In mainland China, what Web3 startups are viable and what are not?

Author: Liu Honglin

Over the past few years, through offline sharing sessions and closed-door courses, Attorney Honglin has met many friends interested in the Web3 industry. In almost every exchange, someone would ask me a very similar question midway through or at the end:

Under the existing legal and regulatory framework in mainland China, what can Web3 entrepreneurs do if they don't want to cross the line?

This is a truly existential question, a stark reminder of the predicament faced by many Web3 entrepreneurs in mainland China. On one hand, we witness the rapid evolution of DeFi, NFTs, stablecoins, RWA, and AI+Crypto in overseas markets; on the other hand, we are forced to confront the current regulatory landscape in mainland China: the Web3 narrative centered on financial innovation and token mechanisms simply cannot be directly copied and implemented in mainland China.

It is precisely because of this magical and disparate feeling that "we can clearly see that Web3 is bound to be the future, but when we look down, it seems like we can't do anything about it" that people repeatedly doubt and give rise to the same question: how else can Web3 continue to happen without crossing legal red lines?

To save you mobile data, let's get straight to the point: In mainland China, Web3 startups aren't "impossible," but rather they shouldn't revolve around "issuing tokens, trading tokens, raising funds, and trading." Once you completely remove these four actions from your business model, the remaining possibilities become much clearer.

The first category, which still has a real-world presence, is Web3, which is purely a technology and infrastructure layer.

If you view blockchain as a "new type of distributed database, collaboration tool, or system architecture" rather than a financial instrument, then it has not been rejected in mainland China. Whether it's a consortium blockchain, a permissioned blockchain, or a solution named "blockchain technology service," "distributed ledger system," or "trusted data infrastructure," they all essentially fall under the category of information technology services.

At this level, the things entrepreneurs can do are very specific and traditional: build systems for enterprises, platforms for governments, and middleware for industries. Data ownership confirmation, data flow, evidence storage and traceability, cross-entity collaboration, supply chain coordination, judicial evidence storage, and administrative evidence storage are not new scenarios, but using blockchain can indeed provide a clearer structure for responsibility allocation, audit tracking, and post-event evidence collection.

The key here isn't whether you use blockchain, but rather: who your customers are, how you charge, and whether you're selling anything with investment expectations to the general public. As long as the business model is B2B paid, project-based, or subscription-based, this path is relatively clean.

The second category consists of Web3 applications that are explicitly de-financialized but retain the "digital asset" shell.

The evolution of NFTs in mainland China has already provided a clear example. As long as it doesn't involve secondary market transactions, doesn't emphasize investment returns, and doesn't promise appreciation potential, but instead returns to the use case of "digital content, digital rights, and digital credentials," the regulators haven't completely rejected it.

Digital collectibles, brand membership certificates, event passes, digital copyright labels, and digital identity badges are essentially all about "using blockchain to issue an immutable and verifiable certificate." The real challenge for these projects isn't "telling Web3 narratives," but rather genuinely solving problems related to brand operations, user relationships, and content ownership.

Many entrepreneurs get stuck here, often not because of legal issues, but because of business judgment: whether or not to use blockchain, can it really be better than not using blockchain? If the answer is simply "it looks more Web3", then the project is unlikely to last long.

The third category is Web3-related businesses that revolve around compliance, risk control, and industry services.

As regulations become clearer, a surge in "service demands" will emerge. Exchanges, project teams, overseas expansion teams, content platforms, and technology companies all require support in legal, compliance, risk control, auditing, data analysis, on-chain monitoring, and anti-money laundering.

A notable characteristic of this type of business is that it doesn't operate in the spotlight, but it has been around for a long time and is becoming increasingly essential. For those familiar with the industry and able to explain the complex logic, it's a typical "slow business."

Therefore, everyone should be able to understand why Mankiw LLP has been deeply involved in the niche market of Web3 for a long time and plans to do so for ten or twenty years.

From legal consultation, compliance architecture design, and overseas entity establishment, to on-chain fund path analysis, risk assessment, and system construction, these tasks may not be glamorous, but they are very real.

The fourth category is Web3 startups that take "going global" as a prerequisite but complete non-core processes in mainland China.

This type of path often tests an entrepreneur's structural design capabilities and sense of legal boundaries the most. Its core logic is not "pretending not to do Web3 in China," but rather a very clear breakdown: which aspects fall under the technical and service activities that can be accommodated by mainland law, and which aspects must be completed under the overseas compliance framework.

In practice, mainland teams can legally undertake tasks such as research and development, product design, protocol auditing, system maintenance, risk control models, data analysis, compliance research, and content support. These tasks are essentially technical or intellectual services and do not directly involve the issuance, trading, or fund transfer of virtual currencies. As long as they do not directly promote tokens to the general public, participate in fundraising, or facilitate transactions, these roles are relatively controllable under the law.

What truly needs to be "outsourced" are the front-end aspects involving financial attributes: token issuance, stablecoin design, on-chain transactions, clearing and settlement, user fund custody, and profit distribution mechanisms. If these activities occur in mainland China, the risks are virtually insurmountable. However, if these are completed by overseas entities, with services, marketing, and user acquisition all taking place overseas, and the mainland team merely acting as a technical or support provider, this overall structure has precedents and room for improvement in practice.

In reality, this type of model often presents a hierarchical structure: the overseas location houses the main business, compliance entities, and the business loop; while the mainland location resembles an "engineering department + research institute + back-end support center." It's not particularly appealing, nor can it be packaged into a grand narrative, but its strength lies in its sustainability. This may not be the ideal state for Web3 startups, but it is a realistic path that has been repeatedly validated within the existing legal framework.

Of course, the prerequisite for this path is that entrepreneurs must have a genuine understanding of "going global" itself, rather than simply registering an overseas company and launching an overseas website. If questions such as where the market is, who the users are, who bears the responsibility for compliance, and how to close the funding loop are not clearly understood, even the most elaborately structured plan can easily spiral out of control at the execution level.

Finally, I would like to reiterate to all friends who want to start a business in the Web3 industry that, under the legal context of mainland China, the following activities are almost certainly considered high-risk or even illegal: issuing or disguisedly issuing tokens in any form; raising funds in the name of "nodes, partners, or whitelists"; promising returns or implying returns; providing others with virtual currency trading matching, pricing, or promotion; and promoting crypto asset investment in WeChat groups, online communities, or live streams.

In mainland China, treating Web3 as a "technology and tool" rather than a "finance and asset" can actually prolong the entrepreneurial journey. This is certainly not the most exciting route, but it may be the one least likely to fail.