USDT Recharge, Multi-Currency Exchange, Virtual Credit Cards: What Are the Criminal Boundaries of Web3 Payment Platforms?

For Web3 payment projects, the real product boundary is not about whether users can use USDT to swipe cards, but rather what financial capabilities that should be regulated the platform has taken into its own hands to achieve this step.

Written by: Gao Mengyang

On August 27, the Shanghai police disclosed a case worth noting for the Web3 payment industry while reporting on new types of economic crimes related to virtual currencies.

News information screenshot | Compiled from public reports

Unlike traditional underground banks, this case appears more like a FinTech company in terms of product form: the suspects established a technology company and built two platforms on the internet for "cross-border fund exchange" and "virtual credit card issuance and settlement," allowing users to complete virtual currency recharge, multi-currency cross-border exchange, virtual credit card applications, and repayment on the platform, which profits through transaction fees, service fees, card issuance fees, and withdrawal fees.

According to police reports, nine suspects were arrested in this case, involving an amount of over 200 million yuan. Currently, five of them have been approved for arrest by the procuratorial organs for illegal business operations, while the others have been subjected to criminal coercive measures, and the case is still under further investigation.

If we only look at the product page, "USDT recharge," "global consumption," "multi-currency exchange," and "virtual card payment" are all very familiar functions in the Web3 payment industry, and there are already many similar products in overseas markets. Therefore, what is truly worth studying in this case is not whether "virtual credit cards can be made," but rather how the legal nature of a payment product changes when it incorporates stablecoins, transitioning from technical services and card services to fund exchange and cross-border settlement.

1. The Issue Is Not Whether There Is a Virtual Card, But How Many Financial Steps the Platform Has Taken

Virtual credit cards are not inherently criminal products.

From a global payment market perspective, the combination of card networks and digital assets has formed various mature models. For example, some Crypto Card products allow users to spend using crypto assets, but in the actual payment chain, crypto assets usually need to be converted into fiat currency before entering traditional card payment networks, and merchants ultimately receive fiat currency. The entire product often involves multiple different steps, including regulated financial institutions, issuing institutions, card organizations, KYC, anti-money laundering, sanctions screening, and ongoing transaction monitoring.

This overseas model cannot directly serve as a basis for the legality of business within China, but it helps us understand a very important industry logic: behind a "card that can spend USDT" is not simply connecting a wallet to a bank card, but rather involves independent steps such as digital asset conversion, fiat currency funds, issuance, clearing, and merchant settlement. Who completes each step and based on what qualifications is what legal review truly cares about.

The reason why the case disclosed by the Shanghai police is worth noting is precisely because the relevant platform does not merely provide a card entry.

According to the police report, in the "cross-border fund exchange" platform, relevant personnel collected customers' virtual currencies abroad and exchanged them for foreign currencies to form a fund pool, then fabricated false reasons for cross-border settlement to achieve the exchange transfer between virtual currencies and RMB; in another "virtual credit card issuance and settlement" platform, relevant personnel cooperated with virtual card operators to provide customers with virtual credit cards, and after users spent, they repaid with virtual currencies. The platform then converted the virtual currencies into foreign currencies abroad and completed the settlement with virtual card operators through false cross-border settlement methods.

In other words, the analysis of this case is no longer a single "issuance" behavior but a complete closed-loop financial service from collecting virtual currencies, exchanging foreign currencies, organizing cross-border funds, completing card settlements, to charging users.

2. Once the Platform Completes "Currency Exchange for Money" for Customers, the Nature of the Business Begins to Change

Many Web3 payment products may initially just want to solve a very simple problem: users have USDT, but daily merchants only accept USD, HKD, or other fiat currencies. Can a card make these digital assets more convenient for payment?

What truly needs to be vigilant is that in order to achieve this experience, the product gradually consolidates all the capabilities originally responsible by different licensed entities into its own hands.

For example, users first recharge USDT into the platform account, and the platform calculates how many dollars can be exchanged at its own price; then users apply for a virtual card, and the platform is responsible for loading the exchanged value onto the card system; after consumption occurs, the platform is again responsible for handling the sale of virtual currencies, foreign currency payments, and cross-border settlements, ultimately completing all fund paths, exchange prices, and settlement arrangements uniformly.

At this stage, the platform is providing not just a technical interface or card management page, but may also involve multiple regulated steps such as virtual currency exchange, currency fund transfer, and cross-border payment settlement.

In February 2026, the People's Bank of China and eight other departments issued a notice on "Further Preventing and Handling Risks Related to Virtual Currencies," clearly stating that conducting activities related to the exchange of fiat currencies and virtual currencies, exchanges between virtual currencies, buying and selling virtual currencies as a central counterparty, and providing information intermediary and pricing services for virtual currency transactions within the territory is considered illegal financial activity and is strictly prohibited. It also stipulates that foreign entities and individuals are not allowed to illegally provide virtual currency-related services to domestic entities in any form.

At the same time, engaging in payment services that involve transferring currency funds based on users' electronic payment instructions within the territory requires obtaining the corresponding permits according to current payment regulatory rules. Foreign institutions providing cross-border payment services to domestic users also need to further consider different regulatory requirements regarding payments, foreign exchange, cross-border RMB, and data.

Therefore, for Web3 payment products targeting users in China, the real question that should be answered in advance is not whether "our card is issued by an overseas company, so is it okay," but rather from the moment the user hands over the first USDT into the system, who completes the subsequent exchanges, accounts, payments, and settlements, and what business functions the domestic team actually undertakes in this process.

3. "Cooperating with Overseas Licensed Institutions" Is Important, But One Should Not Just Look at Who Is Responsible in the Contract

In reality, Crypto Card projects typically do not have a Chinese technology company apply for Visa or Mastercard issuance qualifications by itself, but rather adopt a more complex cooperative structure, such as overseas licensed institutions providing cards, BIN sponsors responsible for card programs, and payment institutions responsible for settlements, while Web3 project parties mainly undertake wallet, user interface, technical development, and customer operations.

This structure certainly differs significantly from "building a platform and completing all funding operations by oneself," but criminal and regulatory analysis cannot stop at the role names in the contract.

Assuming the contract states that "the overseas partner is responsible for payments and issuance," but in actual operations, the Chinese team is responsible for attracting users domestically, providing USDT to USD quotes, controlling user recharge wallets, deciding when to exchange assets, arranging withdrawals and refunds, while earning income based on recharge volume or exchange amounts, then the name "technical service provider" in the contract does not fully explain its true business.

Conversely, if the domestic team only provides software development, API integration, or other technical capabilities, does not control customer funds, does not decide exchange prices, does not participate in virtual currency trading and fiat settlements, and does not directly provide relevant financial services to domestic users, it should be independently evaluated based on its actual behavior, rather than being directly equated with the funding operation entity just because the product ultimately relates to virtual currencies and bank cards.

This is why, when designing business structures, the flow of funds diagram is often more important than the equity structure diagram for Web3 payment projects. Which company holds shares can explain the business relationship, but which wallet the customer's USDT enters, who can access it, where the exchange occurs, which account the fiat currency enters, who pays the issuing institution, and who ultimately receives the fees truly determines what business each entity actually undertakes.

4. Another Notable Signal in the Shanghai Case Is "False Cross-Border Settlement"

If we only discuss stablecoin exchanges and virtual cards, it is easy to overlook a more traditional but legally significant detail in this case.

The police disclosed that in the cross-border fund business of the relevant platform, the criminal gang engaged in "fabricating false reasons for cross-border settlement"; in the virtual credit card settlement business, the gang similarly completed settlements with virtual card operators through false cross-border settlement methods after converting virtual currencies into foreign currencies abroad.

This means that the case is no longer just about "how USDT is exchanged for USD," but also involves why cross-border funds can enter regular financial channels under certain trade, service, or other names.

For real cross-border payment enterprises, this point is particularly worth noting, as normal international settlements often require an explanation of the transaction background, whether it is goods trade, software services, advertising fees, technical service fees, or other real business transactions, which need to correspond with contracts, orders, invoices, or other business materials. If, in order to bring funds back from abroad, contracts are artificially created, services are fabricated, or trade backgrounds unrelated to real business are borrowed, then the legal issues faced by the product are no longer just virtual currency regulation, but may further involve foreign exchange management and other funding business risks.

Thus, what stablecoin payment projects should be most vigilant about is not whether a product manager has added a "USDT recharge" button on the page, but rather whether the backend has begun to increase funding arrangements that cannot be explained by real business relationships to ensure that the money ultimately flows through.

5. To Determine Whether a Web3 Payment Product Has Crossed Boundaries, One Can First Look at Six Funding Relationships

If we put the Shanghai case alongside current regulatory rules, for teams designing stablecoin payments, Crypto Cards, PayFi, or global payment products, we can first avoid discussing complex legal terms and instead run the product through completely.

First. What assets are users handing over to whom. If domestic users directly hand USDT to a wallet controlled by the platform, it needs to be further confirmed whether the platform is merely providing technical custody or has already formed actual asset control.

Second. Who is responsible for selling the USDT. Is it a regulated overseas financial or crypto institution completing the exchange according to local rules, or is the project team independently seeking currency merchants, providing unified quotes, and completing payments.

Third. Who's account does the fiat currency enter. If the exchanged funds enter an account controlled by the project itself, and then the project arranges payments uniformly, its funding role will clearly be greater than simply providing API technical services.

Fourth. Who issues the card and bears the settlement responsibility. The appearance of a brand logo on the card does not replace the confirmation of the actual issuer, BIN sponsor, payment institution, and settlement entity.

Fifth. What is the true service that customers are purchasing. If users are merely using an overseas payment card, it is different from directly asking users to "exchange my USDT for USD and pay it abroad."

Sixth. How does the platform make money. Software subscription fees and technical service fees differ in their interpretative significance regarding the platform's true business nature compared to earning income based on exchange amounts, withdrawal fees, and funding settlement fees.

Lawyer Observations

The reason why the 200 million yuan case disclosed by the Shanghai police is worth the attention of the Web3 industry is that it demonstrates a very typical trend of platformization: functions originally dispersed among currency merchants, exchange institutions, payment institutions, issuing institutions, and cross-border settlement institutions have been integrated into the same user entry by internet platforms, making the user experience indeed smoother, but the financial functions undertaken by the platform have also increased accordingly.

Therefore, when discussing the legal risks of Crypto Cards, stablecoin payments, or PayFi projects, if one only asks whether "virtual credit cards are legal," it often does not yield truly useful answers. A more effective approach is to trace the funds step by step, breaking down the digital asset exchanges, currency fund controls, payment instructions, issuance, cross-border settlements, and charging models, and then determining what rules each step is completed by which entity.

The existence of many mature Crypto Card products overseas does not mean that the same product structure can be copied to domestic users without adjustments; similarly, using overseas companies, overseas card organizations, or overseas partners does not automatically change the legal nature of the actual implementation behavior of the domestic team.

For Web3 payment projects, the real product boundary is not about whether users can use USDT to swipe cards, but rather what financial capabilities that should be regulated the platform has taken into its own hands to achieve this step.

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