Empire｜推出 Token 透明度框架

Avi Felman

Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only. And the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds, or projects discussed.

Jonah Van Bourg

We really need to collectively show and highlight the good things that are happening, right? When the common retort to crypto is, “Oh, it’s all a scam,” I think this is a really good tool to prove that it’s not all a scam, with a grassroots-led initiative of bringing more transparency into the industry that promised transparency.

Jonah Van Bourg

Very excited about this episode. It is rare to have 3 guests, so you know it’s going to be a good one. We’ve got Dan Smith, head of data block at Blockworks. We’ve got Felipe, CIO of Theia, and we also have Louis, investment partner at L1D.

You might have seen on Twitter or Blockworks today that we announced the Token Transparency Framework. We have been trying to figure out for a very long time how to solve what we think is one of the biggest problems in the crypto markets, which is a lack of transparency into tokens.

We think crypto is at this really interesting inflection point where the industry is 15 or 16 years old. We actually have a unique opportunity to go mainstream and pull in institutional capital. Crypto companies are IPOing, but there’s a very big problem that we think is preventing the industry from going mainstream and pulling in real capital and building better and better businesses: a lack of transparency into the token markets.

I think the 4 of us on this podcast think that tokens are clearly the future of capital formation, but they can’t move forward and they can’t progress if we don’t solve this big problem. Today, Blockworks, in partnership with some other folks as well, launched the Token Transparency Framework.

I wanted to have Louis, Felipe, and Dan on because they’ve been driving this forward. The best place for this conversation is probably Felipe to kick it off with a conversation about the car market, the token market, and lemons. Felipe, maybe I’d ask you to jump in and define the problem statement for us.

Yeah, absolutely. Thanks for the question, Jonah. Thanks for having me on.

1. The Token Lemon Problem

I think all of us on this call, and many liquid funds and liquid-token investors, are concerned that tokens are becoming a lemon market. The term “lemon market” is well known in economics. It comes from a 1970s paper where one researcher, Akerlof, realized that used cars were selling at really low prices, and even driving your car out of the store would drop its price by 30% or 40%.

The reason that was happening is because there was no credible signal, if you were selling a used car, to tell whether your car was a peach—which is what this paper called cars that were good quality and whose owners were selling them because of something natural, like a move, an upgrade, or having children and needing more car seats—or a lemon, which is a car that came out of the manufacturer busted, had constant problems, and would be a financial drag for whoever bought it.

Because there was no signal to separate these 2 cars, everybody priced every used car at the average of lemons and peaches, right? Lemons being more valuable and peaches being less valuable. Think about the natural evolution of that market. If you’re a peach owner, you see car-market prices, and they’re very low, so you decide against selling. You say, “I’m not going to sell my car in this market. Prices are too low. They’re treating my good car as if it were a lemon.”

What happens is that the good cars leave the market, the average price goes down because people think that every car is a lemon, and in the end, the market just falls apart completely. You’re only left with lemons.

Now I’m going to bring that to the token market. Tokens have all types of problems that, frankly, equities don’t have right now. Tokens are great. They’re fantastic. We’re all in this industry to some extent because we love the possibility of tokens.

But right now, in its current form, if you’re an investor in tokens, you have to deal with all these concerns. As a token investor, you have insufficient legal protections, right? You don’t have the protections that equity holders have. You don’t have the guarantees. These are not theoretical. This lack of protection bites liquid investors all the time.

You have, for example, the concern of multiple tokens. If you back a founder at an early stage in equity, right? If you back Jeff Bezos when he’s opening a bookstore, you get to benefit when he starts AWS, and that becomes a big revenue driver for the business. If you back Steve Jobs when he opens a personal-computer company, you get to benefit when he launches the iPhone and it changes the world that way.

That’s story after story. Early-stage investing means benefiting from future products. But in this industry, we often see teams launch a second token. That is adverse to investors in a way that can actually collapse the math of early-stage investing. That’s 1 problem.

You have the problem of parasitic equities, where, as a token holder, you don’t know if cash flows will go to you or if they’ll go to equity holders. The famous case here, and I like to bring it up, is Uniswap. Uniswap sends $90 million of fees through the front end to equity holders, not UNI holders, and UNI holders are still waiting for a fee switch.

I bring that up because Uniswap is a great company. If they can do it, then it gives you a glimpse into what’s going on in the market if one of the best-run, most well-respected companies can send all of its revenue to equity holders.

As a token holder, you can have founders sell OTC in an up market, become truly wealthy in liquid wealth, move to an island, and abandon the project. Again, it’s not something that you see in regular markets.

As a liquid investor, you even begin to expect the unthinkable. You’ll have companies where the team is well respected, looks good on paper, and speaks well. They’ll send cash flow from the project to the foundation, and then they’ll bill the foundation for small things—like a logo change or advisory work—and fund the foundation with $5 million or $10 million. That’s $5 million or $10 million that the team is siphoning out of the foundation into its own pockets.

Again, these are all things that are unthinkable in equity markets. You just don’t see them happen.

Jonah Van Bourg

Yeah.

What that does is create a token premium. We all know the equity risk premium. It’s about 5%, and it has been for decades. I think the token premium is significantly higher. As somebody who raises capital in liquid-token markets, I think the token premium is closer to 20% or higher.

If you just follow the math—5% equity risk premium, 20% token premium—you start looking at valuation discounts for tokens in the order of magnitude of 80%, which is very serious.

What is that doing? I’ll wrap it up here. If you’re a good founder who is transparent, honest, and wants to build a generational business, you look at equity markets and see a price. You look at token markets and see an 80% discount, and that’s the lemon problem. You decide to stick with equity. You decide to launch equity and treat equity holders better.

That is a feedback loop where fewer good founders launch tokens, and eventually the market can actually fall apart if we let this get out of hand.

Jonah Van Bourg

Mm.

Jonah Van Bourg

Can I try to summarize that, maybe for people who aren’t familiar with the market for lemons?

Yes.

Jonah Van Bourg

You’ve got a car seller, right? In markets, what you’re describing is the problem of asymmetric information, where the seller knows the information but the buyer doesn’t really know the information.

In this car market, you’ve got sellers who actually know more about the product quality than the buyers. This is like used cars, right? Sellers know if a car is a lemon—aka a bad car—or if it’s not.

Because the buyer can’t distinguish the quality of the car, and only the seller knows the quality of the car, they say, “Look, if a good car was $20,000, a lemon was $0, I’m going to offer $10,000.” So it actually pulls the average price of a car down.

But what this does is that there are actually cars that should be selling for $20,000. They don’t want to take this average price of $10,000, so that disincentivizes them from selling their car for $20,000.

What you’re doing is essentially driving out the high-quality sellers. The highest-quality sellers leave the market. This actually only leaves the lemons, the low-quality goods—in other words, adverse selection.

So I think what you're arguing is: Look, if we continue on the path that we're on, the token market's gonna become a lemon market where you've got these really good founders building great things, and they're gonna say, “Oh, man. I mean, yeah, I've got this great token and great business, and I'm generating cash flows and revenues, but 80% discount? This is a lemon market. I don't wanna launch into a lemon market.”

So, Dan, I see you nodding your head and smiling. Agree?

Yeah. Because it's even worse than how you described, right? It's not just the person who owns the car. It's the person who's making the car in this analogy who has the information. And there's no format or tool for them to disclose that information.

And so that's where we really saw the opportunity lie here. If you go talk to any team that's doing things the right way and building a great product, and exerting effort to avoid a lot of these scam techniques that Felipe has described, those people want a tool to explain, “Hey, here's what we're doing. We just can't communicate this basic set of information to the market because we don't have a standardized format to do that.” And that's exactly what we got excited about building.

But before we dive into that, I think one interesting tidbit that really links to the valuation point here—it's super early, with a lot of variables at play—but if you look at Circle's IPO, the IPO price was about $30, $31. Opening day, the first quoted price was about $70, so already 2x above the IPO price. And then, 3 or 4 days after, it was trading at $120.

Maybe this is a good bit of a view into the world of, “Oh my gosh, we have this business—stablecoins are all the rage right now.” Maybe that participates in some of this premium here. But it's not a token; it's an equity. I know I have the guarantees that I have for that reason. Maybe I'm willing to pay more for this than if you're just like, “We're only looking at the income statement,” you might feel otherwise.

So again, it's a very small sample size here, but I think we're gonna see more of these companies IPO when arguably they should be launching on-chain and participating in the financial markets that we all are setting out to build. So I think that's another interesting point of evidence toward Felipe's point here as well.

2. The Token Risk Premium

Jonah Van Bourg

Felipe, you mentioned this word that maybe some people aren't familiar with, which is cost of capital and the risk premium. And you said, look, it's generally understood that the equity risk premium is 5%. I think that you said that the token risk premium is 20%. I think your line was, “Token risk premium is 20%,” which leads to a discount of 80%. For those who may be unfamiliar with that math, can you walk us through what you're describing there?

Yeah, absolutely. I think the broad point is all capital competes; all assets compete with all assets for capital, right? If you are an institutional investor looking to invest in tokens, you're comparing that against real estate, equities, bonds, everything across the world, and kind of equalizing those opportunities, right?

The math that you referenced is, think of a company that's growing 5%, with long-term growth of 5%. If the equity risk premium is 5% and the 10-year Treasury is at 4.5%, then you need to earn a 9.5% return to be comfortable with that opportunity as an institutional investor, on average, right? So you have 5% growth, you subtract that from the 9.5%, and so you need a 4.5% cash yield because, approximately, cash yield plus growth gives you your return on an investment over a long period of time. There are some factors around that, but that's basically the way it shakes out over many years.

So if you need a 4.5% cash yield, you do 1 over the cash yield, and you get to a price-to-earnings multiple of 22, right? That's the highest-level way I think about pricing. If you do the same math with tokens, you need a 20% token risk premium plus the 10-year Treasury of 4.5%, which is the risk-free rate. You need like a 25% return on tokens, at a minimum, to consider investing in this market instead of investing in equities, bonds, real estate, whatever, right?

So if the company's only growing at 5% in this case, then you need a 20% cash yield to be interested in the token market, right? I'm comparing the same company in equity and the same company in tokens. A 20% cash yield is a price-to-earnings multiple of 5. So the 22 versus the 5 gives you the 78% discount, which I said is an 80% discount.

Jonah Van Bourg

Yeah. Okay. So what you're saying is equity risk premium plus the Treasury is the required return. Then you can subtract out the earnings growth, and that gives you the cash yield required by investors, which lets you back into this price-to-earnings multiple. Okay, I see where you're going with this.

So what you're arguing is tokens have a much higher cost of capital than equities because of all these structural issues, right? Let's—I know you mentioned a few of them. You were mentioning the Amazon example and multiple tokens. Let's get a little closer into the weeds of some of these issues.

Louis Guthmann, just because Felipe and Dan have been talking more, do you wanna take some of the structural issues of tokens right now?

3. Tokens Carry Structural Risks

Sure. Definitely. Just before starting, maybe one last thing that I will add relative to that lemon market: I completely agree with Felipe. All capital competes throughout the entire world, apart from when there's either regulatory or structural constraints, in a sense.

One thing that adds fuel to the fire in crypto is sort of that VC bubble that we had in 2021. VC funds invest in early-stage private projects, and the way they're structured, their deployment schedule basically forces them to keep on investing in those projects. That grows even more the supply of those lemons that we have.

Those lemons all have teams and employees; they wanna go to market. So all of them are competing in order to go to market and try to create value when maybe there's no value. And often they do this with a lack of transparency.

I think the first part—moving to some of the main transparency structural problems that we have in this space, which Felipe has covered quite extensively—is related to overall project and team structure. I would say the main one that's close to my heart is the equity-versus-token relationship.

For instance, I'll give an example, but I think this is one of the reasons why GameFi was killed: tokens are actually a great way to incentivize different types of behaviors, such as trading, using a product, and many other things. But token holders, generally, most of the time, aren't entitled to receiving anything. Whereas equity holders, there are rights and shareholder agreements; they're entitled to many things.

And a lot of those GameFi projects—and a lot of different projects in the space have done the same thing—were basically using the token to incentivize trading behavior, to incentivize players to play the game and spend fees and pay for those services by receiving a greater amount of token. But you're paying in real ETH, in real stablecoins, in real dollars. And at the end of the day, all those earnings go to the equity holders.

So I've heard of many, many examples of projects generating 8- or 9-figure revenues, all those going to equity holders, when the token is literally trending down to 0 in terms of FDV. That is one thing that is super important. As a token holder, you wanna know what your rights are and what you're entitled to. And the same thing goes for equity holders, because you're maybe competing with them. You wanna know what the equity holders' rights are and what they're entitled to. Maybe I'll stop here.

Jonah Van Bourg

Yeah.

Louis Guthmann

If you wanna add anything.

Felipe Gonçalves

One interesting thing that Louis mentioned is the super bubble we had in 2020 and 2021. And I think that's really relevant here because that's how we got here, right? So we're describing this kind of market structure that doesn't work. This idea that all capital competes with all capital. Exactly.

And the reason that we're here is because we did have a period in time where most people in this industry made their money, and most people who were kind of like industry veterans minted themselves as industry veterans, where there was a massive super bubble around the world in every asset class.

In TradFi, it's called the everything bubble. During that period, tokens went up for no reason. You didn't have to justify tokens with revenue cash flows. There was no concept of cost of capital because interest rates were zero and had been zero for almost a decade, with a small intermission. There was massive printing and fiscal policy directed at people who would like to buy tokens and gamble on them, essentially.

We kind of learned all the wrong lessons during the initial period of the industry when it comes to fundamentals. And what happened is, since then, people have been waiting for another massive super bubble. I think we hear about it less, but for the past 4 years, all we heard about was, “When's the next cycle?” If you translate that, people are asking, “When is the next time that fundamentals don't matter, cost of capital doesn't matter, and all my tokens will go up for no reason?”

Over time, people have been abandoning that idea slowly and realizing that you need to give investors something for them to want to buy your token. And now it seems like only now we're asking the hard questions, right? Dan, both of you have been vocal about REV revenue for projects. Basic fundamentals have come into vogue as a solution to this problem of no buyers to look at tokens recently. And now we're only now confronting these questions. That's why we're here, right?

4. The Foundation Era Ends

Yeah. And even to give a little bit of extra context to some of the points Louis was making as well about the discrepancy between the token and the equity, I think we're seeing a lot of that start to change tune a little bit. We had Morpho just the other day. I think it was the co-founder, Paul, who put out a post that basically says, “Today we're announcing that Morpho Labs is becoming a wholly owned subsidiary of the Morpho Association, a shareholder-free entity.”

Even a couple of days before that, Miles Jennings from a16z put out a piece that was basically titled “The End of the Foundation Era,” right? And he's talking about how DUNAs and BORGs, which are 2 emerging legal structures, basically help get you to that point, right? Because you still do need this off-chain entity to conduct business or sign contracts and things of this nature.

That was sort of why the foundation era existed, right? If you think back a couple of years ago, you had the SEC saying, “Come in and register,” but they had no tools to be able to do so. Now we're starting to actually see some of that shift, right? You have Hester Peirce writing the safe harbor pieces on what it actually looks like for builders in this space that want to transition from a centralized entity into a decentralized one, right?

You have this 3-year grace period that she proposes where you have to follow certain rules and requirements, but that can get you to that point, right? Or you have the market structure bill working its way through the U.S. Congress as well. That bill specifically touches very lightly on disclosure, which is really what we wanted our framework to focus on.

Again, going back to the core principle that the 3 of us had in mind, we wanted to create a tool where markets or projects could simply communicate this set of information to the market and then let the market decide on that, right? I think Louis said something similar to this earlier about the lack of transparency helping these projects. In my head, I've always been calling this the ability to profit off ambiguity.

If you don't know anything about me, you can assume the best or you can assume the worst, and some people unfortunately assume the best when that's just not the case. But if we have this tool that allows you to communicate that, right—and we have some of the best projects in this space, even with this first cohort that we just launched—I'm super excited to have them on board. They're putting their foot forward and saying, “Hey, we're doing the right things,” and all we wanted was an ability to communicate that.

Now we have the ability for the peaches to show themselves, and that's what we're really excited about.

Philippe

Definitely. Maybe one last thing on Morpho's example that's very interesting. One last thing about this equity-versus-token relationship is that, basically, the way we are right now is sort of like Schrödinger's equity in that relationship.

During a bull market, tokens are going up, everybody's happy, all the revenues go to the token. Tokens are pumping, and nobody's really worrying about anything. Now, during more depressed phases, at least in the altcoin market, when 7- or 8-figure revenues are starting to matter, that's when teams realize that they still have that equity component, and maybe they will redirect all those revenues to the equity component instead of the token.

I think what Morpho did is super interesting because they basically opened Schrödinger's box and made sure that there's no more equity component. Whatever happens, all the value will go to the token. So it's still something to monitor, but I think a lot of other teams will start looking at this and maybe take it as an example.

Jonah Van Bourg

Yeah, guys, before we get into the solution, we're talking about a lot of problems here, and we will get into the solution in a second. I actually want to go a little more into the problem. I think crypto-native investors, whether you work at a liquid fund or a venture fund, will be very familiar with the problems. And I think if you work in TradFi and you're listening to this, you would be astonished by what actually happens behind closed doors.

Maybe Philippe, I'd throw it to you to kick it off, and then Dan, Louis, I'm sure everyone's got stories here. I'm sure I can share some stories too, but there's a lot, right? Weak legal protections, opaque information, magnified principal-agent problems. Tell me, these are kind of fluffy words. What does this actually mean in practice, and what have you guys seen on the ground?

5. Rugging Happens in Practice

I'll start with some stories to paint the picture. We had one investment that was a token trading at $40 million of FTV. We helped them quite extensively and spent dozens of hours with them to bring them onto Solana. The project did well and started making about $40 million in cash flow, which, as you can imagine, is pretty good for a $40 million FTV investment.

One day we get a call from the team, and with a public release, they tell us that they're leaving the token. Our question is, “What do you mean you're leaving the token?” They decided to take the IP away from the token and keep all the cash flow for themselves—a team of 4. That is not that unfamiliar to any of you on the pod or to crypto natives. It's called rugging the token. We have a term for it. It happens all the time.

But that is unthinkable in public markets. There's no chance that Tim Cook would rug Apple shareholders, right? It's not something they have to worry about.

I'll give one more example that has actually turned out okay so far. Aave was looking at launching a real-world asset business line, right? There was talk on the forum that if you invest in Aave, you're investing at a higher-than-20-times-revenue multiple—not because you believe they can take share in the EVM market that exists today, because they're already at 70% market share, right? The whole growth story is launching into additional markets.

The whole growth story of the industry is real-world assets and internet capital markets, and bringing the whole world on-chain. But if you were an Aave token holder on Saturday a few weeks ago, you saw the forum post about them launching an additional token for their RWA business. That's a type of stressful situation you don't have to deal with as an equity investor.

That one resolved well. Mark Zeiler publicly stated he would not launch a second token for the RWA business. There's still some debate about what's exactly going on, but that's one that turned out okay. There are a lot of second-token stories that have not turned out okay at all, right?

Again, I mentioned earlier, if you invest in Uniswap, you were thinking, “Oh, great business, great moat, majority market share in the EVM. They'll find a way to monetize this,” right? Most tech investors, that's how they think. You have a great moat, a great business, you will find a way to monetize it.

They did find a way to monetize it with the front end. But as a UNI investor—and there are many UNI investors—you got $0 of revenue from the way that they figured it out.

So I think, again—go ahead, Ian.

Jonah Van Bourg

Yeah, I was just going to say: How many of these problems, Philippe, are due to founders rugging the project? Some of these are due to founders rugging the project. In equities, that would be what's called illegal, and they would get in trouble. But maybe not driving revenue back to a token—that's not illegal. That might just be because the regulations actually haven't allowed you to do it.

Philippe

Yeah.

Jonah Van Bourg

That's right. Yeah, okay. Okay.

When I say these problems, I'm taking the point of view of, “Look how unattractive it is for a token investor.” I'm not actually making any point about—

Jonah Van Bourg

You're not saying founders should have been doing this the whole time. You're just saying these tokens are not that investable right now.

Philippe

Yeah.

Ian

If you're an institutional LP.

Philippe

Exactly. Exactly.

Jonah Van Bourg

I see.

Philippe

I'm not trying to bring shame on the founders. I'm just saying if this happens, we can't invest. You know, as somebody who's a steward of capital.

Jonah Van Bourg

I got it. Dan and Louis, any other things that come to mind for you? For me, founder secondaries come to mind. I'm in the camp that founders should take secondaries, but there are some who take such outsized secondaries in the token markets that their project ends up getting killed forever. There are these kinds of backdoor market-maker deals. I'm curious what other stories come to mind for you?

Dan

Yeah, so about that one specifically, I think it's all about communication. The only people who will know that are the investors who participated in the round if there was a secondary. I think related-party transactions are very common and are to be disclosed in public markets, and that's no different here, in our mind. Even things around disclosing your cash flows—if you sell a token to the market or launch a token in that regard, I think you have some level of requirement to say, again, just to communicate to your token-holder base.

There is this interesting line that you need to thread, because a lot of these teams have less than 10 people on them. That's kind of the beauty of permissionless capital formation: You can get to market much quicker at a much lower cost. We're absolutely not trying to say that's a bad thing or that it shouldn't happen. We're just trying to give the teams that are doing the right thing this tool, right?

I don't think the lack of disclosure that exists today is inherently a bad thing. We have so many great products that have been built in this regime. It has just created a sort of breeding ground for abuse, largely.

I think the analogy I gave the other day to the broader Blockworks company, when we were talking about this, was that in traditional markets, as an investor, you're sort of just being asked to say, “All right, what's the intrinsic value here? How can I forecast that going forward?” It's really just this numbers-based game. Of course, there are some narrative pieces to this as well, but broadly, that's what you're doing. While you have to do that also in token markets, you're also being asked to be a ballerina in the middle of a minefield in the middle of a war zone, because there are just landmines left and right from all these projects that are actively trying to scam you.

And that's the unfortunate reality. That's kind of why I think this is so important. More concretely, what is the actual impact of that? I think the whole foundation regime has been pretty interesting to see really get backlash now. Earlier, Philippe mentioned advisory billing to the foundation from the core team. That's specifically one of the things we asked for in this disclosure form as well.

Another one that could also be interesting along this same vein is— Or I guess we'll actually just take one step back. That all basically becomes accelerated vesting schedules, right? If you say, “Hey, these tokens are with the foundation. They're out of the control of me as the founder,” and then I am getting this shortened vesting schedule by doing some very small amount of work for a very large reward, I think that's really what the problem here is as well. So, yeah, we were really pushing for related-party transactions to be disclosed, or any relationships between the equity, the foundation, and the development team as well.

Ian

Yeah. Louis, anything that we're missing here?

I think we've covered a lot of examples. Just to explain for those who may not exactly be familiar with what Dan was referring to—the foundation-billings thing. Crypto is a bit different than normal public equity markets. You'd have a foundation that is in charge of managing a large token supply that is supposedly going to be invested, reinvested in the ecosystem to make it grow. And you have a labs entity, which is a different entity, with devs and founders who are working on a day-to-day basis to work on the code, push some updates, speak with the users, build a front end, et cetera, et cetera.

The thing is, those 2 entities are roughly managed by people who are heavily connected, and you can pretty much be paying yourself $50 million worth of tokens per year that would go from the foundation to the labs for an extremely minimal amount of work, as Dan was saying—just pushing a minor front-end update. These are the types of things that need to be at least disclosed for users to make their own opinion. Once again, we're not assessing the fundamentals or the quality with this framework. We just want to have more transparency. So, just like public markets, it's more a question of disclosure over merit.

Dan Matuszewski

Hmm. Right.

Transparency over fundamentals.

6. Market Makers Hide Risks

Mm-hmm. One more thing I actually want to add along this vein real quick is market makers and centralized-exchange listings. We've kind of not talked about this one, and, candidly, I wish we could have pressed harder here, but there are a lot of barriers we can get into around actually bringing this information to market.

Whenever you launch a token, liquidity largely relies on centralized exchanges today. That is where the majority of the capital flows. So you want to be listed on those exchanges, right? That's how you can get in front of the most users with the least friction. The exchanges know that, and a lot of the top-tier exchanges have very aggressive or extractive requests: “Hey, we'll list you, but we need 2% to 5% of supply,” and large listing fees that you have to pay in cash.

That information isn't known to the public market either. You'll get these supply schedules that don't even mention that because they're signed under NDAs. So that's an interesting angle as well: We want to push for disclosures on centralized-exchange listing fees, because in our conversations with projects and key players in the space, that seems to be a very meaningful pain point where a lot of abuse, let's call it, is happening. So that's one thing we wanted to focus on, again, on the centralized-exchange-listing side.

But the other important piece of the liquidity equation is your market maker. There are a lot of great market makers out there doing the right thing and bringing projects liquidity. Unfortunately, there are also a lot of market makers that are abusing that privilege. We've seen a lot of these examples recently where a project that doesn't exist beyond a foundation and a token runs up to a multihundred-billion-dollar valuation, and everyone's kind of looking at each other, saying, “Guys, what the heck is happening?”

Then, boom, all of a sudden, one day, you see a huge drawdown—down 50% to 90%—and then it turns out some documents get leaked, and you're like, “Oh, their market-maker agreement ended, and they had this crazy token option involved in this, and that's why it hit this crazy stepwise pattern on the chart,” and everything starts to make sense. Of course, that's after the fact, when anyone who had touched that token is in tremendous pain. Actually getting that information to market and knowing the terms of these market-maker or centralized-exchange listings is something we certainly want to press harder on in the future.

But there's this spectrum of “Don't let perfection be the enemy of good” here. If I were to rate the industry's current disclosure regime on a scale of 0 to 10, I would give it a negative 2. Candidly, I think this framework gets us well above 0, but it is far from 10 as well. There's a lot we can touch on: why I think it's still not a 10 and what needs to happen to get there.

But we really wanted to take this approach: Let's build something iterative that we're really excited about, that's doing the right thing, and then work on it in prod as an industry, right? Because we already see a change in tone from the regulators, and it's going to be very, very challenging to get a seat at that table when they're saying, “Okay, crypto, you're legit.”

Come on, we’ve got to regulate you. If they come in and they’re like, “All right, show me what you got,” and the answer is nothing, I think it’s going to be very hard to have a meaningful voice in that conversation. But if it’s like, “Hey, here’s where we’re at, and this is 80% of the way there, but we want to do X, Y, and Z,” then I think you have a meaningful conversation.

Because when the regulators want to regulate you, you’re going to get regulated. The question is, what does that regulation look like? And there have been a lot of success stories of self-regulation within an industry being for the net benefit of that industry.

Jonah Van Bourg

Yeah, we’re teasing out this token transparency framework, obviously, which we’ll touch on in a second. Just gotta tease it a little bit more. But before jumping into it, let’s talk about maybe how you guys thought about this, because there’s a bottoms-up way and a top-down way to do this.

Bottoms-up would be self-disclosure. Top-down would be like, you go to the exchanges or you go to the regulators, and it’s a mandated disclosure. How did you guys think about that? How did you think about this in relation to the market structure bill? You mentioned Hester Peirce a little bit. How did you think about this in relation to the question of bottoms-up versus top-down and in relation to what’s happening right now on the regulatory scene?

7. Building From the Bottom Up

Sweet, guys. I’ll take a first pass at this one, then. But certainly bottoms-up, right? We wanted to create this optional framework for the industry to say, “Hey, if you’re doing things the right way, come on in and just use this form to basically explain what you’re doing in a standardized way so that, as investors, people can say, ‘Okay, boom. We’ve got the disclosure form. Let’s take a look at this. Do we like this structure? Do we not?’”

That is the goal, right? And I think Louis touched on this earlier. The goal of this framework is not to say good, bad, right, wrong. It’s to say, “Here’s what we’re doing,” right? And that’s really the overarching framework here.

So certainly ground-up, and then additive to a lot of the disclosure or the regulation that’s moving through the U.S. right now, right? I mentioned the market structure bill earlier. There’s a very, very brief disclosure piece of that. It is a disclosure piece, but if it’s like talking to investors and the 3 of us getting together, like, will this be sufficient if this was what was law tomorrow? And the answer is overwhelmingly no.

It doesn’t get at a lot of these areas of abuse that we’ve noticed just from being boots on the ground in the industry. And so Felipe, Louis, Ryan Connor, and I—the 4 of us—sort of got together, and we said, “Hey, okay, someone’s got to push this boulder up the hill. I think we’re all really passionate about this being a problem, so let’s just pretend as if we were going to do this. Let’s go. What’s the process we’d have to run through?”

Basically, the first step was to go talk to every investor you can possibly get on the phone, right? And we did basically exactly that. I don’t know if we left a stone unturned on this one. The overwhelming response was, “Absolutely, this needs to happen. How can we help?”

I’ve never felt the market pull something out of me personally like that before. It was just so obvious. This isn’t just a problem I see in my head in crypto Twitter. This is real.

Some interesting quotes from those conversations were, “You know, I miss equities markets where I can just know if I’m not going to get rugged,” “I’m short many names right now,” or, “This industry is becoming uninvestable.” And that’s huge red flags, obviously.

That’s sort of the demand side, right? Retail and investors. The supply side is, of course, the projects themselves. And this was where, admittedly, I was a little bit nervous about it. I was like, okay, it’s not that this is a huge thing, but I’m still just asking you to do something.

We were very surprised by the positive reception here from the project side, because the teams that are doing things the right way need and want and very much desire a way to express that, and it just doesn’t exist today. You can write a blog post on myproject.blog.com, but if no one sees that, it doesn’t really do you any good.

You can talk to investors and say all the things in the world, but just a central repository of these things is sort of what you need. Every project gets the same form and has the same information in the same spots. That’s sort of the unlock here.

So, to succinctly answer your question, from my view, it’s absolutely additive to U.S. regulation. We’re really excited about these pieces. I think Hester Peirce wrote a great piece again on Safe Harbor 2.0, and a lot of those ideas are certainly coming to life in this framework.

Certainly a ground-up, or bottoms-up, approach where this is a self-disclosure framework to kind of just help push the industry forward.

Louis Harang

And one thing I’ll add as well: I think, like many things in crypto, we’re true believers in open source. Blockworks will be using it, we’re using it as investors, and other liquid funds will be using it. But that will be fully open source, so anyone can just use it on their own—other firms, other whales, users, and simple retail users.

Since there’s no one source of truth, at least we’re sharing some of that information. It may seem obvious for us investing in crypto on a daily basis, but if you’re just a normal crypto user, you may not see the behind-the-scenes information. You may not have access to that information in the first place. You may not know those different criteria.

So anyone can just fork it, use it on their own, apply it, and then share it on Twitter or share it with their friends in their group chat and say, “Okay, I applied it to X project. That’s how it ranks. I applied it to Y project. That’s how it ranks.” And just compare each project with the others.

Jonah Van Bourg

Nice. But I think let’s get into what the transparency framework actually is. I feel like we’re kind of teasing around it. What is the Token Transparency Framework, Dan?

Yeah, perfect. I feel like I just answered that question, so I’ll try to do it succinctly here. But again, it’s a tool for a project to communicate a basic set of information to the market, and it’s a lot of the information that investors care deeply about.

Again, we have to try to thread this needle. If you created this full GAAP accounting-style disclosure regime, nobody could do it because, again, these are generally quite small teams that launch tokens, and that’s a good thing. The fact that you can do that is a very core tenet of crypto and something we’re excited about.

You need to understand that the supply side of the projects actually doing this is a burden. It takes time to execute on, but it’s important. And the demand side is foaming at the mouth for this, basically. We need this. It’s a huge problem in the industry, and we’re seeing less capital flow into the industry because of that, which leads to fewer builders, which is sort of this doom loop.

Again, it’s just a framework that asks projects to disclose this basic set of information about themselves. It’s broken up into 4 categories that we’ll touch on each—

Jonah Van Bourg

All right, before going into the categories: when you say it’s a tool, is this a software platform? Is it a Google Form? Is it an Excel sheet? What are they using? What is this?

Dan Matuszewski

Great point. Think of it as a crypto-native S-1 in some regard. When a company goes public, they have to fill out a form that basically says, “Here’s what we’re doing. Here’s all of our financial information. Here’s some basic information, like a description of what we do and how we make money,” and things of that nature.

That’s the comparable, if you needed an analogy. It’s like when you launch a token, ideally, that’s when you would submit this form. A lot of this will be retroactive, obviously, because many tokens exist, but that’s basically the tool.

It’s going to be a form. The rubric sort of looks like an Excel document, basically, or a large table.

Jonah Van Bourg

Cool. So, if you’re a token project, you would pull up this form, and it would ask you a series of questions. At the end of the series of questions, it’s going to give you a grade or a score, and then that score goes somewhere public for everybody to see—something along those lines?

Dan Matuszewski

Precisely. There’s a set of responses—I think it’s officially 20 questions, give or take 1 or 2—and each of those questions will require a response with links. So, for example, if it’s disclosure of the supply schedule, you’ll have to actually provide that. If you need to link out to docs or whatever, that’s perfectly okay.

So you ask for these responses, and then based on the response, you’ll be…

There's a scoring framework as well. For example, I think the first question is a disclosure or just a basic description of what the project does, right? The scoring there is 0 if you didn't respond and 1 if you responded. Some are a little bit more advanced, right? Especially when you get into the market maker sections and the centralized exchange sections, a lot of this is under NDA. It can't be punitive if the project physically cannot disclose this information.

Each question is scored slightly differently, and then, in aggregate, those are rolled up to a simple, understandable grade. As Louis mentioned, the entire framework is open source, so anybody can see the responses in full. We wanted to make this useful for the industry, and simplicity is super important, right?

If there was a full response with 20 different questions that all had long, multiparagraph answers, I don't think that would do as much as, "Hey, you know, Project XYZ scored this, and that's an A." Boom, now I know. I can just see one simple summary of their responses versus the full response. Some people will like both, so we wanted to provide both tools.

Avi Felman

Hmm.

Yeah. One thing I'll add in terms of the weights themselves: as Dan was describing, the way we came up with those specific weights, going from 0 to 3, is by querying a very large database of, on one hand, liquid funds in the space and some VC funds as well, and, on the other hand, a lot of the top builders and top developers working at miscellaneous projects all over the crypto space, and just aggregating the answers we got.

So if one category has a 3, it's because most people agree that it was probably the most important line item, whereas some other categories are a bit less important and will get a 1.

Avi Felman

Hmm. Okay.

And I think, just to add onto that quickly, the questions are mostly pretty basic, right? It's things like, describe the equity-token relationship. Describe what your... Can you point to somewhere where investors can see your asset balance and your basic expenses at a high level? Things that, in the S-1 world, would be considered just the bare necessities, right?

If you're investing, you want to be able to see what the basic balance sheet and basic expense profile of a company look like. Describe whether or not your team members are billing the Foundation for additional compensation beyond their salary and compensation. Describe whether your team members are selling OTC. Again, things that we consider basic. And one thing I'll say about it—

Jonah Van Bourg

And Philippe, why would someone answer that honestly? You said, "Describe if your team members are selling OTC." If you're a founder and you want your token to go up, and you don't want this rating to rate you poorly, you're going to say, "No, they are not selling OTC." We might wake up in a year and it turns out they were selling OTC. So how do you think about that?

Philippe Bekhazi

I think people can lie when it comes to that. First, whenever possible, we try to get actual on-chain information. That's like labeling your team wallets and seeing if they're selling. That's the best-case scenario here, right?

Second, there are some answers where we'll take the team's representations. What I will say is that the level of exposure that you have as a team by staying silent and doing something that's adverse to investors versus the level of exposure you have when you actively lie on a website that people go to for investment information is very different.

Ideally, most of the answers will be linked to on-chain data, where you can see team wallets, expenses, and wallet balances. That won't always be possible. It certainly won't always be possible at the beginning. So at the beginning, we're relying on teams to tell the truth.

I wouldn't lie about my financial information to investors publicly, but if teams want to do that, then they can go ahead and—

Avi Felman

Yeah.

Philippe Bekhazi

All we can do is do our best to common-sense-check it.

Dan Matuszewski

And one more thing on that is this is part of what I mentioned earlier about us being at a negative 2 and this getting us to maybe a 3, 4, or 5. A lot of getting that is out of the industry's control at that point, but I think getting that number as high as we can with a grassroots effort is extremely important.

One other thing that I think is super important, and that we'll have to kick the can on as an industry in the future and see if it's a good idea and publicly discuss, is that this is a one-time filing today. But in Safe Harbor, Hester Peirce's Safe Harbor proposal talks about a 6-month update, right? So every 6 months you sort of have to redo the form that she discussed in that post.

That same logic can be applied here, where you sort of have to do this every 6 months. It's not extremely tedious, but many things won't change every 6 months. I think it is important to get to that end state.

But again, we're pushing a massive boulder uphill right now, and don't let perfection be the enemy of good. Let's just take progressive steps forward. I agree that over the long term we certainly need to continue iterating and improving.

Avi Felman

Yeah. The way that I think about this is, it starts with reputation, and it eventually ends up being law if this is successful. You don't just jump something into law. You actually have to start—like Dan said, we're at a negative 2. You don't go from a negative 2 to a 10.

If you file your S-1 and lie about your revenue, and you hire an audit firm that you pay off or something, that's illegal. If you raise money in your Series B and lie about your user base to your VCs, that's illegal. If you're getting acquired and you sell your company to an acquirer and lie about the financials, that's illegal. But it didn't actually jump to being illegal. At the beginning, it starts with reputation.

My vision for this thing is that, yeah, we're at a negative 2. We're going to go to a 3 or 4 out of 10, maybe 5 out of 10 in the industry, and the first thing that happens is people need to put their reputation on the line.

Right now, you can basically say whatever you want in tweets. Oftentimes, I'll see—I think the 4 of us will see founders who we know are lying, telling white lies, or kind of misconstruing information, but what are you going to do, basically? You can't really come after them legally, but their reputation actually doesn't really get burned by it.

Once you have something like this, which is an industry-wide framework, you can say, "Hey, look, in May of 2024, you submitted this thing about your market makers. Well, now, as this is coming out, it was clear that you were lying, and this is your reputation. You'll never be able to raise capital again. You'll never be able to hire a team again." So it starts with reputation.

Yeah. We've tried to make those criteria as quantitative as possible, but obviously a lot of them may be internal or nontransparent information. Generally, if you add different sources, such as on-chain data, as Philippe mentioned, other investors, angels, et cetera, you just need 1 guy to have the information to call them out. It's information that's quite easy to verify as soon as you have it.

The sum of all those generally gives that aggregated score, which shouldn't be too far off in terms of transparency. Think about it: at the end of the day, it's the type of framework that we use as investors on a daily basis to assess projects. Generally, down the line, this also translates into price at some point on a long enough time frame.

The projects that rank well, are very transparent, and show that they have strong fundamentals, if they do have fundamentals, will tend to trade at higher prices than the ones that are nontransparent and will have that discount because there's more risk associated with the lack of certainty around the transparency of that information.

Avi Felman

Yeah. Dan, walk me through the 4 categories, maybe, and then the subquestions inside the categories, and how the scoring and the weighting actually work. Walk me through how the model actually works here.

Dan Matuszewski

Yeah, good question. The 4 categories—we try to make these the 4 areas of what the project ultimately comes together to be, what's important to investors, and what a team should want to disclose to the market.

Project and team is 1, token supply and allocation is 2, transactions and market structure is 3, and financial disclosure is 4. Maybe just working down that order, we can talk about each of these things. We've kind of touched on this naturally while going through the problem statement, right?

We’re basically putting the problem statement into a set of criteria. So, on the project and team piece, there are some simple responses for descriptions of the project and what the revenue streams will be. Again, this is an interesting one where adding in this 6-month update is really interesting because when you launch a project—and even, Jonah, you as Blockworks, let’s say—what you made money from on day 1 is probably not what you make money from 8 years later, right? And so I think it is, again, important to trend toward this multi-year update period as well.

Within this section as well, we have things like the equity and token relationship and the team and foundation relationship. Again, we touched on both of those problems earlier, but this gives them the opportunity to communicate that.

On the framework specifically, the scoring basically works as follows: for the simple description piece, 0 if you didn’t respond and 1 if you responded. Super straightforward. But then it gets a little bit more complex on some of the tougher-to-answer questions, right?

For the equity and token relationships, if there’s direct competition for the value accrual from the operations of the protocol or the project, then that would rank you lower on this spectrum. Or if there’s no response, or if it’s super unclear where the rights of the project actually live, again, that would score you lower. Whereas if the rights and value accrual, and the differences between token and equity holders, are clearly and explicitly defined within the constraints of existing regulations, that would score higher. Maybe you actually point to things such as, “We don’t plan to return cash flow to the equity ever.” So even if you’re not saying you’re going to return it to the token, you are saying the cash flow of the operations of the protocol will not go to the equity, whether that’s through share repurchases or dividends, as a whole. Or if you do something that we’re starting to see a little bit more of, where there is no equity entity, that’s obviously sort of the best end state as well.

Based on that, each category has a different weight depending on the importance, right? In this example, simply disclosing a simple description of your project would score you fewer points than a detailed explanation of the token and equity relationship. Basically, each of these categories can be sub-scored and rolled into a total transparency score.

Louis did a great job hitting on this earlier, but I just want to double down on it: this is not a value judgment of “good project, bad project” or “doing the right things, wrong things” from a business perspective. It is simply a transparency score. How transparent is the information for investors to get their hands on? You’ll definitely get rewarded more heavily in our rating system if you have everything on-chain and visible, for example. Even using a real, trusted custodian is an acceptable end state in the current iteration of the framework. That’s just one thing I really want to drive home: we’re not trying to create a value-judgment sheet. That’s just not the intent of this. It’s more just a transparency score.

Jonah Van Bourg

These aren’t evaluations, right? We’re not saying you got a 98 on this, you’re a—go buy your token—and you got a 70 and, you know, short that token or something. We’re just saying—

Right. You could have a horrible business that has a very transparent piece to it, and it’s just run terribly and it’s in a terrible subsector, but that doesn’t—

Jonah Van Bourg

Right.

Dan Matuszewski

—mean it’s a great buy, right? That’s not the intent of this.

And the reason for that is that, for us in the project, we’re not trying to dictate what the market wants or what the market deserves or anything like that. You said earlier that you were in favor of teams selling OTC, right? But not too much. I think we could argue about that for an hour. Some people would say teams shouldn’t sell OTC at all. Some people would say teams can sell whatever they want OTC.

Our answer, with the way this framework is set up, is: let the market decide. Tell teams how much you’re selling OTC, and then see where the market punishes your token valuation and see where it doesn’t, right? Markets work when you have symmetric information, and the whole lemons problem comes from just a lack of information.

Jonah Van Bourg

Yes.

Jonah Van Bourg

The best example of this is—I just saw a headline—it’s like Circle executives selling Circle shares or something like that. We’ve published similar things, like Coinbase executives selling Coinbase shares. That’s a legal thing. You legally have to disclose that, and we’re not telling you if that’s a good or a bad thing. It’s just that you legally have to disclose that, and that’s what we’re trying to get to.

Just to run through—not all of them, but maybe to paint a better picture than, “Oh, they gave us their description of their company or not”—one of the 20 things would be future and related token launches. A 0 would be language around new tokens that is vague, noncommittal, or missing entirely. A 1 would be plans around additional tokens being defined clearly. And getting a 2 out of 2 would be the team representing that it will not launch additional tokens.

The weighting of that—we put a 2. So if you got a 1, multiply that by 2, and you’re going to get a score of 2. If you got a 2, you’ve got to multiply that by 2, and you get a score of 4. Is that correct?

Without the multiplication piece, really, right? You can just score up to 2 points because that’s basically a medium report.

Jonah Van Bourg

Oh, I see. Okay, okay.

Dan Matuszewski

Directionally, exactly that, right? So you score up to 2 points. Again, a lot of this hits on exactly the problems we mentioned earlier, and one of those was, “Hey, we’ve built this great product, and now we’re going to go launch 3 more tokens.” Well, it’s like, oh gosh, that’s cool, but the premise is this was the future operations of the protocol as a business, not just this one product line. That’s just important for investors to know.

Jonah Van Bourg

Oh, I see.

Dan Matuszewski

Yeah. What do you guys hope happens here? What’s the best-case scenario that happens here?

8. What Success Looks Like

Yeah. I think the best-case scenario is the project doing the right thing and seeing this as the opportunity to showcase that they’re doing the right thing. A lot of them are. To be completely candid, a lot of them are. We’ve spoken to many of them, and we’re working to get everybody on board here.

All the credit in the world to the first adopters here. They kind of had to be the ones to take the leap of faith here and push the industry forward, because that’s the crux that we’re in. We really need to collectively show and highlight the good things that are happening, right? When the common retort to crypto is, “Oh, it’s all a scam,” I think this is a really, really good tool to prove that it’s not all a scam, with a grassroots-led initiative of bringing more transparency into the industry that promised transparency.

For me, the success story is not only that the projects get excited about it, but that those third-party entities I was mentioning earlier, which are very relational and key to this, get excited about it too. The largest exchanges would love to see them get on board and help us iterate on this and make it better. I’m sure it’s not perfect. Again, I think we want to trend toward that 10 out of 10.

Where are the shortcomings? It’s sort of a call to action for all of the crypto community as well. Do you think these are the right questions? And if not, this is an open-source framework that we should iterate on together and help push it forward. Market makers and exchanges as well: certainly a call to action there.

Jonah Van Bourg

Yeah. Felipe, go ahead.

Felipe Gonçalves

I’ll just say, for me, I agree with Dan. My measure of success would be that in a year, if you asked a liquid fund manager who had never seen this, “Who are the good actors in terms of token-holder transparency, and who are the bad actors?” and they gave you a list, and then you looked at this framework, it would separate them out just the same way.

I think that’s kind of what we’re seeing already. I am not surprised at all by the teams that are eager and enthusiastic to participate in this, because they are being driven down by the token discount—the opaque asymmetric-information discount. So they’re very enthusiastic and eager to participate to show that they are not lemons; they are peaches, and they will score well on this dashboard. Hopefully, in a year, we have all the good projects participating.

Jonah Van Bourg

Yeah.

Felipe Montealegre

Not participating is a sign in itself.

Jonah Van Bourg

One thing that I was thinking could happen is, imagine you pull up CoinGecko. What will obviously happen here is all the good projects are gonna submit themselves, because if you're the founder of a good project right now or a transparent project, you're extremely frustrated. Back to your lemon thing, you're getting bucketed with all these other lemon tokens, but you're the peach, right? So you're like, “Oh my God, why does the market not get this?” And this token transparency framework is gonna separate the peaches from the lemons.

Maybe, to extend the analogy and stop using peaches and lemons, the good tokens and the transparent tokens and teams are gonna actually submit. I'm almost imagining CoinGecko, CoinMarketCap, Blockworks Research, and all these places you look to check your prices—DeFiLlama, wherever it is—being almost green if they've gone through the token transparency framework, and just red if they haven't, or having a blue check mark if they've done it and red if they haven't. We've also brought this up with a few exchanges, and I think the response has been very, very positive. Exchanges say, “Hey, we have no idea what to list. Just no clue what to list anymore.” What if using the token transparency framework becomes a listing standard? And by the way, that's not a crazy idea, because the S-1 is a required part of the listing process for going live on the New York Stock Exchange or NASDAQ.

Another interesting one as well: think if you're building an ecosystem, right? If you're any type of platform—we'll choose just a blockchain as the easiest example here—you wanna help teams building on you, but the worst-case scenario, or the fail state for you, is you unintentionally aid and abet a scammer in that process. This could be a great tool: “Okay, if you do this and I can read your responses, and I'm excited about the way you've structured your operation, then, okay, we'll help you.” Now I do have the ability to actually understand that set of information in a trusted way and that you're not actively trying to harm the market. So it could be an interesting screening tool for any sort of platform, but particularly blockchain ecosystems as well.

Jonah Van Bourg

Will this be public or private? Will the results live on Blockworks' website? I know it's live—

Yeah. It's officially live as of a couple minutes ago with the announcement. The responses will be fully available, so anything that the team replied to will be available for everyone to access. The framework itself is open source, so you can see all the questions and our view of the weightings. If you hate the weightings, then don't use them. All the full responses are there.

The intent of the weightings is, again, to give that very simplistic view: Can I, without reading multiple paragraphs on this protocol, just get a yes or no? Is it something I need to think more deeply about? If you score an A+, I'm not super concerned, and maybe I don't wanna read it all. The goal of the ratings is a simplistic view, but all of the detailed information and anything that the team responded with is fully available.

Jonah Van Bourg

Mm-hmm.

And to your point about the CoinGeckos of the world—

Jonah Van Bourg

And then where will the results live, Dan?

blockworks.com/tokentransparency.

Jonah Van Bourg

Cool.

That will all live there and be very easy to access. We're gonna continue iterating on that site as well, so it'll be even easier to access, but we do provide all the information there, publicly available today. And to your point about CoinGecko and whatnot using this as well, that's the intent of the open-source nature of this: everybody can leverage the responses however they deem worthy. Whether you're an investor or a product builder, there are a million different ways this could go, but we did want it—we view this as an industry good that is incredibly important and is the largest boulder that needs to be pushed uphill at this current point in time.

Jonah Van Bourg

Yeah. Felipe, how will this impact token prices?

I think that teams that are on it and score reasonably well—I don't think you need to score a perfect score or anything close to it—people who are scoring 60%–70% plus on these dashboards will have a token premium over time. You won't see it pop immediately, because the people this appeals to are liquid token funds, which are, in my view, the largest pocket of holding demand. They're not the largest pocket of buying demand on any single day, but they're the only pocket of capital with a mandate to hold for 3 years.

Every liquid manager that I know of values all these criteria and is frustrated by the current state of the market. Projects that disclose information will get a premium. I'm almost certain of that, as certain as you can be in financial markets.

Jonah Van Bourg

Yeah.

Felipe Montealegre

What I'll say is, if it's adopted across the whole market, I think we may also see additional inflows to the overall token market, because this is something that's holding back institutional capital, and Louis knows this better than anybody. But I've heard it in so many conversations.

To add to what Felipe was saying, I think in the short term, the subset of the token space that will benefit the most from this framework would be projects that have good fundamentals but, for whatever reason, haven't been able to communicate enough or haven't been able to communicate clearly about those fundamentals. They're drowning in the noise, in the narratives, in the hype of the crypto ecosystem.

By applying this framework to their own token, to their own project, and by putting it out publicly, they'll be showing institutional investors, liquid investors, and whale token holders the true nature of the fundamentals. I really think they'll be able to surface more easily from the noise and rise to the top in some sense.

Jonah Van Bourg

Who do you think gets upset with this?

I think it's gonna smash valuations for projects that are acting nefariously or really using tokens as a way to extract value from the market. There are a lot of those token projects, as we know, where they see the token as just a way to funnel money to their investors and themselves.

There are gonna be—I think we've already seen some people who don't like the framework already. And again, it's people that you'd expect, that I would expect, based on what I know about the way that they think about tokens or the way they think about making money off the current market structure. But it's important that we really haircut those valuations, because entrepreneurs follow price signals.

To the extent that you can become a multimillionaire by doing a token scam and doing all the things we talked about on this podcast, people will do that, right? People will follow that price signal and use the valuable resources of the industry—developers, VC capital, time, and narrative space—to launch these scam tokens. If all we do is send those tokens to zero, I think it'll be a huge net good for the industry, because it'll allow us to direct resources to the actual productive, product-market-fit parts of the industry.

Jonah Van Bourg

Guys, anything else? I know you guys have spent a lot of time on this, and a lot of hours have gone into it—a lot of thinking about this, a lot of conversations. Anything that you guys are excited about that we're missing, or relevant things that we haven't touched on?

If you're a project and you're looking at this and you're extremely excited and you wanna participate, we've got a link to apply on the website. Also, please feel free to DM either myself, Yano, Ryan Connor on our team, or Felipe and Louis. The 4 of us really put this together, and we're extremely excited about it.

The whole point is for the project to participate, right? If you're excited about it, please reach out and we will help you get onboarded. If you look at this and you're like, “Hey, this is great, but I have X, Y, and Z that I think can be tweaked or improved upon,” please let us know. Again, the goal of this is to make the industry a better place to build things and allocate capital. If we're not achieving that, then we're missing our goal. That's the point of this, and if you have feedback, we are all ears.

Jonah Van Bourg

Cool. Louis, Felipe?

I'm extremely open to feedback. Anyone in this space, apply to your project, share it around, comment, and reach out to us if you have any questions, if you disagree or agree. We'll be extremely open to discuss with every one of you.

Yeah. Likewise, I echo all of that, and I'll just say, encourage others to participate as well.

This means that people's actions hurt your valuation. So if somebody does a market-maker scam halfway around the world, it will impact your token's valuation because you get lumped in with them. To the extent that we can solve that with a credible signal like this framework, it helps your projects and your valuation. So encourage people to get involved.

Jonah Van Bourg

Cool. Felipe, Louis, Dan, great work on this. Everyone, give us feedback. You can probably just Google Blockworks Token Transparency Framework. It's all over our Twitters, and you can see it on our website, so go check it out. If you're a company or a project, go apply and submit the thing. If you're an investor, go take a look. Thanks, everybody.

Thank you.

Cheers.