WuBlockchain has republished an article by lawyer Liu Zhengyao on whether crypto perpetual contracts and the platforms that offer them can be characterized as gambling under mainland China’s legal framework. The article says a recent piece in the Procuratorial Daily discussed the legal nature of virtual-currency perpetual contracts and related platforms, using the Han and Gao case on operating a casino to explain why such platforms may be treated as a “casino.” Liu writes that the analytical framework in that piece largely reflects the mainstream prosecutorial approach now seen in mainland China, where crypto perpetual trading may be framed as gambling and running a perpetual trading platform may be framed as the crime of operating a casino.
Liu approaches the issue from the standpoint of a criminal defense lawyer and a Web3 industry lawyer. His focus is not simply whether prosecutors have a theory, but whether the legal tests can hold up in individual cases, which points may become decisive for conviction, and where room for defense still exists.
What perpetual contracts are
The article defines a crypto perpetual contract as a margin- and leverage-based contract tied to a virtual currency. It highlights two main features. First, there is no expiry date and no delivery requirement. Second, the product uses a funding-rate mechanism to keep the contract price close to the spot price. When the contract price is above the index price, longs pay shorts; when the contract price is below the index price, shorts pay longs. That mechanism is meant to pull the spread back toward a reasonable range.
For users, the process is straightforward: they judge whether the price will rise or fall, choose long or short, and can close a position at any time. What makes the product dangerous, Liu writes, is leverage. With leverage in the tens or even above 100x, a small move against the position can trigger forced liquidation and wipe out the margin.
The article adds that from the perspective of financial engineering, perpetual contracts exist as real derivatives in offshore mature markets and can serve hedging and price-discovery functions. In mainland China, though, the legal setting is different. Under the current regulatory line, issuance of virtual currencies and related spot and derivatives trading services are treated as illegal financial activity. Liu writes that after the People’s Bank of China and seven other authorities issued the “Document No. 42” in February 2026 to replace the 2021 “9.24 Notice,” that position did not ease and instead became tighter.
On that basis, Liu says the question in mainland China is no longer whether perpetual contracts are compliant. In his view, they have no lawful room to operate there, and the real issue is which criminal red line a given case may cross.
Gambling crime versus operating a casino
Citing Article 303 of China’s Criminal Law, the article says the crimes of gambling and operating a casino are sometimes blurred in practice, but they are materially different. Gambling targets conduct undertaken for profit by gathering people to gamble or by making gambling a regular occupation. The statutory penalty is up to three years of fixed-term imprisonment, criminal detention, or public surveillance, plus a fine.
Operating a casino applies to the act of opening or running a casino. The statutory penalty is up to five years of fixed-term imprisonment, criminal detention, or public surveillance, plus a fine, and rises to five to 10 years plus a fine when the circumstances are serious.
Liu says the core distinction is whether the person is a participant or organizer, or instead the operator of the venue and system. He points to two key tests:
- whether the conduct is business-like, including openness to an unspecified public, continuous operation, and organized solicitation of users;
- whether the actor exercises control over the rules, the gambling environment, and the flow of stakes.
Put plainly, the question is whether someone came to gamble or sat at the center of the game as the house. For either offense to apply, the activity must still fit the essence of gambling: the outcome is chance-based in a legally relevant sense, and property is placed at stake.
Four dimensions used to assess whether perpetuals amount to gambling
The article walks through four dimensions raised by the Procuratorial Daily and gives Liu’s view on each one.
Chance and the “small stake, big gain” model
Liu says this is the most substantive issue. In the case cited by the Procuratorial Daily, 93.76% of trades on the platform used ultra-high leverage of 100x to 150x, and the forced-liquidation line for all trades was uniformly set at 50%. Under a 100x setting, a 1% adverse move could trigger liquidation. Liu says that under such a design, users are no longer relying mainly on judgment or analysis. They are effectively betting on tiny short-term price moves, making the setup hard to distinguish from a wager on win or loss.
Still, he raises a defense-side question that he says cannot be ignored: does leverage create a qualitative legal boundary, or only a quantitative difference? If 100x is treated as gambling, what about 50x, or 20x? Regulated futures markets also use leverage. Liu says there is still no clear statutory line, and the issue is more likely to be judged case by case.
For him, the most dangerous combination is ultra-high leverage plus a uniformly abnormally low liquidation threshold. At that point, the issue is no longer just market structure. It begins to look like a setup in which loss is built into the design, and he says it can even take on a fraud-like character.
How the platform makes money: intermediary or house
Liu describes this as the most important fault line in the entire legal analysis. In his account, a compliant offshore platform acts as a matching venue and charges fees in line with market practice. It is not the counterparty to the user’s trade. The platform discussed in the case was different. It charged fees while also taking the other side of user trades, and turned user losses directly into platform income through trading fees, withdrawal fees, and auto-liquidation. The article also says the actors altered some K-line data to increase the likelihood of forced liquidation.
Once that happens, Liu argues, the platform is no longer a financial intermediary. It becomes the house. This is also where he sees the strongest path for defense in criminal cases involving perpetual contracts. If the defense can show that the platform genuinely matched orders, hedged them in an external market, did not absorb user losses, and only collected reasonable fees, then the characterization of the platform as a dealer profiting from users’ losses may fail. If, by contrast, investigators establish that the platform directly wagered against users or manipulated market data, Liu says there is very little room left to argue against an operating-a-casino theory.
He also stresses that allegations such as altering K-line data depend not only on statements from the parties involved but heavily on electronic evidence. How backend data was extracted, whether hash verification was used, and whether the conduct can be tied to the accused are all serious evidentiary questions in a criminal case.
Closed-loop funds and whether USDT counts as property used for betting
The article says some views in judicial practice have argued that where a platform only supports deposits and settlement in USDT and does not directly provide RMB exchange, a complete closed loop is missing and the activity should not be treated as gambling. The Procuratorial Daily rejected that argument, saying USDT is pegged to the US dollar, has stable value, and can be quickly converted, so it should be treated as valuable property equivalent to cash. On that view, a direct fiat link is not required.
Liu says this conclusion will most likely be accepted in practice, and he adds that he personally recognizes that virtual currencies have property attributes. At the same time, he says the point is not beyond dispute. In his description, there is still debate in criminal-law theory over whether virtual currency should be protected as a property interest or as a data-related legal interest. He notes the tension between one line of regulation saying virtual currency lacks legal tender status and related business is illegal financial activity, while courts or prosecutors may still treat it in individual cases as valuable property. He says that tension can still be used in defense, especially when the amount involved is being determined.
Operational and control features
In the case discussed, Liu says the platform used false advertising, broadly solicited users, built a multi-tier agent network, offered rebates as high as 85%, had more than 70,000 registered users, and operated continuously. Those facts, in his view, strongly support the business-like element. At the same time, the platform set the leverage range itself, monopolized market-data access, and controlled the liquidation algorithm, giving it command over both the rules and the outcome structure.
When operational and control features are both present, he says, the characteristics of operating a casino become much more apparent.
Could fraud or illegal business operation charges apply?
Fraud
The article says the standard for fraud is relatively clear: whether deception has completely removed uncertainty from the result. If the house merely manipulates the game or cheats to improve its winning odds, the matter can still remain within the scope of gambling. Only where the outcome has been fully controlled in advance and uncertainty has disappeared does it become “fraud in the name of gambling.”
In the case under discussion, Liu says the platform’s data changes were scattered rather than embedded in a fixed algorithmic model, and users could still choose direction based on real market moves. For that reason, he says the case did not escalate into fraud. He adds that the point matters because if systematic and algorithmic manipulation is later established, the charge could shift upward to fraud, with a very different sentencing range.
Illegal business operation
On illegal business operation, Liu says some public security authorities have preferred that charge as a conservative route, and the Han case was one example. But he says the Procuratorial Daily article identified two obstacles.
First, illegal business operation is an administrative offense in structure, and a violation of “state regulations” is a prerequisite. Under Article 96 of the Criminal Law, “state regulations” refers to laws, administrative regulations, and decisions or orders issued by the State Council. Liu says there is a clear question over whether notices issued in the name of ministries or commissions can serve as the required legal basis. He adds that this issue still exists in the era of the 2026 “Document No. 42,” because it remains a departmental normative document.
Second, he argues that perpetual contracts are not the same as futures. Futures have expiry dates and delivery, and they serve the real economy and hedging needs; perpetual contracts have no expiry, no delivery, and focus only on price direction. Liu says the two should not be simply equated. As for the catch-all provision in Article 225(4) of the Criminal Law, he says it should be applied strictly and should not be used without clear judicial interpretation. If a case is to be handled as illegal business operation anyway, he says the authorities should report the matter upward to the Supreme People’s Court level by level.
He describes that line of argument as a ready-made defense path in many token-related cases brought under the charge of illegal business operation.
Different actors may face different levels of liability
Liu ends with a practical warning that crypto-related criminal cases often do not stop with the owner of the platform. Investors, technical developers, operations and marketing staff, multi-tier agents, and even ordinary users can all face legal risk, but their legal status is not the same.
He says ordinary participants generally do not constitute a crime because the gambling offense requires gathering people to gamble or treating gambling as an occupation. For outsourced technical staff, the issue of whether they acted with knowledge is decisive in determining whether they may be treated as accomplices, charged under the offense of assisting information-network crimes, classified under another offense, or found not guilty. Liu says some authorities bundle everyone together without separately examining each person’s role, and he describes that as one of the most common features of these cases and one that defense lawyers should question.
Liu’s bottom line
Liu’s answer to whether perpetual contracts are gambling is direct: it depends on how the platform is designed, not on what the product is called.
He says a platform that genuinely matches trades, only charges fees, does not take the other side of the trade, and uses leverage and risk controls that fit industry norms can be treated very differently under criminal law from a platform that sets abnormally high leverage, imposes a uniformly abnormally low liquidation line, acts as the dealer itself, and even tampers with market data. Both may be called “perpetual contracts,” but he says the criminal-law evaluation can move in opposite directions. For Liu, the legal line between a financial derivative and gambling does not turn on the product form. It turns on whether the result has been artificially shaped into a near-inevitable loss hidden behind the appearance of chance.
He also says that for defense lawyers, the real work lies in the details: leverage and liquidation parameters, whether the platform was the counterparty, whether evidence of backend data tampering is solid, how a closed funding loop is assessed, whether the underlying regulatory basis is valid, and what role each person actually played in the chain.
For Web3 practitioners, his warning is blunt. In mainland China, he says, perpetual contract business has no lawful operating space. An offshore license is not a shield. If someone is in China and provides promotion, agency services, rebates, technical support, or payment support, the legal risk falls on that person directly.