Laws on blockchain-based entities 'should be established' in light of landmark case

Stacy Shi

The government should explore creating a legal framework to regulate decentralized autonomous organizations to enhance Hong Kong's stability in the Web3 investment landscape, thereby attracting significant overseas talent and capital, suggested lawmaker Johnny Ng Kit-chong.

This call for reform follows a recent High Court ruling ordering six defendants to disclose financial details related to the Mantra DAO cryptocurrency project.

The case arises from allegations of misappropriation of project assets and other charges totaling HK$6 billion.

Ng said the growing importance of DAOs - blockchain-based entities that utilize smart contracts for decision-making and operational management. He described the recent court case as a landmark moment, marking the world's first judicial examination of a DAO, which highlights that Web3 operations remain subject to the rule of law.

The legal dispute centers on the ownership, management and control of the cryptocurrency project. Lawyer Monin Ung noted that RioDeFi, the plaintiff, hired staff to manage the project in August 2020, but accountability diminished significantly by January 2021.

The plaintiff accused the defendants of misappropriating project assets and making unauthorized withdrawals.

In contrast, the defendants argued that ownership lies with the DAO's token holders and not with the company.

"The court focused on whether a disclosure order should be issued, not on the merits of the claims," Ung said. The court ultimately ordered the defendants to provide financial information and supporting documents to the plaintiff, asserting the urgent need for transparency regarding the project's accounts.

Ng viewed this ruling as a crucial legal precedent for the global Web3 ecosystem but clarified that the case currently involves only a shareholder dispute and has not impacted the public at large.

stacy.shi@singtaonewscorp.com