Web3 Lawyer: What are the current channels and methods to legally issue "U"?

Author: Xiao Za lawyer

Recently, some partners have contacted Sister Za's team to inquire about the legal risks of exchanging cryptocurrencies (especially USDT), as well as the basic channels and practical operation methods. Today, Sister Za's team will briefly explain the legal risks and feasibility of some current "oil extraction" channels, helping everyone to legally and compliantly use and dispose of crypto assets.

It is important to note that this article is aimed at ordinary users with clean sources of funds, who buy and hold coins solely for personal daily consumption and normal investment activities. Additionally, all methods detailed in this article are known to Sister Za's team during the process of providing legal services to clients. Sister Za's team has no vested interest in the channels themselves, and the opinions expressed are solely those of the team and are for reference only.

01. Licensed Crypto Exchanges in Hong Kong + Brokerage Channels for Exchanging U

Currently, the list of licensed crypto asset exchanges (or operating entities) announced by the Hong Kong Securities and Futures Commission has reached 7, with 4 licenses released just a few days ago, indicating the prosperity of crypto assets in Hong Kong.

According to Sister Za's team's practical experience, currently exchanging U through Hong Kong channels is indeed a legal and compliant method with low legal risks. However, it should be noted that cryptocurrencies like USDT cannot be directly traded on licensed exchanges and need to be assisted through BTC/ETH spot channels. For specific operations, let's take HKVAX as an example.

HKVAX is backed by the well-established brokerage "Victory Securities" (stock code: 8540.HK), which is a fully licensed brokerage in Hong Kong. Before entering the crypto asset sector, it already held licenses 1, 2, 4, 6, and 9, and in 2023, it obtained licenses for crypto asset trading, consulting, and asset management services from the Hong Kong Securities and Futures Commission. Therefore, it can legally use Hong Kong's BTC/ETH spot channels to help users exchange U for BTC, ETH, or other fiat currencies, with a very short trading cycle that is basically unaffected by market financial risks. After the exchange is completed, the funds (in HKD or USD) will be transferred to a bank account in Hong Kong.

The advantage of this method is that it has good compliance for exchanging U, with a clear funding chain and a low possibility of receiving illicit funds, essentially no risk of card freezing. However, there are also drawbacks. First, current residents of mainland China cannot directly open crypto asset trading accounts, so using this channel may require assistance from reliable friends abroad; second, this exchange method may require physically going to Hong Kong (to open a bank account, etc.), which can be cumbersome and inconvenient for small amounts of U.

02. Major Exchanges like Certain An and Certain K Can Sell Through OTC

This method has the lowest cost and can be operated by opening an account independently. However, it should be noted that this channel has become one of the easiest ways to receive illicit funds, and receiving such funds may not only result in the freezing of bank cards, rendering the funds unusable, but may also lead to subsequent confiscation by judicial authorities in our country.

If you choose this method to exchange U, Sister Za's team recommends checking the trading records and evaluations of the trading platform to select a counterparty with a high reputation for transactions, avoiding those with poor trading credibility and significantly abnormal trading records.

03. U Card for Cash

Regarding the compliance of U cards, Sister Za's team has specifically published an article explaining:

Sister Za's Team | Can Ordinary People Use U Cards? Will U Card Issuers Run into Trouble?

Overall, the issue is not significant, and some U cards can even be linked to WeChat, a certain yellow kangaroo, and a certain blue wallet app for use.

However, U cards also carry risks. Currently, the most common U cards on the market are Mastercard or UnionPay U cards, which have relatively safe sources of funds, but there are too many card issuing agents, so one should choose a reliable agent that can pass KYC. Some U card service providers indeed have cases of suddenly stopping services. This year, Sister Za's team received inquiries from several partners stating that their previously established U card service providers suddenly stopped providing services to users in mainland China a few months ago, causing them to have funds stuck in the card, leading to many troubles.

04. Currency Exchange via Coin Merchants

The risks associated with currency exchange through coin merchants are similar to those of OTC withdrawals from exchanges, and there is also a possibility of receiving illicit funds, leading to card freezing or being summoned as a witness. Sister Za's team has even handled extreme cases where repeated exchanges with coin merchants led to being investigated as suspects (accomplices).

Overall, the risks associated with coin merchants are relatively high. One should not easily believe in so-called "card freezing guarantees" or "card freezing compensations." Unless there is a very reliable and well-known partner, do not choose this path to exchange U.

05. Offline Exchange of U in Hong Kong

This method generally requires a bank card from abroad (Hong Kong is also acceptable). During the handling of cases, Sister Za's team has accompanied clients to Hong Kong to observe the process of exchanging U at various offline small shops.

There are two types of physical stores in Hong Kong: one is ATMs, and the other is small offline shops. Generally, these small shops do not register customer information for daily transaction amounts below HKD 120,000, allowing for quick exchanges; transactions exceeding HKD 120,000 require simple KYC, with fees generally fluctuating around 4%.

Overall, Sister Za's team believes that for ordinary users with clean sources of funds who buy and hold coins solely for personal daily consumption and normal investment activities, this is indeed a low-cost and convenient channel. However, there is also a risk of receiving illicit funds, so it is recommended to exchange at more stable and long-established stores in places like Mong Kok or Tsim Sha Tsui to prevent unexpected incidents.

06. Final Remarks

It is important to note that there is currently no so-called "completely safe" or "flawless" method for exchanging U. Even the concentrated solutions provided in this article still carry risks such as receiving illicit funds and high transaction costs. Partners are advised to consider carefully before proceeding and not to make hasty decisions.