How can programmers avoid being identified as pyramid scheme accomplices for developing Web3 projects? A complete analysis of the five major risk scenarios (Part 2)

This article will start from the logic of judicial conviction, further analyze the judgment criteria for technical personnel to be held accountable, and put forward key suggestions for prior prevention and post-event evidence.

Author: Lawyer Shao Shiwei

In recent years, with the rapid development of the Web3 industry, more and more programmers, smart contract developers, and outsourced technical teams have participated in the system construction, contract deployment, and platform operation and maintenance of crypto projects as on-chain engineers and project consultants. However, many projects under the names of "blockchain incentives", "token rebates", "GameFi game revenue", "decentralized node rewards", etc., are actually operating pyramid schemes such as "hierarchical promotion", "rebates for recruiting people", and "locked warehouse release", and there is a legal risk of being classified as organizing and leading pyramid schemes.

Judging from public judicial precedents in recent years, in many cases involving virtual currency pyramid schemes, although technical participants such as programmers and contract developers did not participate in promotion and publicity or fund operations, they were ultimately identified as "playing a key role in the implementation of pyramid schemes" because they were responsible for developing rebate logic, designing token models, or deploying smart contracts with a tiered reward structure. They were then treated as accomplices and accessories, and some were even classified as "organizers and leaders."

In view of this, this article will combine typical crypto project cases and, from the perspective of technical developers, systematically analyze the common criminal risk exposure points and judicial qualitative logic in Web3 positions, focusing on the following five major issues:

• What behaviors might a programmer engage in that could lead to him being considered an accomplice in a pyramid scheme?

• Does the technology outsourcing party constitute an accomplice in assisting the pyramid scheme organization?

• How are CTOs and technical partners defined as “organizers” in the judiciary?

• How can technology actors fight for innocence, non-prosecution, or downgrading of characterization?

• How can developers identify risks in advance, define technical boundaries, and build legal defenses?

Finally, based on his practical experience, Lawyer Shao provides actionable risk prevention suggestions for Web3 technology participants, helping technical personnel improve their ability to identify sensitive signals and clarify behavioral boundaries during project development, so as to avoid being accidentally involved in criminal cases due to unclear role positioning and misjudgment.

I Author: Lawyer Shao Shiwei

In the first part of this article, we sorted out the common cases and high-risk development scenarios of programmers in the crypto/Web3 projects, and explained which system functions and technical roles are easily identified by judicial authorities as "accomplices in pyramid schemes."

This article will start from the logic of judicial conviction, further analyze the judgment criteria for technical personnel to be held accountable, and put forward key suggestions for prior prevention and post-event evidence.

4. Judgment criteria and effective defense strategies for developers involved in fraud

In virtual currency pyramid schemes, there are many technical personnel who have neither participated in promotion nor directly involved in fund raising, but are still held accountable by judicial authorities for organizing and leading pyramid schemes. The reason is that from the current judicial perspective, the judgment of "whether it constitutes a pyramid scheme accomplice" does not depend on whether it directly develops downlines, but focuses on whether it provides substantial support for the establishment and operation of the pyramid scheme model through technical means, and whether it has subjective knowledge and intention to contact.

According to the Opinions on Several Issues Concerning the Application of Law in Handling Criminal Cases of Organizing and Leading MLM Activities (2013), organizers and leaders are not limited to initiators or traders, but also include "personnel who play a key role in the implementation of MLM activities, the establishment and expansion of MLM organizations, etc." This has become the legal basis for judicial organs to determine the criminal liability of technical personnel.

There are four core elements of an effective defense:

1. Whether the project is a pyramid scheme

Judicial authorities usually judge whether the technical personnel knew that the project had the characteristics of pyramid schemes by combining chat records, development documents, and the depth of participation. If the one-time delivery is completed according to the functional description, without actually contacting or understanding the overall operation logic of the project, and without participating in the discussion of the rebate system plan, it will help to defend against "lack of subjective intent".

2. Is there any “communication of intent” or joint collaboration?

If they did not participate in the overall project architecture design, did not participate in the formulation of institutional plans, and had no joint development activities, promotion collusion, or online collaboration, they can claim that they did not form a criminal connection with the platform, thereby excluding the establishment of a joint crime.

3. Whether to obtain project benefits and whether to have associated identity

If they do not hold platform coins, receive rebate commissions, enjoy node status rewards, and are not given special identities such as "consultant" or "partner", it means that they have not obtained illegal profits in the pyramid scheme structure, and they can strive for relevant mitigating circumstances based on this.

4. Is the technical development content neutral?

If the development content is a general system (such as a front-end interface, a general database management system), rather than a specially designed core function such as "tiered rebates, team commissions", one can strive for innocence or even non-prosecution.

Practical Tips: How to Build an Effective Defense Strategy?

Based on the experience of many crypto scheme cases handled by Lawyer Shao's team, the defense strategy for programmers or contract developers should focus on the three elements of "subjective knowledge", "technical boundaries" and "identity positioning", strive to clarify the scope of criminal responsibility to the greatest extent, and dismantle the presumption chain between "technical behavior = conspiracy participation". If clear evidence can be formed to explain the independence and neutrality of technical behavior, and exclude collaborative contact and illegal gains, there is a chance to strive for discretionary non-prosecution, qualitative downgrade or application of probation.

5How should developers protect themselves? Four practical legal suggestions

Looking back at past cases, many technical personnel believed that they "just wrote code and did not participate in operations" and "were purely outsourced and did not understand the project" before the incident. It was not until the platform collapsed, funds were cut off, the police intervened in the investigation, and they were even identified as accomplices, core members, or even organizers that they realized that they had already been "unintentionally involved" in the vortex of criminal legal risks.

From the perspective of judicial practice, whether a technical person is held accountable does not depend on whether he or she participates in project promotion, but on whether he or she is aware of the pyramid scheme characteristics of the project, and whether he or she provides substantial support for the construction and operation of the pyramid scheme structure through technical behaviors such as development and deployment. Therefore, the real compliance defense line should be placed in the early stage of project contact - identifying project risks and clarifying technical functions before cooperation are the key for technical participants to avoid criminal responsibility and avoid being mistakenly accused of pyramid schemes.

1. Identify pyramid scheme features such as “three-level rebate + static income” in the early stages of development

At the beginning of project access, technical personnel should focus on identifying whether the functions they develop serve the incentive structure of "recruiting people and returning profits". The following factors are often high-risk signals for judicial authorities to identify pyramid schemes:
• There are more than three levels of rewards, forming a clear upper and lower level relationship;
• User revenue comes from offline expansion rather than real goods or service transactions;
• There are mechanisms such as “referral code unlocks benefits” and “invite others to unlock withdrawals”;
• Claims such as “monthly returns of more than 10%” and “making a fortune through arbitrage”.

This type of model is common in blockchain games and wallet platforms. Although it is packaged as a "node system" and "task rebate", it essentially builds a technical framework for attracting new funds. Once the model gets out of control, it can easily be characterized as a pyramid scheme structure.

(II) Clarify technical boundaries and proactively leave traces to clarify responsibilities

Many technical participants mistakenly believe that they do not need to take responsibility because it is “just technology outsourcing”. In fact, it is precisely because of the vague identity that they are easily implicated. In the early stage of development, you should take the initiative to clarify responsibilities with the project party to ensure that a traceable chain of evidence is formed:
• Keep complete communication records, especially the description of the boundaries of your own role, such as "only responsible for page construction, not involved in rebate system design";
• Clearly state the scope of services in the contract, avoiding vague terms such as “participate in system architecture” or “be responsible for the business model”;
• Keep source code delivery records and documentation to prove that the development content does not involve key MLM modules;
• Project payment records should be marked as technical service fees to avoid being linked to project profits or rebates.

These materials will not only help clarify role positioning in the future, but also serve as important evidence for drawing clear lines in criminal responsibility judgments.

3. Stay away from “marginal behavior” to avoid being mistaken for being involved in pyramid schemes

Many technical personnel originally only provided development services, but because of some "assisting operations" behaviors in the project promotion, they were eventually used as important clues of "intention communication" by judicial authorities. For example:
• Register a platform account to participate in “dividends” or “airdrops”, or assist in demonstrating the usage process;
• Appear in project white papers and promotional pages, and be given titles such as “technical consultant” and “core partner”;
• Being pulled into the internal testing group or core operations group to help answer questions and provide strategic advice;
• Receive “benefit returns” such as platform tokens, node share, rebate rewards, etc. that exceed the development contract.

Once the above-mentioned behaviors are linked to the project rebate structure, even if the original intention is to cooperate, they may be identified by the prosecutors as "knowing participants" or even "organizers." Technical personnel should avoid entering sensitive areas such as project publicity, promotion, and settlement during cooperation to prevent inadvertently leaving "traces of collusion."

(IV) If you discover signs of a capital scam, stop losses in a timely manner and secure evidence

Once a project has features such as restricted withdrawals, extended lock-up periods, the need to recruit new members to unlock profits, or is accompanied by abnormal phenomena such as loss of contact with operating personnel, closure of the official website, and dissolution of the community, it often triggers a high-risk signal of a "funding pool."

At this point, if technical personnel continue to participate in development, maintenance or system updates, they may be easily regarded by judicial authorities as "knowingly assisting in the crime", significantly increasing the risk of criminal liability.

It is imperative to terminate the cooperation as soon as possible, draw a clear line in the sand, and properly preserve project-related technical delivery records, chat communications, payment information, contract agreements and other materials to provide evidentiary support for subsequent clarification of the scope of rights and responsibilities and proof of non-subjective accomplice status.

6. Final Thoughts

As China incorporates virtual currency-related activities into the illegal financial activities regulatory system, the criminal legal risks of the development activities of technical personnel involved in crypto projects are receiving increasing attention.

Combining multiple typical cases, this article systematically sorts out the common roles, judicial qualitative logic and high-risk scenarios of Web3 technology developers who are held accountable in pyramid schemes, and clearly points out that the legal responsibility of technical personnel is no longer limited to "whether to promote and recruit people", but has returned to the dual judgment of "whether to provide substantial support + whether to have subjective knowledge".

In the current environment where the compliance boundaries of Web3 projects are blurred and supervision continues to tighten, having a preliminary awareness of criminal responsibility, clarifying the boundaries of one's own responsibilities, and leaving evidence during the cooperation process are the key for technical personnel to reduce the risk of being involved in the case and maintain the legal bottom line.

We focus on criminal legal risk prevention and defense in the Web3 field, and are committed to providing professional and practical legal support to technology practitioners. If you have any questions, please feel free to communicate with us.

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