Hong Kong lawmaker Johnny Ng has proposed the creation of a legal framework to regulate decentralized autonomous organizations (DAOs), aiming to stabilize and attract investment to the web3 industry in Hong Kong. This proposal follows a landmark ruling by the Hong Kong High Court concerning the Mantra DAO, marking a significant development in the legal treatment of DAOs.
Johnny Ng's call for a legal framework for DAOs is driven by his vision of enhancing Hong Kong's appeal as a hub for web3 innovation. He believes that a structured legal approach could draw substantial overseas capital and talent to the region. Ng’s advocacy comes in response to the recent judicial scrutiny of the Mantra DAO, which has highlighted the need for clearer regulations in the web3 space.
Ng emphasized that the recent court ruling on the Mantra DAO represents the world’s first judicial examination of a DAO, underscoring the need for a robust legal framework. “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 stated.
The court case against Mantra DAO originated from an ownership dispute. RioDeFi, one of the plaintiffs, claims to have founded the DAO and hired two of the six defendants in 2020 to manage it. The dispute escalated when RioDeFi accused the defendants of halting reports and making unexplained withdrawals from a crypto wallet associated with the DAO in 2021.
In response to the allegations, the Hong Kong High Court ordered the defendants to disclose the DAO’s financial spreadsheets and related documents. The defendants, however, argued that retrieving the payment details would impose a significant burden, citing the DAO’s lack of sufficient manpower and its non-listed status.
The defendants also contended that the DAO's native token, “OM,” conferred ultimate decision-making power to its holders, implying that the financial disclosures should be managed by token holders rather than the defendants. Despite this, High Court Judge Mr. Justice David Lok ruled that the defendants are responsible for maintaining proper accounts of the DAO's financial operations. Lok clarified that the financial disclosure order should not be excessively burdensome, as such details are typically required to be provided to token holders when requested.
The Mantra DAO case has highlighted several challenges facing DAOs, including issues of transparency, accountability, and the legal responsibilities of decentralized entities. Johnny Ng’s proposal for a regulatory framework aims to address these challenges by providing clear legal guidelines for DAOs, potentially enhancing operational clarity and attracting global investment to Hong Kong.
As Hong Kong navigates these emerging legal landscapes, the establishment of a well-defined regulatory framework for DAOs could play a crucial role in shaping the future of web3 innovation and ensuring the region’s competitive edge in the global market.
August 2024, Cryptoniteuae