Author: Viki_Nan.mp3
First, this article is not FUD against Hashkey or HSK; rather, it shares my understanding from an accounting perspective.
I have previously been deeply involved in financial audits of A/H-share listed companies.
I think relatively few people can simultaneously: understand accounting standards, understand cryptocurrency, and be willing and able to express their understanding without restriction.
I hope my interpretation helps HSK token holders understand the accounting treatment of Hashkey’s IPO and its potential impact on HSK token classification from an additional perspective.
I. Background and Definition: Accounting Classification for Exchange-Issued Tokens — Contract Liability or Financial Liability?
✅ Consensus on the asset side: relatively unified
Digital assets are classified as inventory or intangible assets, and there is little dispute over this. Although there is no definitive international accounting standard yet, this classification remains reasonably accepted within the industry. You can review OSL’s financial statements—the categorization of digital assets is fundamentally consistent with Hashkey’s prospectus. U.S. GAAP differs slightly (see Coinbase’s financials), but we won’t delve into that here.
❓ Disagreement on the Liability Side: How Should Exchanges Account for Their Issued Platform Token, HSK?
First, understand why it’s a “liability”: because the exchange is the issuer of the token, and issuing the token creates an obligation.
However, since very few publicly traded companies issue platform tokens, there are almost no precedents for this approach. I found another publicly traded exchange in Canada that issued its own platform token, INX, as a comparative case.
HashKey (in accordance with IFRS 15): Classified as a contract liability (defined as a "performance obligation," where the company owes HSK holders not money, but future services such as fee discounts and membership benefits).
INX (under IFRS 9): Classified as a financial liability (the token represents a claim on future cash flows or assets of INX).
Core: Why would a publicly traded company classify its own token, which is traded on the secondary market, as a "performance obligation"?
This classification helps mitigate the volatility of financial markets. If classified as a financial liability, tokens must be measured at fair value, causing the company’s liabilities to increase and profits to plummet when token prices rise (and conversely, liabilities to shrink and profits to surge when prices fall); however, if classified as a contract liability, costs can be locked in at historical value.
II. Accounting Perspective: Derivation of Accounting Entries for Platform Token HSK and Interpretation of Prospectus Text
Due to years of experience working with financial statements, several passages in the financial report section of the prospectus are particularly noteworthy. These are explanatory statements with clear intent, and should be interpreted in conjunction with inferences about the accounting entries:
Accounting entry derivation:
Initial recognition (when HashKey awards HSK as a reward to employees, KOLs, or liquidity providers)
Debit: Cost of Goods Sold / Sales Expenses / Administrative Expenses / Research and Development Expenses (recognized at fair value on the grant date)
Credit: Contract Liability
Note: This step represents a cost expense that directly reduces current-period profit. According to the prospectus, HSK-related costs in 2024 reached HK$176.7 million. This is why the prospectus includes these two statements:
Contract liabilities increased, primarily due to an increase in HSK distributions.
Fluctuations in HSK's operating costs and expenses have impacted our operating performance. (Paying salaries or making purchases in cryptocurrency, or issuing too many coins, increases costs.)
Intermediate state (holding period): Price fluctuations do not affect the liability balance, as the historical cost has been locked in.
De-recognition (when a very small number of users use HSK to offset trading fees, or when revenue is recognized based on the Breakage rule):
Debit: Contract Liability
Credit: Operating Revenue
Note: Fluctuations in the HSK market price have had and are not expected to have any material impact on our contract liabilities or related revenue recognized subsequently. (Historical cost measurement: Even if a decline in HSK price in 2025 is mentioned, the company’s balance sheet will not be reduced or benefited as a result.)
Three: What is contract liability breakage? What effect does HSK 95% breakage have?
Concept breakdown:
First, understand contract liabilities and what Breakage (unused rights or forfeiture) is.
Contract liabilities represent services owed by the company to users (such as fee discount rights) and constitute a performance obligation.
Breakage: The portion of rights that the company expects users will never exercise. In traditional industries (such as Starbucks), this typically refers to users losing gift cards; in Web3, it may refer to users voluntarily forfeiting offsets for the purpose of hoarding coins for speculation.
At the data level:
Management estimates: 5% will be utilized, 95% will be breakage/unclaimed.
Real-world data: 0.49% - 1.71% actual utilization.
Financial consequences:
Under the proportional method of IFRS 15, the formula for recognizing revenue is essentially:
Revenue confirmation = Actual amount used / Expected total usage rate
Input HashKey's data (expected utilization rate of 5%):
Confirmed income = Actual amount used / 5% = Actual amount used * 20
Financial statements will recognize revenue at a 20x acceleration based on management's accounting estimates. For every $1 actually redeemed by users, $20 of revenue is recognized on the statements.
Four: The Critical Two-Layer Misalignment — Why 95% of Coins Become Dead
Misalignment One: Identity Misalignment (Analysis of the Circulation Chain)
Company -> Supplier/Employees: Paid as salary (included in Hashkey costs).
Supplier -> Investor: Selling to cash out (crack occurs).
Investor: HODLing (discontinued use).
Conclusion: Those who receive coins don't hold them, and those who hold them don't "use" them; the utility attribute has largely failed (95% breakage).
Misalignment Two: Token Positioning Misalignment
Company perspective: For the company, tokens are contract liabilities.
Investor perspective: For investors, tokens are financial assets.
The mismatch lies in the fact that, normally, contract liabilities correspond to contract assets, and financial liabilities correspond to financial assets—this is how both counterparties account for their respective items. The current mismatch has become: contract liability versus financial asset.
Five: Alternative Assumptions — If contract liabilities are not included, which other accounts might they be recorded under?
Hypothetical scenario: What if it is classified as a financial liability (similar to INX's treatment)?
Measurement logic: Fair value measurement.
Financial impact: Price rise = big loss; price drop = big gain.
Comparison: The income statement will shift from being driven by operating revenue to being driven by investment gains, with significantly increased volatility.
Why choose contract liabilities?
Avoid the volatility of profits skyrocketing or crashing due to price increases.
Lay the groundwork for growth in primary business revenue.
Under IFRS 15 rules, profit can be smoothly recognized.
Six: The Paradox of Audit and Compliance — The "Gray Areas" Created by Accounting Standards Lagging Behind Web3 Development
The challenge of substance over form:
Legal structure: HSK does not meet the definition of a financial liability or equity instrument. As long as the offset functionality exists, it constitutes a performance obligation.
Economic substance: 95% or more of people treat HSK as a stock to trade. Apply the phrase "houses are for living in, not for speculation" to HSK tokens as "tokens are for use, not for speculation."
The auditor's dilemma:
Why is a 5% expected usage rate accepted? Because historical data shows only 0.49%, making this an accounting estimate by management. Essentially, management bears this responsibility, and the amount of revenue recognized from this portion has minimal impact.
Compliant from an audit perspective, but logically questionable. This reflects the lag of accounting standards in the face of Web3.
Seven: Considerations for Token Investors
The dilemma of HSK holders: You hold an asset that the issuer has clearly defined as a "contractual liability"—should you still consider it a "financial asset"?
Risk notice: If the ecosystem truly thrives and users genuinely begin to use HSK extensively for fee offsets (though this is highly unlikely), and the 95% breakage assumption collapses, would the company face revenue recapture?