Governance Questions Loom Over DigitalX’s Solana Staking and Family Ties

Background to ASX Inquiry

DigitalX Limited (ASX, DCC), a player in the digital asset and blockchain space, recently faced a comprehensive query letter from ASX Enforcement. The regulator sought clarity on several fronts, including the company’s Solana (SOL) staking arrangements, governance disclosures, and compliance with securities trading policies. The questions arose amid DigitalX’s growing exposure to Solana tokens and its exclusive partnership with Solana Strategies Inc., chaired by strategic advisor Antanas Guoga.

Staking Yields and Validator Exclusivity

DigitalX confirmed that none of its directors or key management personnel, aside from Guoga, hold equity or employment ties with Solana Strategies. The company defended its forecasted staking yields of 7-9% annual percentage yield (APY) on SOL tokens, citing prevailing market data and validator performance metrics from independent custodians like Everstake and BitGo. Factors such as inflation rate, validator uptime, fees, and network activity were acknowledged as variables influencing returns.

Importantly, DigitalX justified its exclusive arrangement with Solana Strategies’ OrangeFin validator. The company’s due diligence highlighted OrangeFin’s superior performance, lower fees, and the unique benefit of sharing 25% of block rewards, advantages not typically available in non-exclusive validator relationships. This exclusivity was deemed commercially sensible and board-approved, reflecting a strategic move to optimise yield without increasing risk.

Governance and Related Party Disclosures

The ASX also probed the strategic advisory agreement with Mr Antanas Guoga, who is both chairman and largest shareholder of Solana Strategies and a key figure in DigitalX’s staking strategy. The company provided the material terms of the advisory contract, emphasizing that it was negotiated on arm’s length and ordinary commercial terms before Guoga became a related party. The appointment of Guoga’s daughter, Ms Ieva Guoga, as a non-executive director and analyst at Solana Strategies added complexity, but DigitalX maintained that all disclosures complied with listing rules.

Token Acquisition and Securities Trading Compliance

DigitalX elaborated on its acquisition of approximately 42,000 SOL tokens from BitGo at a 15% discount, explaining the tokens were locked assets from the FTX bankruptcy proceedings with a vesting schedule extending to January 2028. The company clarified that these tokens earn staking rewards during the vesting period and detailed the mechanism allowing monthly unlocks and reinvestment options.

Regarding securities trading, DigitalX acknowledged a procedural lapse when Ms Guoga acquired shares prior to the May 29 announcement. While she did not fully comply with the company’s Securities Trading Policy, the company found no evidence of law or listing rule breaches and has since reinforced governance training. Similarly, the advisory agreement extends the trading policy to Mr Guoga, though enforcement has been limited due to his advisory role without board access.

Disclosure Practices and Market Sensitivity

The ASX questioned inconsistencies in DigitalX’s classification of announcements as market-sensitive. DigitalX explained that earlier announcements flagged as price sensitive were initial disclosures of acquisition strategies, whereas the May 29 announcement was a confirmation of previously disclosed plans. The company reaffirmed its commitment to continuous disclosure and confirmed that all responses were board-authorized.

Looking Ahead

DigitalX’s detailed responses aim to reassure investors and regulators of its robust governance and strategic rationale amid increasing scrutiny. The company’s staking strategy, governance structure, and compliance practices will remain under watch as it navigates the evolving digital asset landscape and regulatory expectations.