According to a report from Nikkei Asian Review, local authorities in China's Hunan province are investigating blockchain-based fitness app Qubu, for alleged illegal fundraising practices and financial fraud.
Qubu, which has a business model of rewarding users for achieving fitness goals by releasing digital tokens known as 'candies,' caught the attention of local authorities alleging financial fraud and illegal fundraising practices.
Qubu jumped on the trend of blockchain in China and promised its users some "candies" - Qubu's virtual currency - in exchange for a task of walking 4,000 steps a day for 45 days.
Qubu's candies were reportedly marketed as an investment instrument with a return of up to 36.8% in over 60 days. The app claimed to have 95 million registered users and charged new users 1 yuan (about $0.14) to sign up as a member.
Qubu goes further by incentivizing users to recruit others within their networks to boost their income. According to the firm, as many as 95 million users have registered for the service as of December 2019. However, some commentators have cast doubt on the credibility of the registered user figures, which would suggest as many as one in 10 mobile users in China had downloaded the app.
The app, which offers a built-in exchange for users to cash out their tokens, charges a hefty 25-50% transaction fee for processing trades.
Though Qubu claimed to operate on a blockchain platform, Chinese industry observers asserted that it had little to do with the technology.
The investigation is the latest example of Chinese regulators taking action to crack down on cryptocurrency fraud, a common issue upsetting regulators and law enforcement agencies in China. In the last month, at least five crypto exchanges in China have halted their operations, amidst what is being called "the biggest sweep" of the sector since 2017.
One of China's most high-profile news programs, CCTV's "Focus Report," recently reported that there are 32,000 alleged blockchain companies in China but only less than 10% of them actually use the technology.
Further, data by China's National Internet Emergency Center, revealed that there are over 755 tokens on the market that are not upheld by real initiatives or have hit zero after inception. The center also identified 102 coins that allegedly deceived consumers with Ponzi schemes, or a form of fraud that lures investors with quick returns by paying 'profits' to older investors with funds from new investors. This type of fraud leads victims to believe that profits are coming from products sales or other means, keeping them unaware that the new investors are the source of the profits.
Chinese companies seem to be rushing over blockchain ever since the country's president Xi Jinping publicly stated that China should commit to accelerating the development and application of blockchain technology.
