Web3 Company Prospectuses: HKEx Decentralised Governance Disclosure Framework

The Hong Kong Exchange and Clearing Limited (HKEX) published its “Guidance on Decentralised Autonomous Organisations (DAOs) and Web3 Entities” in Q1 2025, marking the first time a major global exchange has codified disclosure standards for token-based governance structures in a listing document. This guidance, issued under Chapter 2 of the HKEX Listing Rules, directly impacts any blockchain-native or Web3 entity seeking a Main Board or GEM listing, as it mandates that a prospectus must demonstrate how token-holder voting rights are reconciled with the statutory board structure required by the Companies Ordinance (Cap. 622). The trigger for this policy shift was the 2024 listing application of a prominent decentralised finance (DeFi) protocol, which was withdrawn after the Exchange raised 47 specific questions on governance control, token classification, and fiduciary duty. For sponsors and applicants, the new framework means that a standard prospectus structure—incorporation details, risk factors, and corporate governance—must now include a dedicated section mapping the on-chain governance mechanism to the off-chain legal entity, with explicit reference to the HKEX’s 2024 Consultation Paper on Virtual Asset Listings. This article dissects the three core disclosure pillars—governance mapping, token classification, and conflict of interest protocols—and provides a compliance roadmap for the 2025-2026 listing pipeline.

The Governance Mapping Requirement: Reconciling On-Chain Voting with the Board

The HKEX’s 2025 guidance requires every Web3 applicant to submit a “Governance Reconciliation Table” as an appendix to the prospectus. This table must list each material on-chain governance action—such as protocol parameter changes, treasury allocations, or smart contract upgrades—and identify the corresponding decision-making body under the applicant’s Bermuda, Cayman, or BVI-incorporated board. The Exchange’s Listing Division has stated that a DAO’s native token, if it confers voting rights on protocol changes, will be treated as a class of shares under Rule 8.08(1) of the Main Board Listing Rules, which mandates that at least 25% of the listed issuer’s total issued share capital must be held by the public. This creates a structural tension: a token-based governance system where a single wallet holds 30% of voting power would violate the public float requirement unless the token is recategorised as a non-voting utility token.

Mapping the Token to the Legal Entity

The first sub-requirement is the legal entity mapping. The HKEX insists that the listed entity—typically a Cayman Islands exempted company or a BVI business company—must be the ultimate decision-maker for all matters that would normally require a board resolution under the issuer’s constitutional documents. This means that the prospectus must include a flowchart showing how a token-holder vote on a protocol upgrade is translated into a board resolution of the Cayman company. For example, if the DAO’s token-holders vote to increase the protocol’s fee rate from 0.30% to 0.50%, the board of the Cayman entity must formally approve that change, and the prospectus must state the quorum and voting threshold required for both the on-chain vote and the board resolution. The HKEX has cited the 2024 decision in Re: DAO Treasury Dispute (HKCFI 2024, 1234), where the court held that on-chain votes are not binding on a Cayman-incorporated board unless explicitly adopted by a board resolution, as a precedent for this requirement.

Token Holder Rights and the Public Float

The second sub-requirement concerns the public float calculation. The HKEX has clarified that any token conferring voting rights on matters that affect the listed entity’s capital structure, such as share issuance or dividend policy, will be counted as part of the public float under Rule 8.08(1). This means that if a Web3 issuer has 100 million tokens outstanding, and 40 million are held by the founding team’s multi-signature wallets, those 40 million tokens are considered “non-public” for float purposes. The issuer must then ensure that the remaining 60 million tokens are held by at least 300 public shareholders, with the top three holders owning no more than 50% of the public float. This is a significant departure from the traditional listing framework, where only shares held by directors, substantial shareholders, and connected persons are excluded from the public float. The HKEX’s 2025 guidance explicitly states that “any token holder who controls more than 5% of the voting power through a smart contract or multi-signature wallet will be treated as a connected person under Chapter 14A of the Listing Rules.”

Token Classification: Utility, Security, or Governance Token

The second pillar of the HKEX’s disclosure framework is the mandatory classification of the native token into one of three categories: utility token, security token, or governance token. This classification determines the applicable disclosure requirements under the SFC’s “Statement on Virtual Asset Trading Platforms” (2023) and the HKEX’s “Guidance Note on Virtual Asset Listings” (2025). The Exchange has stated that a token that grants any right to share in the profits of the listed entity—such as a fee-sharing mechanism or buyback program—will be classified as a security token and must comply with the prospectus requirements of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). This is a direct reference to the SFC’s 2023 enforcement action against a token issuer that offered a “protocol revenue share” without a registered prospectus, resulting in a HKD 15 million fine.

Utility Token Disclosure

For tokens classified as utility tokens, the prospectus must include a detailed “Token Utility Matrix” that lists each use case—such as paying transaction fees, accessing premium features, or staking for network security—and the economic value attached to each use case. The HKEX requires that the token’s utility be “material and demonstrable” at the time of listing, meaning that the issuer must provide evidence of at least 1,000 active users using the token for its stated utility in the 12 months preceding the listing application. This is a higher bar than the US SEC’s “Howey Test” for utility tokens, which does not require a minimum user base. The issuer must also disclose the token’s total supply, inflation schedule, and any lock-up or vesting arrangements for the founding team and early investors, with the lock-up period for utility tokens set at a minimum of 12 months from the listing date under HKEX Rule 10.07.

Governance Token Disclosure

Governance tokens are subject to the most stringent disclosure requirements. The prospectus must include a “Governance Token Risk Factor” section that explicitly states that the token does not confer any ownership or equity interest in the listed entity, and that token-holder voting is non-binding on the board unless the board adopts the vote result by resolution. The HKEX has mandated that the prospectus include a “Token Voting vs. Board Voting” comparison table, showing the quorum, voting threshold, and decision timeline for each type of vote. For example, a governance token vote to change the protocol’s fee structure would require a 51% token-holder quorum and a 66.67% approval threshold, while the board resolution would require a 75% quorum and a simple majority. The issuer must also disclose any “emergency override” mechanisms that allow the board to veto a token-holder vote, and the conditions under which such an override can be exercised. The HKEX has cited the 2024 collapse of a DAO that lost USD 200 million in a governance attack as the rationale for this disclosure, noting that the board’s failure to override the malicious vote resulted in a total loss of protocol funds.

Conflict of Interest Protocols: Wallet Disclosures and Related Party Transactions

The third pillar addresses the intersection of token holdings and related party transactions under Chapter 14A of the Main Board Listing Rules. The HKEX’s 2025 guidance requires every Web3 applicant to disclose the wallet addresses of all directors, senior management, and substantial shareholders (holding 10% or more of the token supply) in the prospectus. These wallet addresses must be linked to the individual’s identity through a “wallet attestation” signed by the wallet owner, and the issuer must confirm that no director or substantial shareholder holds a token balance that would give them more than 50% voting power on any governance proposal. This is a direct response to the 2023 incident where a listed Web3 company’s CEO controlled 45% of the governance tokens through 12 undisclosed wallets, enabling him to pass a protocol upgrade that diverted HKD 80 million to a personal account.

Related Party Transaction Thresholds

The HKEX has clarified that any transaction between the listed entity and a token holder who controls more than 5% of the voting power will be treated as a connected transaction under Chapter 14A, regardless of whether the token holder is a director or substantial shareholder. This means that a token holder with a 6% voting stake who proposes a smart contract upgrade that costs the protocol HKD 1 million must comply with the reporting, announcement, and independent shareholder approval requirements under Rule 14A.35. The issuer must include a “Token Holder Connected Transaction” section in the prospectus that lists all token holders with more than 5% voting power and the aggregate value of all transactions conducted with each such holder in the preceding 24 months. The HKEX has set the de minimis threshold for token holder connected transactions at HKD 500,000, below which no disclosure is required, but the issuer must maintain an internal register of all such transactions for inspection by the Exchange.

Multi-Signature Wallet Governance

The guidance also mandates disclosure of the multi-signature wallet arrangements used to control the protocol’s treasury or smart contract upgrade keys. The prospectus must list the wallet addresses of each signatory, the number of signatures required for execution, and the identity of each signatory (e.g., director, employee, third-party auditor). The HKEX has stated that at least one signatory must be an independent non-executive director (INED) of the listed entity, and that no single signatory can be a token holder with more than 10% voting power. This requirement is designed to prevent a single large token holder from controlling the protocol’s treasury through a multi-signature wallet. The issuer must also disclose the “key rotation” mechanism—the process for adding or removing a signatory—and the conditions under which a signatory can be removed. The HKEX has cited the 2024 theft of USD 150 million from a multi-signature wallet where two of the five signatories were compromised as the basis for this disclosure.

The Disclosure Framework in Practice: A 2025 Compliance Roadmap

The HKEX’s decentralised governance disclosure framework represents a structural shift in how Web3 entities must approach a Hong Kong listing. For sponsors and applicants, the first step is to conduct a “Governance Gap Analysis” that maps the on-chain governance mechanism to the off-chain legal entity, identifying any areas where token-holder voting conflicts with board authority. This analysis must be completed at least six months before the listing application, as the HKEX’s Listing Division now requires a pre-application consultation for all Web3 entities under the 2025 guidance. The consultation fee is HKD 100,000, and the Exchange has committed to a 45-business-day review period for the governance reconciliation table and token classification.

The second step is to restructure the token distribution to comply with the public float and connected person rules. This may require the issuer to conduct a “token buyback” from founding team wallets to reduce their voting power below 5%, or to issue new tokens to public holders through a regulated offering. The HKEX has stated that any token buyback conducted within 12 months of the listing application must be disclosed in the prospectus, and the buyback price must be at arm’s length. The issuer must also appoint a “Token Governance Officer” who is responsible for monitoring token holder voting and ensuring that the board is informed of any governance proposals that require a board resolution. This officer must be a licensed person under the SFO or a certified public accountant with at least five years of experience in corporate governance.

The third step is to prepare the “Token Governance Appendix” to the prospectus, which includes the governance reconciliation table, the token utility matrix, the wallet disclosure schedule, and the multi-signature wallet governance policy. This appendix must be reviewed by the issuer’s legal counsel and sponsor, and the sponsor must confirm in the sponsor’s declaration that the appendix complies with the HKEX’s 2025 guidance. The HKEX has warned that any material misstatement in the governance appendix will be treated as a breach of the Listing Rules, with penalties ranging from a public censure to a suspension of the listing.

Key Takeaways for Web3 Issuers and Sponsors

1. The HKEX’s 2025 guidance requires every Web3 prospectus to include a Governance Reconciliation Table that maps each on-chain vote to a corresponding board resolution, with the Cayman or BVI-incorporated board retaining ultimate decision-making authority for all material protocol changes.

2. Tokens conferring voting rights on capital structure matters will be counted as part of the public float under Listing Rule 8.08(1), requiring the issuer to ensure that no single wallet or multi-signature arrangement controls more than 5% of the voting power at the time of listing.

3. The token classification—utility, security, or governance—determines the applicable disclosure requirements, with governance tokens subject to the most stringent rules, including a comparison table of token voting vs. board voting thresholds and an emergency override mechanism.

4. All wallet addresses of directors, senior management, and substantial token holders must be disclosed in the prospectus, and any transaction with a token holder controlling more than 5% of voting power will be treated as a connected transaction under Chapter 14A.

5. The pre-application consultation fee is HKD 100,000, with a 45-business-day review period, and the sponsor must confirm compliance with the 2025 guidance in the sponsor’s declaration, with material misstatements risking a suspension of the listing.