For ordinary people, what needs to be done before investing is not just assessing whether a project can make money, but more importantly, judging whether it is legal.

Written by: Lawyer Shao Shiwai

I just want to earn a little more money. It's not that I am necessarily pursuing great wealth, I just hope to have a bit more money and a better life.

A friend told me that he invested in a project and made quite a bit of money. I asked him what project, and he said it was Web3, blockchain. It sounded very new and professional, but he explained it very simply - just put money in, and there’s profit every day. You can also invite friends to join, the more people you bring in, the more you get.

I thought about it, and indeed, people around me have made money from this. They have actually bought cars and moved into bigger houses.

I was tempted.

Later, I also introduced a few friends to join. I thought it was a good thing; if there was a good project, everyone could earn together. They actually didn't understand what Web3 was, but they trusted me; I said I was investing, and they followed suit.

Later on, the project had problems, and withdrawals couldn’t be made. I went to the police to report it; I wanted the police to help me get back my and my friends' money.

As a result, the police held me back and said I was suspected of organizing and leading pyramid scheme activities.

I was dumbfounded.

Things like this are actually not uncommon among pyramid scheme cases. Many people genuinely do not realize what their participating behavior means legally.

Why do ordinary investors not realize they are participating in a pyramid scheme?

Web3 pyramid schemes are very different from traditional pyramid schemes.

In traditional pyramid schemes, after many years of anti-fraud education in the country, many people are somewhat alert. In fact, some people are actually aware that it is a pyramid scheme, but are still willing to participate - because they calculated that as long as they can develop enough downlines, they can make money before it collapses. This is a proactive risk-taking mentality; they know where the risks lie.

But Web3 is different. Terms like blockchain, RWA, DeFi, public chain, mining machine - these words carry an inherent sense of "professionalism" and "cutting-edge" for outsiders. When the project party presents a well-crafted white paper and a seemingly complicated technical roadmap, ordinary people have no ability to question it. They only think: such a professional thing, the project party must be extraordinary.

More importantly, the myth of getting rich quickly in Web3 has actually occurred. It is not a legend; it is real people around us who have indeed bought cars and changed houses. Ordinary people see all this and will simply think: if others can earn, why can't I?

The project parties seized upon this. They do not need to invent new stories; they only need to replicate a proven successful case and tell you, "We are the next hundredfold coin!" With one sentence, they transform an ordinary person’s incomprehensible new thing into an opportunity he can understand, verify, and feel capable of participating in.

Why do cryptocurrency investors actively help project parties develop downlines?

After entering the market, investors will gradually understand the project’s incentive mechanism - not only do they invest their money, but they can also invite friends to join, and when friends join, they can earn corresponding referral rewards.

But to ordinary people, this seems unrelated to pyramid schemes.

Because this type of model is too common. Cashback promotions for e-commerce platforms, referral commissions for exchanges, which app does not have this? Ordinary people have seen too many such promotional mechanisms, so when Web3 projects present the same gameplay, their first reaction is not "this is a pyramid scheme," but "this is a normal promotional activity."

This is also the most concealed aspect of Web3 pyramid schemes - it wraps the act of bringing in new people as familiar everyday scenarios.

Moreover, early investors can quickly see returns. They do not realize this is actually the principal of later investors circulating; they only know that the money has indeed arrived. Thus, they begin to recommend this project to their closest people.

In their view, this is not recruiting. It's helping family and friends seize a money-making opportunity.

The project parties, of course, won’t use terms like "recruiting." They will say this is co-building a community, disrupting traditional finance, and a great endeavor to achieve financial freedom. The act of recruiting is packaged as "inviting family to join the wealth feast," imbued with a sense of nobility. Ordinary people do not only see it as problematic; even when questioned, they feel angered - you don’t understand, this is the trend of the future.

There is also a deeper psychological aspect at play. When a person puts their own money in and brings friends and family in, they can no longer admit that this is a scam. Admitting the scam means acknowledging that they are not just a victim, but also the person who dragged those around them down. To protect their self-esteem and to recover what they have already invested, they can only believe in this project more firmly than anyone else.

Additionally, these projects often create a sense of belonging. Communities, teams, large regions - investors are not just investing in a project; they are joining a circle, meeting a group of "like-minded" people, and even starting to form their own identity: I am the team leader of a certain community, I am the regional person in charge. When a person’s social relationships and self-identity are tied to this project, leaving is no longer just about losing money; it’s about losing a group of "one of their own." This sense of belonging is one of the reasons they continue to hold on.

So, from the perspective of ordinary investors, what they experience is never a story of “entering a pyramid scheme.” Instead, it is a story of hope, trust, and not wanting to let down the people around them. It’s just that in the end, they discover they have walked into a trap that was designed from the very beginning.

How does the law determine the criminal responsibility of ordinary investors?

But from the perspective of the judiciary, investigators are not concerned with whether you were scammed into it; they are more interested in verifying what specific role you played in this project.

The logic of ordinary investors is different from the logic of the law.

The investor's logic is: I trusted this project, I invested money, and I also introduced friends, but I didn't make money, so I am also a victim.

The law’s logic is: what is this person's role and division of labor in this organization, and what specific actions did you take.

From the perspective of the judiciary, anyone who plays a key role in establishing and expanding a pyramid scheme may be identified as an organizer or leader.

Specifically, if a person’s role in the project is not just an ordinary investor but a team leader responsible for managing and developing downlines; a community instructor explaining how the project works to newcomers; has assisted the project parties in roadshows, introducing the project on stage; a regional agent overseeing several layers beneath them; or has helped the project party with operation, planning, or promotional content...

Then legally, this person’s identity is no longer just "investor," but "one of the organizers."

Even if they lost money. Even if they still feel they were scammed.

Many may feel this is unfair. However, legal provisions are not the same as common sense.

Conclusion

Web3 itself is not a scam. Blockchain technology and decentralized finance do exist, and there are indeed many projects in this industry that are genuinely doing work. But precisely because this field is new enough, complex enough, and difficult for ordinary people to understand, it has become the most suitable shell for packaging scams.

For ordinary people, what needs to be done before investing is not just to assess whether a project can make money, but more importantly, to judge whether it is legal. Static returns, dynamic returns, recruiting for commissions - once a project exhibits these characteristics, even if it is packaged as cutting-edge, it is essentially a pyramid scheme. Participants face not only financial losses but also potential criminal risks.