“I hope the government can improve the ecology of Web3 and regulate DAOs legally so that more people in the industry will come to Hong Kong to develop their projects and bring in capital and talent,” Ng said.
“It can be an important part of pursuing economic growth.”
The government in 2022 proposed a range of measures to develop the virtual assets industry to promote the city as an international cryptocurrency hub. Last year it introduced a new licensing regime for virtual asset providers.
Web3 is a hypothetical next-generation version of the World Wide Web that is decentralised and distributed through the use of blockchain and similar technologies.
The court case centred on an ownership dispute over the MANTRA DAO project. A company named RioDeFi, one of the plaintiffs, claimed it was the founder and had hired two of the six defendants to manage it in 2020.
Ng said the project was worth HK$6 billion in the market.
The High Court last year ordered MANTRA DAO to disclose its financial spreadsheets and supporting documents to the plaintiffs upon their request.
The court last week released the reasons for its ruling.
RioDeFi, which was incorporated in Malaysia in 2019, said the defendants had stopped reporting to it in 2021 and had allegedly been making unexplained withdrawals from a cryptocurrency account associated with the project.
The plaintiffs asked for the project’s finances to be disclosed but the defence argued that it would be a huge task to set out payment details as it was not a listed company with vast manpower resources.
The defendants also argued that the holders of digital tokens, known as “OM Tokens” in the case, had the ultimate decision-making power of a DAO.
High Court judge Mr Justice David Lok acknowledged that courts in Hong Kong and other jurisdictions had little experience in dealing with disputes related to cryptocurrency trading.
But he rejected the defendants’ arguments after considering the possible effects brought by whether the disclosure order was granted.
“[The defendants] should have a duty to keep proper account about the operation of the cryptocurrency trading business under the project,” Lok said.
“The Accounts Disclosure Order should not cause any additional or significant hardship or burden on the [defendants], as one would expect that they have to discharge such duty to the OM Token holders in any event.”
The judge also noted that the cryptocurrency industry was “fast-growing” and focused on obtaining a “first-mover advantage”.
“[It] is important that the plaintiffs be given regular updates on the financial operation of the project, given their claim over the ownership, management and control of the project,” Lok said.
Lawyer Monin Ung from MUNG, a law firm specialising in technology and representing the plaintiffs, said the case showed a DAO should be held financially accountable to its investors. Christine Choy Yuk-
Ung, the law firm’s managing partner, noted DAOs could be abused without a regulatory framework and the government could consider setting out rules on financial accounts, employment terms and intellectual property protection.
She added that in the US, some states had started to roll out laws on DAOs, such as stipulating financial accounting and annual account preparation.
The Post has approached the Financial Services and the Treasury Bureau for comment.