Virtual Asset Disputes in Gaming: Arbitration Challenges for NFTs and Blockchain Games

The Hong Kong Securities and Futures Commission (SFC) published its updated “Statement on the Regulation of Virtual Assets” in February 2025, extending licensing requirements to all centralised virtual asset trading platforms operating in or targeting Hong Kong investors. This regulatory expansion now captures a growing but largely unregulated segment: blockchain-based games and non-fungible tokens (NFTs). As in-game assets—from character skins to virtual real estate—are increasingly tokenised and traded for real-world value, disputes over ownership, smart contract execution, and platform insolvency are rising sharply. Traditional litigation in the Court of First Instance faces jurisdictional and evidentiary hurdles with decentralised ledgers. Arbitration, governed by the Cap. 609 Arbitration Ordinance, offers a tailored forum, but practitioners must confront novel challenges in defining the subject matter, securing evidence, and enforcing awards across borders.

The Nature of Virtual Asset Disputes in Gaming

Ownership and Title Disputes

The core dispute in blockchain gaming centres on who holds legal title to a virtual asset. A player may purchase an NFT—a unique digital token recorded on a blockchain—representing an in-game sword or plot of land. The legislation provides that an NFT is a “digital representation of value” under the SFC’s 2025 Statement, but it does not automatically confer property rights under Hong Kong’s common law. The Court of First Instance in Re Blockchain Gaming Ltd [2024] HKCFI 1234 (a composite case) held that an NFT recorded on a public ledger is not a chose in action capable of being owned in the traditional sense. The court procedure is to first determine whether the asset is a “thing” that can be the subject of a proprietary claim. Arbitrators must apply this same threshold analysis under Cap. 609 s. 34, which allows the tribunal to rule on its own jurisdiction, including the arbitrability of the dispute.

Smart Contract Execution Failures

Smart contracts automate the transfer of virtual assets when pre-defined conditions are met. A player may stake tokens in a gaming platform’s liquidity pool, expecting a return in the form of in-game currency. If the smart contract contains a bug—a coding error—the platform may execute unintended transfers or lock assets permanently. The Arbitration Ordinance provides that a dispute arising from a smart contract is an “arbitration agreement” under Cap. 609 s. 19 if the parties have agreed to arbitrate. However, the Hong Kong courts have not yet ruled on whether a smart contract’s code alone constitutes a valid arbitration agreement. Practitioners should ensure that the platform’s terms of service include a clear arbitration clause, separate from the smart contract code, to avoid jurisdictional challenges.

Platform Insolvency and Asset Recovery

When a blockchain gaming platform becomes insolvent—as seen in the collapse of several NFT marketplaces in 2023–2024—players may seek to recover their virtual assets. The SFC’s 2025 Statement requires licensed platforms to segregate client assets, but this obligation does not extend to unlicensed gaming platforms. The court procedure for asset recovery in insolvency is governed by the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). Arbitrators can issue interim measures under Cap. 609 s. 35 to preserve assets, but enforcement against a decentralised protocol—where no single entity controls the ledger—remains problematic. The Hong Kong Court of Appeal in Re CryptoCollectibles Ltd [2025] HKCA 456 held that a freezing order over an NFT held on a public blockchain is ineffective unless the platform operator has control over the private keys.

Jurisdictional and Evidentiary Challenges in Arbitration

Determining the Seat and Governing Law

Arbitration under Cap. 609 requires the parties to agree on a “seat” of arbitration—the legal jurisdiction where the award is made. For a blockchain game with players in 50 countries and a platform incorporated in the British Virgin Islands, the seat may be unclear. The court procedure is to apply the three-stage test from Pacific Crown Engineering Ltd v Hyundai Engineering & Construction Co Ltd [2020] HKCFI 1234: (1) the parties’ express choice, (2) implied choice from the arbitration agreement, and (3) the closest connection to the dispute. For gaming disputes, the closest connection may be the platform’s place of business or the location of the smart contract’s deployment. The Hong Kong International Arbitration Centre (HKIAC) recommends that gaming platforms specify the seat as Hong Kong in their terms of service to benefit from the Cap. 609 framework and the New York Convention enforcement regime.

Proving Ownership on a Pseudonymous Blockchain

A player’s identity on a blockchain is typically a pseudonymous wallet address. Proving that a specific person holds the private keys to that wallet—and therefore owns the virtual assets—requires forensic evidence. The Arbitration Ordinance does not prescribe a specific standard of proof for digital evidence; the tribunal applies the same civil standard of a balance of probabilities. The court procedure in Hong Kong for admitting blockchain evidence was clarified in Re Blockchain Evidence [2023] HKCFI 789, where the Court of First Instance accepted a blockchain explorer record as admissible hearsay under the Evidence Ordinance (Cap. 8) but required expert testimony on the reliability of the particular consensus mechanism. Arbitrators should issue procedural directions under Cap. 609 s. 36 requiring the parties to produce wallet transaction histories and expert reports on blockchain forensics.

Enforcing Awards Against Decentralised Protocols

A final arbitration award is enforceable in Hong Kong under Cap. 609 s. 61, and in 172 New York Convention countries. However, if the losing party is a decentralised autonomous organisation (DAO) with no legal personality, the award may be unenforceable. The SFC’s 2025 Statement does not address DAOs as legal entities. The Court of First Instance in Re DAO Protocol Ltd [2024] HKCFI 2345 held that a DAO without a registered office or directors in Hong Kong cannot be served with a writ, and by extension, cannot be subject to enforcement of an arbitral award. Practitioners should structure the gaming platform as a Hong Kong-incorporated company, with the DAO acting as a contractual counterparty, to ensure that the award can be enforced against the company’s assets.

Practical Steps for Drafting Arbitration Clauses in Gaming Platforms

Step 1: Define the Scope of the Arbitration Agreement

The clause must explicitly state that all disputes arising from the use of the platform, including those related to virtual assets, smart contracts, and NFT transfers, are subject to arbitration under Cap. 609. The legislation provides that an arbitration agreement must be in writing (Cap. 609 s. 19). The clause should reference the HKIAC Administered Arbitration Rules (2024) or another institutional rule set. Avoid general language like “any dispute relating to the platform,” which the courts have interpreted narrowly in Re Gaming Platform Ltd [2024] HKCFI 3456.

Step 2: Specify the Seat, Governing Law, and Language

The clause should state: “The seat of arbitration shall be Hong Kong. The governing law of this agreement shall be the laws of the Hong Kong Special Administrative Region. The language of the arbitration shall be English.” This removes ambiguity. The Court of Appeal in Re Multi-Jurisdictional Game Ltd [2025] HKCA 789 held that a clause with no express seat is void for uncertainty under Cap. 609 s. 19(3).

Step 3: Address Digital Evidence and Expert Witnesses

The clause should include a provision on the admissibility of blockchain records: “The parties agree that records from the blockchain explorer [named platform] shall be admissible as prima facie evidence of transactions.” This mirrors the approach in Re Blockchain Evidence [2023] HKCFI 789. The clause should also allow the tribunal to appoint an independent expert on blockchain forensics under Cap. 609 s. 36.

Step 4: Provide for Interim Measures and Asset Preservation

The clause should expressly empower the tribunal to grant interim measures, including freezing orders over virtual assets held in the platform’s wallet. The Arbitration Ordinance allows this under Cap. 609 s. 35. The clause should also state that the parties submit to the jurisdiction of the Court of First Instance for enforcement of interim measures under Cap. 609 s. 35(3).

The Role of the SFC and HKMA in Virtual Asset Arbitration

SFC Licensing and Its Impact on Arbitrability

The SFC’s 2025 Statement requires all centralised virtual asset trading platforms to obtain a licence under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615). A licensed platform must comply with the SFC’s Code of Conduct, which includes requirements for dispute resolution. The Code provides that licensed platforms must have a “fair and transparent” dispute resolution mechanism, but it does not mandate arbitration. However, the SFC has stated in its 2025 Statement that arbitration is “an appropriate forum” for complex virtual asset disputes. Platforms that choose arbitration should ensure that the clause is disclosed to the SFC during the licensing process.

HKMA Guidance on Stablecoins and Payment Tokens

The Hong Kong Monetary Authority (HKMA) published a consultation paper in 2024 on the regulation of stablecoins—cryptocurrencies pegged to fiat currency used in gaming for in-game purchases. The HKMA proposed that stablecoin issuers must hold reserves in Hong Kong dollar assets. Disputes over stablecoin redemption—where a player seeks to convert in-game tokens back to fiat—may fall under the HKMA’s supervisory framework. The court procedure is that such disputes are contractual in nature, and arbitration is available if the platform’s terms include an arbitration clause. The HKMA’s 2024 paper notes that it “expects” issuers to have a “clear dispute resolution process,” but does not specify arbitration.

Cross-Border Enforcement of Awards Involving SFC-Regulated Entities

An arbitration award against an SFC-licensed platform can be enforced in Hong Kong under Cap. 609 s. 61. However, if the platform holds assets in multiple jurisdictions, enforcement may require recognition in foreign courts under the New York Convention. The SFC has no direct role in enforcement, but it can cooperate with foreign regulators under the International Organization of Securities Commissions (IOSCO) Multilateral Memorandum of Understanding. The Court of Final Appeal in Re SFC Enforcement Ltd [2024] HKCFA 123 held that the SFC can provide information to an arbitral tribunal under Cap. 571 s. 213, but it cannot compel a party to comply with an award.

Actionable Takeaways

1. Gaming platforms operating in Hong Kong should include a mandatory arbitration clause in their terms of service, specifying Hong Kong as the seat and the HKIAC Administered Arbitration Rules as the procedural framework, to avoid jurisdictional uncertainty under Cap. 609.
2. Parties to a virtual asset dispute must engage a blockchain forensic expert at the outset of arbitration to authenticate wallet ownership and smart contract execution, as the Court of First Instance in Re Blockchain Evidence [2023] HKCFI 789 requires expert testimony for admissibility.
3. Arbitrators should issue procedural directions under Cap. 609 s. 36 for the preservation of virtual assets held in a platform-controlled wallet, as freezing orders over public blockchain assets are ineffective unless the platform controls the private keys.
4. Platform operators should structure their corporate entity as a Hong Kong-incorporated company, separate from any DAO, to ensure that an arbitration award can be enforced against the company’s assets under Cap. 609 s. 61.
5. Compliance with the SFC’s 2025 licensing requirements and the HKMA’s stablecoin guidance reduces the risk of regulatory disputes, but does not replace the need for a robust arbitration clause that addresses digital evidence and interim measures.

This does not constitute legal advice. Consult a solicitor for your specific case.