As the ETH ETF approval boosts market sentiment, crypto exchanges are rolling out new activities, and projects are announcing updates. However, many investors find it harder to profit in the current landscape, where altcoins often operate as zero-sum games due to limited new capital inflows. This has led some to borrow funds from friends or colleagues—a practice fraught with legal risks. Here’s what you need to know.
Legal Risks of Crypto Lending
Stablecoins like USDT and USDC are widely regarded as "hard currency" in Web3, used for trading margins, investments, and cross-border payments. However, lending these assets carries significant legal pitfalls.
1. Crypto Loans Lack Legal Protection
Case Reference: (2023) Xiang 04 Min Zhong 3214
- Scenario: A borrower (王某) took 2000 USDT from a friend (史某林) to cover margin calls but lost it in a futures trade. When the lender sued for repayment, the court dismissed the case, ruling that virtual currency lending violates China’s crypto trading ban and falls outside judicial jurisdiction.
- Key Takeaway: Post-2021 regulations (e.g., the "924 Notice") have led some courts to reject crypto-related claims outright, denying plaintiffs a hearing.
🔹 Contrasting Views:
Courts in Shanghai, Beijing, and Hangzhou occasionally enforce crypto-related claims (e.g., ordering USDT returns in (2023)沪0112民初10422号). However, outcomes depend heavily on jurisdiction.
2. Virtual Currency ≠ Legal Loan Disbursement
Case Reference: (2020) Min 0203 Min Chu 21651
- Scenario: A borrower signed a 10M CNY loan agreement but received ETH instead of fiat. The court voided the contract, citing ETH’s non-currency status and China’s ban on crypto-fiat exchanges.
- Key Takeaway: Loans must be disbursed in fiat to be valid. Crypto transfers fail to meet this requirement, rendering contracts unenforceable.
⚠️ Even Repayment in Crypto Is Invalid:
In (2021)京0102民初40526号, a court invalidated a borrower’s attempt to repay debts with Bitcoin.
3. The Challenges of Unjust Enrichment Claims
If crypto transfers are deemed invalid, lenders may sue for unjust enrichment. However:
- Hurdles: Difficulty in filing cases + lack of enforcement mechanisms for crypto asset recovery.
- Solution: Focus on jurisdiction selection and pre-litigation asset tracing.
Risks of Borrowing Fiat to Invest in Crypto
Delegating crypto investments can blur lines between debt and entrusted asset management, especially if losses lead to hastily signed IOUs.
Case Studies:
- (2022)京0106民初21153号: A defendant argued funds were for delegated trading, but the court upheld a signed IOU, enforcing repayment.
- Recent Case: A defendant avoided liability by proving the funds were for delegated investments (via chat logs and Binance transaction records).
👉 Critical Advice: Never convert investment losses into IOUs—this shifts all risk to the delegate.
FAQ Section
❓ Are crypto loans legally binding?
No. Most jurisdictions treat them as unenforceable due to crypto’s non-currency status and regulatory bans.
❓ Can I recover lost crypto through lawsuits?
Possible but challenging. Success depends on local court attitudes and asset-tracking efforts.
❓ What if someone repays a loan in crypto?
Such repayments are typically invalid. Stick to fiat for legal clarity.
Engage Further:
👉 Explore crypto lending best practices
👉 Secure your investments today
Disclaimer: This article does not constitute financial or legal advice. Comply with local regulations.
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