Authors: Liu Honglin, Huang Wenyin, Man Kun Law Firm

Cryptocurrency exchanges are often the primary entry point into Web3 for most newcomers in the crypto community. In addition to the daily buying and selling of cryptocurrencies, most exchanges also offer a variety of financial services. Some of these products claim to be low-risk and guarantee returns, while others have complex gameplay and mechanisms. Among them, simple coin earning products are often recommended to new users by platforms due to their user-friendly nature.

Yesterday, a certain exchange's simple coin earning financial product attracted attention due to the surge in the interest rate for USDT current financial management. Under normal circumstances, the interest rate for this product is 6%, but at 23:00 yesterday, the rate surged to 44%.

*Image source: Screenshot of interest rate on a certain exchange's financial management page

Today, Man Kun Law Firm will briefly discuss the user agreement for the exchange's "simple coin earning service" and explore what these financial products are all about.

Overview of Simple Coin Earning Service

The simple coin earning service (Earn) provided by cryptocurrency exchanges offers digital asset holders a convenient way to increase their assets. Users can deposit their cryptocurrencies on the platform and choose between current or fixed-term financial products based on their liquidity needs and expected returns.

From the perspective of fund usage, this type of simple coin earning service is a lending-based service. Users deposit their cryptocurrencies on the exchange platform, and the exchange then lends these cryptocurrencies to those in need, charging a certain fee and distributing a proportion of the financial profits to users. Currently, most exchanges support investment and financial management of mainstream coins, such as USDT, USDC, BTC, and ETH, through current or fixed-term simple coin earning products.

After depositing tokens, if a user's lending demand matches successfully with the borrowing needs of other users, they can earn profits on an hourly basis before the order deadline. Furthermore, users can choose to enable automatic reinvestment. In this way, when the term ends, the order will automatically be matched again to continue generating profits.

Financial Attributes and Legal Definition

When comparing the simple coin earning service with traditional financial products and services, we can see that it is similar to deposits or financial management in traditional finance, and the earned cryptocurrencies are equivalent to interest or investment returns. However, compared to traditional financial products, the simple coin earning service of cryptocurrency exchanges relies on blockchain technology, possesses characteristics such as decentralization and globality, has stronger fund liquidity, and relatively higher returns.

However, in order to provide such services, compliance and licensing of the platform are the first steps. There are significant differences in regulatory requirements and qualifications for cryptocurrency exchanges in different countries and regions. Taking Hong Kong as an example, in addition to applying for a Type 1 (securities trading) and Type 7 (automated trading services) license from the Securities and Futures Commission (SFC) of Hong Kong, cryptocurrency exchanges also need to comply with specific regulatory requirements.

*Image source: Hong Kong SFC official website

In addition, different countries and regions have different legal positions on virtual currencies, which directly affects the legal nature of financial services based on virtual currencies. In China, regulatory authorities have taken a strict stance on virtual currencies. The "Announcement on Preventing the Risks of Fundraising through Token Offerings" issued by the People's Bank of China and six other departments in 2017 clearly stated that token fundraising activities are essentially illegal public fundraising activities without approval. In addition, China has explicitly prohibited financial institutions and payment institutions from engaging in business related to virtual currencies.

In such a regulatory environment, the simple coin earning service, as an unapproved financial activity, may be deemed illegal. For investors, accepting and establishing a legal relationship with the exchange while knowing or should have known that the service may be involved in illegal activities may render the legal relationship invalid. In the event of a dispute, investors will find it difficult to obtain effective legal protection.

Legal Risks and Recommendations

Therefore, when investors use the simple coin earning service of cryptocurrency exchanges for virtual asset management, they should fully understand the compliance of the exchange and correctly assess the trading risks based on the user agreement to avoid unnecessary financial losses. Specific methods that can be adopted include:

*Image source: User Agreement for "Simple Coin Earning" on a certain exchange

• Pay attention to regulatory policy changes. Regulatory authorities in various countries may implement stricter regulatory measures on cryptocurrency exchanges for various reasons such as protecting investors, maintaining financial market stability, preventing money laundering, and combating terrorist financing. This may include requiring exchanges to comply with specific registration and reporting requirements, restricting exchange operations, and even completely halting related services in extreme cases. Investors will face liquidity risks, affecting the recovery of investment principal and the attainment of expected returns. For example, when FTX exchange applied for bankruptcy, the disclosed liabilities were as high as tens of billions of US dollars, causing not only millions of retail investors to lose everything but also affecting well-known investment institutions such as Sequoia Capital and Temasek. Therefore, when participating in the simple coin earning service, investors should closely monitor regulatory developments and assess the potential impact of policy changes on their investments.

• Pay attention to risk and rights assessment. In the traditional financial field, regulatory authorities usually require financial service providers to ensure that investors are fully protected. However, in the field of cryptocurrency investment, most service providers minimize their risks through contractual terms. Therefore, when participating in the simple coin earning service, investors should fully understand the service terms, risk disclosures, and their own risk tolerance.

• Pay attention to dispute resolution clauses. These clauses usually appear in the form of standard terms in user agreements, and platform operators often set dispute resolution methods from the perspective of maximizing their own interests, such as agreeing to arbitration overseas. Users may not fully pay attention to jurisdiction clauses during the registration process. In the event of a dispute, these dispute resolution clauses often bring additional time and economic costs to users.

• Some jurisdictions require platforms or service providers to reasonably alert users to these terms when using standard terms, especially those that may be unfavorable to users. If the provider of the standard terms fails to reasonably alert the other party to these terms, or if the terms are found to be unfair, the court may deem the terms invalid. However, even if this claim is supported, it usually requires a lengthy negotiation, arbitration, or even litigation process, which is not conducive to the efficient resolution of disputes.

Summary by Man Kun Law Firm

The promised low risk and stable return rates of the simple coin earning service are particularly attractive in the high-risk Web3 field, but such promises often require investors to approach them with caution.

Before participating in such services, investors should fully understand the relevant regulatory policies, assess risks, and pay attention to the relevant provisions in the user agreement. In different countries and regions, there are significant differences in the legal status of virtual currencies and regulatory requirements. Investors need to closely monitor policy changes to avoid unnecessary legal risks and financial losses.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。