Compliance Participation Guide for Web3 Secondary Market Investment

With the changing landscape of Web3 investment, the Secondary Market is becoming the focus again. This article will explore how to safely and legally participate in Web3 Secondary Market investments from a Compliance perspective.

Participant Identity Verification

The identity of the investor determines the regulatory requirements they face. Taking Hong Kong and the United States as examples:

• The U.S. has strict regulations for both individual and institutional investors, involving oversight by the SEC and CFTC. Participation in crypto asset management products must meet the "qualified investor" standard.
• Hong Kong currently does not explicitly prohibit individual investors from participating, but requires platforms to hold a virtual asset trading license issued by the SFC.

Investors are advised to choose a compliance path based on their own circumstances:

• Individual investors should prioritize using local licensed platforms and register with real names.
• Family offices or small funds may consider establishing SPVs or fund structures in places like Hong Kong or the Cayman Islands.
• LPs participating in structured funds should confirm whether the manager holds the relevant licenses.

Choosing an Investment Platform

Choosing a compliant trading platform is crucial:

• Centralized exchanges ( CEX ) are usually operated by physical companies, obtaining regulatory licenses in some regions, with a higher level of Compliance.
• The decentralized exchange (DEX), though not registered as a legal entity, may face higher legal risks in certain jurisdictions.

Investors should:

1. Understand the platform's compliance background and licensing situation in the local area.
2. Avoid using illegal means to bypass regulation, such as anonymous wallet transfers or cross-chain bridges to circumvent deposit and withdrawal controls.

Secure Deposit and Withdrawal

Legal and secure deposit and withdrawal processes are crucial for long-term participation. For investors in mainland China, traditional OTC trading has become high-risk.

In markets such as Hong Kong, Singapore, and the United States, there are various compliance deposit and withdrawal paths, but the prerequisite is to reasonably arrange identity and structure:

• Cayman SPV: Suitable for crypto funds, with flexible capital inflow and outflow.
• Hong Kong family office structure: suitable for investors with Hong Kong capital background or overseas income.
• Singapore Exempt Fund Structure: Suitable for Portfolio Investment.

These structures can be used in conjunction with licensed institutions for currency exchange and clearing, facilitating the explanation of the source of funds to banks and tax authorities.

Tax Declaration

In major jurisdictions, the profits from cryptocurrency asset trading have been incorporated into the tax system. Investors should be aware:

• The IRS in the United States requires reporting of all virtual currency transactions.
• The Singapore IRAS taxes cryptocurrency transactions that generate commercial income.
• Many countries have joined the global tax information sharing network, and cross-border transactions are also difficult to escape regulation.

High net worth investors should:

• Save complete trading records.
• Hire a professional tax advisor to organize the income structure.
• If investing through an SPV or family office, consider company law and tax treaties.

Conclusion

Web3 investment is undergoing a transformation, with the Secondary Market becoming an important battleground. Both individual and institutional investors need to identify their legal status, choose compliance platforms, and clarify their tax and deposit/withdrawal paths. In the diversified and rapidly evolving Web3 world, investment activities must still adhere to legal boundaries.