Legal perspective｜Web3 social leader Friend.tech’s “soft exit”, what impact will it have on the KOLs who issue tokens on the platform?

Written by: Gao Mengyang (senior criminal lawyer at Shanghai Mankiw Law Firm)

A series of recent actions by Friend.Tech, the leading project on the SocialFi track, have triggered discussions in the industry about whether SocialFi can succeed or not.

The incident was sparked by a report from The Block claiming that Friend.Tech’s development team had given up control of smart contracts and froze platform development. Although Friend.Tech subsequently issued a statement stating that it has no plans to shut down the application and will not affect current functions, most opinions in the circle are still concerned about the application and the SocialFi track.

As of this writing, Friend.Tech currently has only 4 weekly trading users, and the trading volume is only $882.66. It has long been abandoned. So, what exactly caused the failure of Friend.Tech? After Friend.Tech’s “soft rug”, what will KOLs on the platform face? Before exploring these issues, we first need to understand the mechanism of Friend.Tech.

Friend.Tech gameplay mechanics

Previously, Lawyers Liu Honglin and Shao Shiwei of Mankiw Law Firm analyzed the gameplay of Friend.Tech and published an article "Internet celebrity KOL issues currency to play the fan economy, the legal risks behind the explosion of Friend.tech and TimeStore" on the platform's Analyze legal compliance issues.

Friend.Tech is a decentralized social platform with financial attributes. Its core mechanism is to convert KOL's tweets into tradable NFT "keys". After users purchase a KOL's keys, they can obtain their friend status. And can chat directly with the group owner in group chat. This is a good way for ordinary users to communicate directly with industry experts. For example, if you want to find a good job, you can send your resume directly in the group; if you want to learn about the latest developments in the industry, you can follow the opinions and ideas expressed by KOLs in the group chat. ; Or just because you are optimistic about a certain KOL and think there will be many buyers after it, you can also buy the keys of this group and join the group. After paying, users can enter the group chat to chat with the KOL. Everyone can only see the chat content between the KOL and themselves, and cannot see the dialog boxes of other people in the group.

From the perspective of profit model, the Friend.Tech platform itself relies on transaction fees on the platform as revenue, that is, the handling fees charged when users conduct transactions on the platform; as a KOL, when operating a chat room on the Friend.Tech platform, you can Earnings can be achieved in a variety of ways, including part of the handling fees charged by others when buying and selling their own keys, income from coin issuance, and additional income from recommending new users in the V2 version, etc.; as an ordinary user, the most important way of income is token investment. The value-added method is to select potential stocks to invest in and sell them after the value has increased.

The failure of Friend.Tech this time has been classified by some analysts as a problem of platform gameplay - a "Ponzi" built by consuming connections. Whether it is the platform, KOL, or fans, they want to let their The appreciation of keys is bound to attract more people into the game; the people behind will follow the same pattern, and the cycle will repeat. If during this period, player interaction does not produce actual value, then this gameplay may become a "pyramid scheme" gameplay.

In this way, once the content monetization and fan economy advocated by the platform change, and players' initial enthusiasm for SocialFi dissipates, if players in the game want to escape, they can only "cheat" more people into the game to take over, and then This has resulted in a significant increase in criminal risks for platform players. At this point, SocialFi’s original intention is no longer relevant.

What impact will it have on currency-issuing KOLs?

Mankiw Law Firm conducted a risk analysis on the KOLs who issued tokens on the Friend.Tech platform, specifically pointing out that China's "Initiative on Preventing NFT-Related Financial Risks" mentioned that "resolutely curb the tendency of NFT financialization and securitization, and strictly guard against the risks of illegal financial activities" .

So, if the official Friend.Tech team announces that it will cease operations, what impact will it have on the KOLs on the platform? Lawyer Gao Mengyang from Mankiw Law Firm pointed out:

First of all, the act of issuing coins on the platform itself is illegal in China. This is a basic common sense in the Chinese currency circle. Whether it involves illegal business crimes or other illegal crimes is a huge variable. To a certain extent, this is the sword of Damocles that hangs over KOLs’ heads at all times, and keeping a respectful distance is probably the right answer. When the platform announces that it will cease operations, FOMO (fear) may cause users to sell platform tokens and keys to the market, causing the market to collapse, thereby promoting conflicts of interest between KOLs and fans, and triggering subsequent legal risks.

Secondly, there is another potential problem. In order to get more people to buy their own keys, some KOLs may make some specious "commitments" and "guarantees" for their own tokens on public platforms and private traffic areas to attract players to come in and take over the market. ”. In the end, the tulip bubble bursts, and if the final takeover is not secured, the table will be turned upside down, and abnormal means such as reporting and accusations will be used to restore the losses. At this time, it will be difficult for KOL to escape unscathed, which we must be vigilant about.

KOLs and Web3 users in the currency circle are always flocking to innovative projects, and the SocialFi platform is usually one of their choices. After many Chinese KOLs settled on the SocialFi platform, they relied on their influence and appeal to achieve a win-win situation. To make money, don't be shabby, but you must also be cautious.

To help KOLs avoid potential legal risks, Lawyer Mankiw made the following suggestions:

1 Review the project background before moving in

Review the background of the project, understand the compliance status of the project, and do not touch projects that are too exaggerated. It is recommended that KOLs ask themselves: "Is this project compliant? Is the business model legal? Is the user gameplay exaggerated? Does the project have long-term prospects?" If these questions are not certain, then KOLs should be careful.

2 Reasonable promotion after participation

In the process of operation and promotion, understand your own contribution to the project, find the correct positioning, and promote strictly in accordance with the Basic Law. Do not fall into legal liability due to over-promotion, and do not overstep your authority to avoid becoming a scapegoat.

3. Plan ahead for risks

If there is a risk of the project running away or the uncertainty of the project is discovered, a response plan must be made in advance, such as leaving the venue safely, appeasing fans, etc., to reduce one's own risks and protect one's own interests.

Statement: The article only represents the author's personal views and opinions, and does not represent the objective views and positions of the blockchain. All contents and opinions are for reference only and do not constitute investment advice. Investors should make their own decisions and transactions, and the author and Blockchain Client will not be held responsible for any direct or indirect losses caused by investors' transactions.

〈Legal Perspective｜Web3 social leader Friend.tech’s “soft exit”, what impact will it have on the KOLs who issue tokens on the platform? 〉This article was first published in "Block Guest".