DeFi's Potential $8 Billion Dollar Thunderstorm, Only $1 Billion Unleashed So Far

By: blockbeats|2025/11/06 19:30:02

Fund Manager, a once trusted yet now disillusioned figure in the stock market, carried the wealth dreams of countless retail investors during the heyday of A-shares.

At that time, everyone was chasing after fund managers who graduated from prestigious universities and had impressive resumes, believing that funds were a less risky and more professional option compared to direct stock trading.

However, when the market plummeted, investors realized that the so-called "professionalism" could not withstand systemic risk. What's even worse is that while fund managers took their management fees and performance bonuses, gains were attributed to their skills, but losses came from the investors' pockets.

Today, as the role of "Fund Manager" arrives on-chain under the new name "Curator," the situation has become even more dangerous. They don't need to pass any qualification exams, don't need to undergo scrutiny from any regulatory bodies, and don't even need to disclose their real identities.

All they need to do is create a "Vault" on a DeFi protocol, use outrageously high annual percentage yields as bait, and attract hundreds of millions of dollars in funds. Where this money goes, what it's used for, investors have no idea.

$93 Million Gone in Smoke

On November 3, 2025, when Stream Finance suddenly announced the suspension of all deposits and withdrawals, a storm engulfing the DeFi world reached its climax.

The next day, an official statement was released: an external fund manager was liquidated during the market's intense volatility on October 11, resulting in approximately $93 million in fund asset losses. Stream's native stablecoin xUSD plummeted in price, crashing from $1 to a low of $0.43 in just a few hours.

This storm was not without warning. 172 days earlier, Yearn's core developer Schlag had issued a warning to the Stream team. At the eye of the storm, he was blunt:

"Just one conversation with them and spending 5 minutes browsing through their Debank would make you realize this will end in a bad way."

Stream Finance is fundamentally a yield aggregation DeFi protocol that allows users to deposit funds into Vaults managed by so-called "external curators" to earn yields. The protocol claims to invest funds in various on-chain and off-chain strategies to earn returns.

This recent rug pull was caused by two main reasons: first, the Curator used user funds for opaque off-chain transactions and was liquidated on October 11; second, on-chain analysts further discovered that Stream Finance engaged in recursive borrowing with the Elixir protocol's deUSD, leveraging a small amount of real capital to multiply leverage several times. Although this "left foot stepping on the right foot to reach the sky" pattern was not a direct cause of the loss, it greatly amplified the protocol's systemic risk and set the stage for subsequent chain reactions.

These two issues combined led to a catastrophic chain reaction: $160 million of user funds were frozen, the entire ecosystem faced $285 million in systemic risk, the Euler protocol incurred $137 million in bad debt, and Elixir's deUSD, which is 65% backed by Stream assets, had $68 million teetering on the brink of collapse.

So, what is this "Curator" model that was easily spotted by seasoned developers yet still attracted over $8 billion in funds, and how did it gradually steer DeFi away from its transparent and trustworthy ideal to the systemic crisis we face today?

The Fatal Transformation of DeFi

To understand the root cause of this crisis, we must go back to the origins of DeFi.

Traditional DeFi protocols represented by Aave and Compound are based on the core principle of "Code is law." Every deposit and every loan must adhere to the rules hardcoded in smart contracts, open and transparent, and tamper-proof. Users deposit their funds into a large public pool, and borrowers need to provide overcollateralization to borrow funds.

The entire process is algorithm-driven, with no human managers intervening, and the risks are systemic and quantifiable, such as smart contract vulnerabilities or liquidation risks under extreme market conditions, but never the artificial risk of a "fund manager."

However, this cycle, the new generation of DeFi protocols represented by Morpho and Euler have implemented a new form of fund management in pursuit of yield. They believed that Aave's public pool model was inefficient, with a significant amount of funds idle and unable to maximize returns.

Therefore, they introduced the "Curator" (Professional Fund Manager). Users no longer deposit their money into a unified pool but choose individual "Vaults" managed by the Curator. Users deposit their funds into the Vaults, and the Curator is fully responsible for how to invest and yield on this money.

The speed of expansion of this model is astonishing. According to DeFiLlama data, as of now, the total value locked in just two major protocols, Morpho and Euler, has exceeded 8 billion USD, with Morpho V1 reaching 7.3 billion USD and Euler V2 reaching 1.1 billion USD. This means that more than 8 billion USD of actual assets are being entrusted to a large number of Curators with diverse backgrounds.

DeFi's Potential $8 Billion Dollar Thunderstorm, Only src=

On the surface, this sounds great — professionals doing what they do best, and users effortlessly earning higher yields than Aave. However, peeling back the layer of this "on-chain finance" facade reveals a core very similar to that of P2P.

The primary risk in P2P lending used to be that as a lender, the average user could not assess the true creditworthiness and repayment ability of the borrower on the other end. Behind the platform's promise of high interest rates was an unpredictable default risk.

The Curator model perfectly replicates this point, where the protocol itself is merely a matching platform, and users' funds appear to be entrusted to professional Curators but are actually invested in a black box.

Take Morpho, for example. On their website, users can see various vaults established by different Curators, each vault boasting an enticing APY (Annual Percentage Yield) and a brief strategy description.

For example, the "Gauntlet" and "Steakhouse" shown in this image are the Curators of the corresponding vaults.

Users simply need to click on deposit to stake their assets, such as USDC, into these vaults. However, the issue arises here: apart from the vague strategy description and fluctuating historical APY, users often have no insight into the inner workings of these vaults.

The core information regarding vault risk is hidden in an inconspicuous "Risk" page. Even if a user ventures into that page, they can only see the specific holdings of the vault. Key information determining asset security, such as leverage and risk exposure, is nowhere to be found.

The manager of this vault has not even provided a risk disclosure.

Inexperienced users find it challenging to assess the safety of the underlying assets in the vault.

Morpho's CEO, Paul Frambot, once said, "Aave is the bank, and Morpho is the bank's infrastructure." However, the implication of this statement is that they only provide tools, and the actual "banking business," namely risk management and fund allocation, is outsourced to these Curators.

The so-called "decentralization" is limited to the moment of deposit and withdrawal, while the most important risk management stage in the asset lifecycle is completely in the hands of an unchecked "steward."

It is truly said: "Decentralization to send money, centralization to manage money."

The reason why traditional DeFi protocols are relatively safe is precisely because they minimize the "human" variable. However, the Curator mode of DeFi protocols brings back the biggest and most unpredictable risk - the "human" element - into the blockchain. When trust replaces code, when transparency becomes a black box, the cornerstone of DeFi security has already collapsed.

When the "Steward" Colludes with the Protocol

The Curator mode has only opened Pandora's Box, and the unspoken collusion of interests between the protocol and the Curator has completely unleashed the devil inside.

The Curator's profit model usually involves charging management fees and performance fees. This means they have a strong motivation to pursue high-risk, high-return strategies. Since the principal belongs to the users, they are not responsible for losses. But if they win the gamble, the majority of the profits go into their own pockets.

This "profit internalization, risk externalization" incentive mechanism is almost tailor-made for moral hazard. As criticized by Arthur, the founder of DeFiance Capital, under this model, the Curators' mentality is: "If I mess up, it's your money. If I do it right, it's my money."

More frighteningly, the protocol not only fails to play the role of a regulator but becomes an accomplice in this dangerous game. In order to attract Total Value Locked (TVL) in the fierce market competition, the protocol needs to use astonishingly high APYs (Annual Percentage Yields) to attract users. And these high APYs are created by those Curators implementing aggressive strategies.

Therefore, the protocol not only turns a blind eye to the Curators' risky behavior but may even actively collaborate with or encourage them to set up high-yield vaults as a marketing gimmick.

Stream Finance is a typical example of this opaque operation. According to on-chain data analysis, Stream claims to have a TVL of up to $500 million. However, according to DeFi Llama data, Stream's TVL peaked at only $200 million, meaning that over three-fifths of user funds have flowed into undisclosed off-chain strategies operated by some mysterious proprietary traders, completely deviating from the transparency that DeFi should have.

Another Curator Protocol RE7 Labs, in a statement released after the Stream incident, exposed this bundled interest, revealing the extent of this practice. They acknowledged that they had already identified the "centralized counterparty risk" through due diligence before launching Stream's stablecoin, xUSD. However, due to "significant user and network demand," they still decided to launch the asset and set up an independent lending pool for it. In other words, for traffic and popularity, they chose to dance with risk.

When the protocol itself becomes an advocate and beneficiary of high-risk strategies, the so-called risk review becomes a mere formality. Users no longer see genuine risk warnings but a carefully orchestrated marketing scam. They are led to believe that those double-digit or triple-digit APYs are DeFi's magic, unaware that behind this lies a trap leading to the abyss.

The Domino Effect's Collapse

On October 11, 2025, the cryptocurrency market experienced a bloodbath. In just 24 hours, the total amount liquidated across the network approached $20 billion, bringing a liquidity crisis and hidden risks that are now spreading throughout the entire DeFi ecosystem.

Analyses on Twitter widely believe that many DeFi protocols' Curators, in pursuit of profits, broadly adopted a high-risk play off-chain: "Selling Volatility."

The essence of this strategy is to bet on market stability. As long as the market remains calm, they can continue to make money through fees. However, once the market experiences significant fluctuations, they risk losing everything. The market crash on October 11 became the trigger that ignited this powder keg.

Stream Finance was the first significant domino to fall in this disaster. Its officials confirmed afterward that an external fund manager was liquidated during the market's significant fluctuation on October 11, resulting in approximately $93 million in fund asset losses. Although the officials did not disclose the specific strategy employed, market analysis commonly points to high-risk derivative trading.

However, this was only the beginning of the disaster. As Stream's xUSD, xBTC, and other tokens were widely used as collateral and assets in DeFi protocols, its collapse quickly triggered a chain reaction that affected the entire industry.

According to preliminary analysis by the DeFi research firm Yields and More, direct debt exposure related to Stream reached as high as $285 million, revealing a vast risk contagion network: the biggest victim being the Elixir protocol. As one of Stream's primary lenders, Elixir lent up to $68 million in USDC, which accounted for 65% of Elixir's stablecoin deUSD total reserve.

RE7 Labs, once a collaborator, has now become a victim. Its treasury, involved in multiple lending protocols, faces millions of dollars in default risk due to accepting xUSD and Elixir-related assets as collateral.

The broader contagion unfolds through a complex "rehypothecation" path, where Stream's token is collateralized across mainstream lending protocols such as Euler, Silo, Morpho, which are further nested within other protocols. A node's collapse swiftly propagates through the entire system via this spiderweb-like financial network.

The hidden thunderbolt planted by the October 11 liquidation event extends far beyond just Stream Finance. As warned by Yields and More: "This risk map is still incomplete, and we expect more affected liquidity pools and protocols to be discovered."

Another protocol, Stables Labs, and its stablecoin USDX have recently faced a similar situation, drawing community scrutiny.

Situations like those of Stream Finance expose a fatal flaw in CeDeFi model: when a protocol lacks transparency and power is overly concentrated in the hands of a few, users' fund safety entirely relies on the project's integrity, lacking effective technological and regulatory constraints.

You Are the Yield

From Aave's transparent on-chain bank to Stream Finance's asset management black box, DeFi has undergone a lethal evolution in just a few years.

When the ideal of "decentralization" is alienated into the frenzy of "deregulation," when the narrative of "professional management" obscures the opaque reality of fund operations, what we get, as Yearn developer Schlag puts it, is not better finance but a "worse banking system."

The most profound lesson of this crisis is that we must reexamine the core value of DeFi: transparency is far more critical than the decentralization label itself.

An opaque decentralized system is much riskier than a regulated centralized system because it lacks both the endorsement of centralized institutions and legal constraints and the open, verifiable checks and balances that a decentralized system should have.

Bitwise's Chief Investment Officer Matt Hougan once said to all investors in the crypto world, "There is simply no double-digit return without risk in the market."

For every investor lured by a high APY, before clicking the "Deposit" button next time, one should soul-search with a question:

Do you really understand where this yield is coming from? If you don't, then you are the yield.

Foreword: Today, the People's Bank of China's website published the "Notice of the People's Bank of China, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration for Market Regulation, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, State Administration of Foreign Exchange on Further Preventing and Dealing with Risks Related to Virtual Currency and Others (Yinfa [2026] No. 42)", the latest regulatory requirements from the eight departments including the central bank, which are basically consistent with the regulatory requirements of recent years. The main focus of the regulation is on speculative activities such as virtual currency trading, exchanges, ICOs, overseas platform services, and this time, regulatory oversight of RWA has been added, explicitly prohibiting RWA tokenization, stablecoins (especially those pegged to the RMB). The following is the full text:

To the people's governments of all provinces, autonomous regions, and municipalities directly under the Central Government, the Xinjiang Production and Construction Corps:

Recently, there have been speculative activities related to virtual currency and Real-World Assets (RWA) tokenization, disrupting the economic and financial order and jeopardizing the property security of the people. In order to further prevent and address the risks related to virtual currency and Real-World Assets tokenization, effectively safeguard national security and social stability, in accordance with the "Law of the People's Republic of China on the People's Bank of China," "Law of the People's Republic of China on Commercial Banks," "Securities Law of the People's Republic of China," "Law of the People's Republic of China on Securities Investment Funds," "Law of the People's Republic of China on Futures and Derivatives," "Cybersecurity Law of the People's Republic of China," "Regulations of the People's Republic of China on the Administration of Renminbi," "Regulations on Prevention and Disposal of Illegal Fundraising," "Regulations of the People's Republic of China on Foreign Exchange Administration," "Telecommunications Regulations of the People's Republic of China," and other provisions, after reaching consensus with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, and with the approval of the State Council, the relevant matters are notified as follows:

I. Clarify the essential attributes of virtual currency, Real-World Assets tokenization, and related business activities

(I) Virtual currency does not possess the legal status equivalent to fiat currency. Virtual currencies such as Bitcoin, Ether, Tether, etc., have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed ledger or similar technology, existing in digital form, etc. They do not have legal tender status, should not and cannot be circulated and used as currency in the market.

The business activities related to virtual currency are classified as illegal financial activities. The exchange of fiat currency and virtual currency within the territory, exchange of virtual currencies, acting as a central counterparty in buying and selling virtual currencies, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, and trading of virtual currency-related financial products, etc., fall under illegal financial activities, such as suspected illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of securities and futures business, illegal fundraising, etc., are strictly prohibited across the board and resolutely banned in accordance with the law. Overseas entities and individuals are not allowed to provide virtual currency-related services to domestic entities in any form.

A stablecoin pegged to a fiat currency indirectly fulfills some functions of the fiat currency in circulation. Without the consent of relevant authorities in accordance with the law and regulations, any domestic or foreign entity or individual is not allowed to issue a RMB-pegged stablecoin overseas.

（II）Tokenization of Real-World Assets refers to the use of encryption technology and distributed ledger or similar technologies to transform ownership rights, income rights, etc., of assets into tokens (tokens) or other interests or bond certificates with token (token) characteristics, and carry out issuance and trading activities.

Engaging in the tokenization of real-world assets domestically, as well as providing related intermediary, information technology services, etc., which are suspected of illegal issuance of token vouchers, unauthorized public offering of securities, illegal operation of securities and futures business, illegal fundraising, and other illegal financial activities, shall be prohibited; except for relevant business activities carried out with the approval of the competent authorities in accordance with the law and regulations and relying on specific financial infrastructures. Overseas entities and individuals are not allowed to illegally provide services related to the tokenization of real-world assets to domestic entities in any form.

II. Sound Work Mechanism

(III) Inter-agency Coordination. The People's Bank of China, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of virtual currency-related illegal financial activities.

The China Securities Regulatory Commission, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of illegal financial activities related to the tokenization of real-world assets.

(IV) Strengthening Local Implementation. The people's governments at the provincial level are overall responsible for the prevention and disposal of risks related to virtual currencies and the tokenization of real-world assets in their respective administrative regions. The specific leading department is the local financial regulatory department, with participation from branches and dispatched institutions of the State Council's financial regulatory department, telecommunications regulators, public security, market supervision, and other departments, in coordination with cyberspace departments, courts, and procuratorates, to improve the normalization of the work mechanism, effectively connect with the relevant work mechanisms of central departments, form a cooperative and coordinated working pattern between central and local governments, effectively prevent and properly handle risks related to virtual currencies and the tokenization of real-world assets, and maintain economic and financial order and social stability.

III. Strengthened Risk Monitoring, Prevention, and Disposal

(5) Enhanced Risk Monitoring. The People's Bank of China, China Securities Regulatory Commission, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration of Foreign Exchange, Cyberspace Administration of China, and other departments continue to improve monitoring techniques and system support, enhance cross-departmental data analysis and sharing, establish sound information sharing and cross-validation mechanisms, promptly grasp the risk situation of activities related to virtual currency and real-world asset tokenization. Local governments at all levels give full play to the role of local monitoring and early warning mechanisms. Local financial regulatory authorities, together with branches and agencies of the State Council's financial regulatory authorities, as well as departments of cyberspace and public security, ensure effective connection between online monitoring, offline investigation, and fund tracking, efficiently and accurately identify activities related to virtual currency and real-world asset tokenization, promptly share risk information, improve early warning information dissemination, verification, and rapid response mechanisms.

(6) Strengthened Oversight of Financial Institutions, Intermediaries, and Technology Service Providers. Financial institutions (including non-bank payment institutions) are prohibited from providing account opening, fund transfer, and clearing services for virtual currency-related business activities, issuing and selling financial products related to virtual currency, including virtual currency and related financial products in the scope of collateral, conducting insurance business related to virtual currency, or including virtual currency in the scope of insurance liability. Financial institutions (including non-bank payment institutions) are prohibited from providing custody, clearing, and settlement services for unauthorized real-world asset tokenization-related business and related financial products. Relevant intermediary institutions and information technology service providers are prohibited from providing intermediary, technical, or other services for unauthorized real-world asset tokenization-related businesses and related financial products.

(7) Enhanced Management of Internet Information Content and Access. Internet enterprises are prohibited from providing online business venues, commercial displays, marketing, advertising, or paid traffic diversion services for virtual currency and real-world asset tokenization-related business activities. Upon discovering clues of illegal activities, they should promptly report to relevant departments and provide technical support and assistance for related investigations and inquiries. Based on the clues transferred by the financial regulatory authorities, the cyberspace administration, telecommunications authorities, and public security departments should promptly close and deal with websites, mobile applications (including mini-programs), and public accounts engaged in virtual currency and real-world asset tokenization-related business activities in accordance with the law.

(8) Strengthened Entity Registration and Advertisement Management. Market supervision departments strengthen entity registration and management, and enterprise and individual business registrations must not contain terms such as "virtual currency," "virtual asset," "cryptocurrency," "crypto asset," "stablecoin," "real-world asset tokenization," or "RWA" in their names or business scopes. Market supervision departments, together with financial regulatory authorities, legally enhance the supervision of advertisements related to virtual currency and real-world asset tokenization, promptly investigating and handling relevant illegal advertisements.

（IX） Continued Rectification of Virtual Currency Mining Activities. The National Development and Reform Commission, together with relevant departments, strictly controls virtual currency mining activities, continuously promotes the rectification of virtual currency mining activities. The people's governments of various provinces take overall responsibility for the rectification of "mining" within their respective administrative regions. In accordance with the requirements of the National Development and Reform Commission and other departments in the "Notice on the Rectification of Virtual Currency Mining Activities" (NDRC Energy-saving Building [2021] No. 1283) and the provisions of the "Guidance Catalog for Industrial Structure Adjustment (2024 Edition)," a comprehensive review, investigation, and closure of existing virtual currency mining projects are conducted, new mining projects are strictly prohibited, and mining machine production enterprises are strictly prohibited from providing mining machine sales and other services within the country.

（X） Severe Crackdown on Related Illegal Financial Activities. Upon discovering clues to illegal financial activities related to virtual currency and the tokenization of real-world assets, local financial regulatory authorities, branches of the State Council's financial regulatory authorities, and other relevant departments promptly investigate, determine, and properly handle the issues in accordance with the law, and seriously hold the relevant entities and individuals legally responsible. Those suspected of crimes are transferred to the judicial authorities for processing according to the law.

（XI） Severe Crackdown on Related Illegal and Criminal Activities. The Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, as well as judicial and procuratorial organs, in accordance with their respective responsibilities, rigorously crack down on illegal and criminal activities related to virtual currency, the tokenization of real-world assets, such as fraud, money laundering, illegal business operations, pyramid schemes, illegal fundraising, and other illegal and criminal activities carried out under the guise of virtual currency, the tokenization of real-world assets, etc.

（XII） Strengthen Industry Self-discipline. Relevant industry associations should enhance membership management and policy advocacy, based on their own responsibilities, advocate and urge member units to resist illegal financial activities related to virtual currency and the tokenization of real-world assets. Member units that violate regulatory policies and industry self-discipline rules are to be disciplined in accordance with relevant self-regulatory management regulations. By leveraging various industry infrastructure, conduct risk monitoring related to virtual currency, the tokenization of real-world assets, and promptly transfer issue clues to relevant departments.

IV. Strict Supervision of Domestic Entities Engaging in Overseas Business Activities

（XIII） Without the approval of relevant departments in accordance with the law and regulations, domestic entities and foreign entities controlled by them may not issue virtual currency overseas.

（XIV） Domestic entities engaging directly or indirectly in overseas external debt-based tokenization of real-world assets, or conducting asset securitization activities abroad based on domestic ownership rights, income rights, etc. (hereinafter referred to as domestic equity), should be strictly regulated in accordance with the principles of "same business, same risk, same rules." The National Development and Reform Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other relevant departments regulate it according to their respective responsibilities. For other forms of overseas real-world asset tokenization activities based on domestic equity by domestic entities, the China Securities Regulatory Commission, together with relevant departments, supervise according to their division of responsibilities. Without the consent and filing of relevant departments, no unit or individual may engage in the above-mentioned business.

(15) Overseas subsidiaries and branches of domestic financial institutions providing Real World Asset Tokenization-related services overseas shall do so legally and prudently. They shall have professional personnel and systems in place to effectively mitigate business risks, strictly implement customer onboarding, suitability management, anti-money laundering requirements, and incorporate them into the domestic financial institutions' compliance and risk management system. Intermediaries and information technology service providers offering Real World Asset Tokenization services abroad based on domestic equity or conducting Real World Asset Tokenization business in the form of overseas debt for domestic entities directly or indirectly venturing abroad must strictly comply with relevant laws and regulations. They should establish and improve relevant compliance and internal control systems in accordance with relevant normative requirements, strengthen business and risk control, and report the business developments to the relevant regulatory authorities for approval or filing.

V. Strengthen Organizational Implementation

(16) Strengthen organizational leadership and overall coordination. All departments and regions should attach great importance to the prevention of risks related to virtual currencies and Real World Asset Tokenization, strengthen organizational leadership, clarify work responsibilities, form a long-term effective working mechanism with centralized coordination, local implementation, and shared responsibilities, maintain high pressure, dynamically monitor risks, effectively prevent and mitigate risks in an orderly and efficient manner, legally protect the property security of the people, and make every effort to maintain economic and financial order and social stability.

(17) Widely carry out publicity and education. All departments, regions, and industry associations should make full use of various media and other communication channels to disseminate information through legal and policy interpretation, analysis of typical cases, and education on investment risks, etc. They should promote the illegality and harm of virtual currencies and Real World Asset Tokenization-related businesses and their manifestations, fully alert to potential risks and hidden dangers, and enhance public awareness and identification capabilities for risk prevention.

VI. Legal Responsibility

(18) Engaging in illegal financial activities related to virtual currencies and Real World Asset Tokenization in violation of this notice, as well as providing services for virtual currencies and Real World Asset Tokenization-related businesses, shall be punished in accordance with relevant regulations. If it constitutes a crime, criminal liability shall be pursued according to the law. For domestic entities and individuals who knowingly or should have known that overseas entities illegally provided virtual currency or Real World Asset Tokenization-related services to domestic entities and still assisted them, relevant responsibilities shall be pursued according to the law. If it constitutes a crime, criminal liability shall be pursued according to the law.

(19) If any unit or individual invests in virtual currencies, Real World Asset Tokens, and related financial products against public order and good customs, the relevant civil legal actions shall be invalid, and any resulting losses shall be borne by them. If there are suspicions of disrupting financial order and jeopardizing financial security, the relevant departments shall deal with them according to the law.

This notice shall enter into force upon the date of its issuance. The People's Bank of China and ten other departments' "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (Yinfa [2021] No. 237) is hereby repealed.

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