Digital Assets & Virtual Assets
RWA Tokenisation in Hong Kong: Legal Framework and Structuring Guide
What Is a DAO?
A decentralised autonomous organisation (DAO) is an entity governed by smart contracts and token-based voting, without a conventional central management structure. DAOs have been used to govern DeFi protocols, NFT communities, investment clubs, and Web3 projects. Token holders typically vote on governance proposals — including protocol upgrades, treasury management, and strategic decisions — with votes weighted by token holdings.
The rapid growth of DAOs has created significant legal challenges: most DAOs lack legal personality, which means they cannot enter contracts, hold assets, or sue and be sued in their own name. Members may face unlimited personal liability in jurisdictions that treat unincorporated DAOs as general partnerships.
Legal Status of DAOs in Hong Kong
Hong Kong law does not currently recognise DAOs as a distinct legal entity type. An unincorporated DAO operating with multiple participants would likely be treated as an unincorporated association or, if it conducts business for profit, as a general partnership. In the partnership context, all partners bear joint and several liability for the DAO's debts and obligations.
For Hong Kong-connected DAOs, the risks of operating without a legal wrapper include:
- Inability to open bank accounts or enter into contracts in the DAO's name
- Unlimited personal liability of core contributors and token holders
- No formal structure for resolving internal disputes
- Regulatory uncertainty regarding whether token governance rights constitute regulated interests
Legal Wrapper Options
To address these issues, DAO projects typically adopt a "legal wrapper" — a conventional legal entity that interfaces with the real world on behalf of the DAO. Common options include:
Cayman Islands Foundation Company
The Cayman Foundation Company has become a popular wrapper for DAOs. It can be structured without shareholders (replacing them with beneficiaries defined by reference to token holders or the DAO community), with a supervisor who can enforce the foundation's objects. It offers limited liability, legal personality, and flexibility in governance design. It does not require a profit motive and can be structured to hold assets on behalf of the DAO community.
Marshall Islands DAO LLC
The Marshall Islands introduced DAO LLC legislation in 2022, allowing DAOs to register as limited liability companies with legal recognition of their decentralised governance structure. Marshall Islands DAO LLCs have been adopted by several significant DeFi protocols as a jurisdiction that explicitly accommodates DAO governance arrangements.
British Virgin Islands Approved Manager and BVI Company
BVI companies are widely used for holding protocol intellectual property, treasury management, or as grant-making entities. A BVI entity can be governed by constitutional documents that incorporate DAO voting outcomes into formal decision-making.
Hong Kong Companies
Hong Kong companies are an option for DAOs with significant Hong Kong connections or where the DAO wishes to maintain an onshore regulated presence. A private company limited by guarantee is sometimes used for non-profit DAO projects. However, Hong Kong company law requirements (public records of directors and shareholders, annual filings) limit privacy and may not accommodate on-chain governance elegantly.
Regulatory Considerations in Hong Kong
DAO tokens may constitute regulated securities or interests in a collective investment scheme under Hong Kong law depending on their characteristics. DAOs that issue tokens with economic rights (profit-sharing, yield) to a pooled treasury managed for collective benefit face the greatest risk of regulatory classification as a CIS or security token offering.
DAO governance tokens that purely confer voting rights (with no economic returns) are in a more ambiguous position: the SFC has not provided definitive guidance on governance-only tokens, and the analysis is fact-specific.
Treasury Management
DAOs typically hold significant treasuries — often in ETH, Bitcoin, or protocol-native tokens. Legal wrappers help DAOs hold treasury assets securely, engage custodians, and make disbursements (grants, operational expenses) without individual contributors bearing personal liability. Professional treasury management and governance policies can also protect the DAO from internal governance attacks (where malicious actors accumulate tokens to extract treasury funds).
How Alan Wong LLP Can Assist
Alan Wong LLP advises DAO founders, core contributors, and investors on legal structuring for Web3 projects, including the selection and establishment of appropriate legal wrappers, regulatory analysis of token rights, and compliance with Hong Kong's virtual asset regulations. We work with counsel in Cayman, BVI, and other offshore jurisdictions to coordinate multi-jurisdictional DAO structures. Our digital assets team combines technical understanding of blockchain governance with deep expertise in Hong Kong and offshore corporate and securities law.
