt economic and financial order, and endanger public interest and social trust," the association cautioned.