Introducing The Token Transparency Framework

Transcript

[Music] uh 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 uh with a grass grassrootsled initiative of bringing more transparency into the industry that promised transparency nothing said on empire is a recommendation to buy or sell any investments or products this podcast is forformational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Block Works. Our hosts, guests, and the Blockwork Works team may hold positions in the companies, funds, or projects

discussed. All right, everyone. Welcome back to Empire. Very excited about this episode. It is rare to have three guests, so you know it's going to be a good one. We've got Dan Smith, head of data block at Block Works. We've got Felipe, CIO of Thea. And we also have Louisie, investment partner at L1D. Uh, very excited about this one. You guys might have seen on Twitter or Blockworks. Today 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 uh just a lack of transparency into tokens. We think that uh crypto is at this like really really really interesting inflection point where the industry, you know, it's 15

years old, 16 years old. We actually have a unique opportunity to go mainstream, pull in institutional capital. Crypto, you know, companies are IPOing, but there's this really, really, really big problem that we think is preventing the industry from going mainstream and from pulling in real capital, from building better and better businesses. And that's uh a lack of transparency into the token markets. And I think the four of us on this on this podcast think that tokens are clearly the future of of capital formation, but they can't move forward and they can't progress if we don't solve this big problem. So today, yeah, Blockworks in uh partnership with 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. So, the best place for this conversation is probably Felipe to kick it off with a conversation about the car market, uh, the token market and and lemons. So, Felipe, maybe I'd ask you to jump in and kind of just define the problem statement for us. Yeah, absolutely. Thanks for the question. Yeah, I know. Thanks for having me on. So, I think all of us on this call and many liquid funds, liquid token investors are concerned that tokens are becoming a lemon market. So the term love market is kind of a well-known term in in economics. It comes from a 1970s paper where one researcher uh Aurof realized that used cars were selling at really

low prices and even driving your car out of the out of the store would drop its price by 30 40%. And 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 you know this paper called cars that were kind of good quality and the owner was selling them because of something natural like a move or an upgrade or having children needing more car seats or a lemon uh which is a car that kind of came busted out of the manufacturer had constant problems and would be kind of a financial drag for whoever bought So because there was no signal to separate these two cars, what happened is everybody priced the every every used

car at kind of the average of lemons and peaches, right? Lemons being more valuable, peaches being less valuable. So think about the natural evolution of that market. If you are a peach owner, you see car market car market prices and they're very low and 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 me a lemon. And 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 and you're only left with lemons. So now I'm going to bring that to the token market. Tokens have all types of problems that that frankly equities don't have right now. Um and

tokens tokens are great. They're fantastic. You know, we're all in this industry to some extent because we love the possibility of tokens. But right now, in its current form, you know, if you're an investor in token, you have to deal with all these concerns like you know, you 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. And these are not theoretical. These are these are this lack of protection bites liquid investors all the time, right? you have um you have for example you have the concern of multiple tokens right if you if if if you back a founder early stage in an equity right if you back Jeff Bezos when he's opening a bookstore you get to benefit when he starts AWS and

that becomes the 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 kind of changes the world that way and that's story after story early stage investing it means benefit benefiting from future products. But in this industry, we often see teams launch a second token, right? And that's um that is adverse to investors in a way that actually can collapse the the math of of early stage investing. That's one problem. You have the problem of parasitic equities, right? Where um as a token holder, you don't know if cash flows will go to you or they'll go to equity holders, right? The famous case here, and I like to bring it up is uh Uniswap, right? 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. And I bring that up because UNISO is a great company. If they can do it, then it kind of gives you a it gives you a glimpse into what's going on in the market. If the best, you know, one of the best run, most wellrespected companies can send all of their revenue to equity holders. Um, you know, as a token holder, you can have founders sell OTC in a in a in an up market, become truly wealthy, you know, in liquid in liquid in liquid wealth, move to an island, and abandon the project. Again, it's not something that you see in in in regular markets. Um, as a liquid investor, you even begin to expect the unthinkable, right? Like you'll have

companies where uh you know wellrespected team they look good on paper they they speak well they'll send cash flow from the project to the foundation and then they'll build the foundation for small things you know a logo change advisory work and they'll build the foundation $5 $10 million that's $510 million that the team is siphoning out of the foundation into their own pockets. So again, this is all just things that are unthinkable in equity markets, right? You you just don't see it happen, but you see it happen in token markets all the time. And what that does is that it creates a token premium. So there's we all know the equity risk premium, it's about 5%, it has been for decades. I think the token premium is significantly higher.

As somebody who raises capital in token liquid token markets, I think the token premium is is closer to 20% or higher. And if you just follow the math, you know, 5% equity risk premium, 20% token token premium, you start looking at uh valuation discounts for tokens in the order of magnitude of 80%. Right? Which is very serious. So what is that doing? And I'll wrap it up here. If you are a good founder who has who is transparent, honest, and wants to build a generational business, you look at equity markets and you see a price. You look at token markets and you see an 80% discount. And that's the lemon problem.

you decide to stick with equity. You decide to launch equity, treat equity holders better. And that is a feedback loop where fewer and fewer good founders launch tokens and eventually the market can actually fall apart if we let this get out of hand. Can I try to summarize that maybe for people who aren't as familiar with the the market for lemons just and I'm going to try to do my best here. So, uh you've got like uh you've got a car seller, right? And in markets this what what you're describing is the problem of asymmetric information, right? where the seller knows the information, but the buyer doesn't really know the information. So, in in in this car market, you've got the sellers where they actually know more about the product quality than the buyers. And this is like used cars, right? Sellers know if a car is a is a

lemon, aka a bad car, or it's not. And because the buyer can't distinguish the quality of the car, only the seller knows the quality of the car. They offer they kind of say like if a good car was 20,000 bad a lemon's you know zero I'm going to offer$10,000 right so it actually pulls the average price of a lemon down of of a car down but what this does is there's actually cars that should be selling for $20,000 so they don't want to take this average price of $10,000. So that actually disincentivizes them to sell their car for $20,000. What you're doing is essentially driving out the high quality sellers. So then the high quality sellers leave the market. This actually only leaves the lemons, the low quality goods, i.e. adverse selection. So I

think what you're arguing is look, if we continue on the path that we're continuing, the token market's going to become a lemon market where you've got these really good founders building great things and they're going to say, "Oh man, like uh you know, this gets into your second part of your conversation about the discount. Oh man, I I mean, yeah, I've got this great token and great business. I'm generating cash flows and revenues, but 80% discount, this is a lemon market. I don't want to launch into a lemon market." So Dan, you're I see you kind of nodding your head and smiling. Agree. Yeah. Because it's even worse than how you described, right? Because it's not just like the person who owns the car, it's the person who's making the car in this analogy that has the information.

Uh and there's no format or tool for them to disclose that information. And so that's where we really saw sort of the opportunity lie here was like look, you know, if you go talk to any team that's like doing things the right way and building a great product and not trying to or like uh exerting effort to avoid all a lot of these scam techniques that Felipe has described. Um those people want a tool to explain, hey, here's what we're doing and like we just can't communicate this basic set of the information to the market uh because we don't have like a standardized format to do that. And that's exactly what we got excited about building. Um but to before we dive into that I think one interesting tidbit uh that really links to the valuation point here super early it's a little bit a lot of variables at

play here but if you look at circle's IPO right uh the the IPO price was about $30 $31 opening day the first quoted price was about $70 so already 2x above that uh the IPO price and then what three or four days after it was trading at 120 um and so maybe this is a good uh bit of a view into the world of like oh my gosh we have this you know this business that is stable Stable coins are all the rage right now. Maybe that participates in some of this premium here. But um it's not a token. It's an equity. I know I have the guarantees that I have for that reason. You know, maybe I'm willing to pay more for this than if you just like were only looking at the income statement. You might feel otherwise. Um so again, it's a very

small sample size here, but I think we're going to see more of these companies IPO when arguably they should be launching on chain and and participating in uh the financial markets that we all are setting out to build. So I think that's other like an interesting uh evidence towards Felipe's point here as well. Felipe, can you you mentioned uh 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 is 20%. Uh I think your line was token risk premium is 20% which leads to a discount of 80%. For those maybe unfamiliar with that math, can you can you walk us through what you're describing there? Yeah, absolutely. And and and I think that the broad point is

all capital competes um all assets compete with all assets for capital, right? If you are an institutional investor looking to invest in tokens, you you you're comparing that against real estate, equities, bonds, everything across the world and putting and kind of equalizing those opportunities, right? So equity um the math the math that you referenced Yo is uh think of a company that's growing 5%. You know long-term growth 5%. If the equity risk premium is 5% and the 10-year treasury is at four and a half then you need to earn a 9 and a half% return to be comfortable with that opportunity as an institutional investor right on average. So you have

5% growth. You kind of subtract that from the 9 and a half and so you you need a 4 and a half% cash yield because approximately cash yield plus growth give over a long period of time gives you your return on an investment, right? There's some factors around that, but that's bas basically the the way it shakes out over over many years. So if you need a five or four and a half% kind of cash yield that you you do one over the cash yield, sorry for all the math, you get to a price to earnings multiple of 22, right? That's that's kind of the the most high level way to think about pricing. If you do the same math with tokens, you need a 20% token risk premium plus 10-year Treasury of 4 and a half%. Right? That's a 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 kind of comparing the same company in equity and the same company in in stocks. And a 20% cash yield is a price to earnings multiple of five. So the 22 versus the five gives you the 78% discount which I said is an 80% discount. Yeah. Okay. So what you're saying is equity risk premium plus the is plus the treasury is the required return. Then you can subtract out the the earnings growth and that gives you the cash yield required by investors

which lets you back into this priced earning multiple. Okay. I see where you're going with this. Um okay. Okay. So, what you're arguing is tokens have a much higher cost of capital than equities because of all these structural issues, right? Um, let's let's I know you mentioned a few of them. You were mentioning the Amazon example and multiple tokens. Let's let's get a little closer into the weeds of uh some of these some of these issues. Uh Louie, just because you know, Felipe and Dan have been talking more. Louie, do you want to take some of the some of the structural issues of tokens right now? Sure. Uh definitely. Just before starting maybe one last thing that I will add relative to that lemon market uh I completely agree with Felipe all capital uh competes you know throughout the entire world apart when there's

either regulatory or like structural uh constraints in a sense and one thing that adds fuel to the fire in crypto is sort of like that VC bubble that we had in 2021 and VC funds invest in early stage private projects and you know the way they're structured their deployment schedule basically forces them to keep on investing in those projects and that grows even more the supply of those lemons that we have and those lemons all of them you know they have teams they have employees they want to go to market so all of them are competing in order to um go to market try to create value when maybe there's no value uh and often they do this with a lack of transparency

um I think the first part so moving to the main some of the main transparency structural problems that we have uh in this space uh that Filipe has covered quite extensively but that is related to you know overall project and uh you know team structure um I would say the main one uh that is sort of like you know close to my heart is the equity versus token relationship um you know for instance I I'll give an example um but I think this is one of the reasons Why, for instance, GameFi was killed is the fact that tokens are actually a great way to incentivize different types of

behaviors such as trading, such as using a product, such as doing many other things. But token holders generally most of the time they aren't entitled to receiving anything. Whereas equity holders, you know, there's rights, there's shareholder agreements, they're entitled to many things. And a lot of those gamefi projects what they were doing uh and a lot of different projects in the space have done the same thing but 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 stable coins 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 you know projects generating eight nine figures in revenues all those going to equity holders when the token is literally trending down to zero in terms of FDV and that is one thing that is super important. So as a token holder you want to know what are your rights what are you entitled to and same thing for the equity holders because you're maybe competing with them you want to know what the equity holders rights are and what they're entitled to. Maybe I'll stop here. Um, yeah. Yeah, if you want to add anything.

One interesting thing that Louis mentioned is is the is kind of the super bubble we had in in 2020 2021. And I think that's that's really relevant here because that that's how we got here, right? So, we're describing this kind of market structure that doesn't work. Um, you know, this idea that all capital competes with all capital. Exactly. The and the reason that we're here is because we did have a period in time right where most people in this industry made their money and most people who are kind of like industry veterans minted themselves as industry veterans where there was a massive super bubble around the world in every asset class you know in Trafy it's called the everything bubble and during that period tokens went up for 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 were zero and had been zero go for you know almost a decade with a small intermission and there was you know massive massive printing um and fiscal policy directed at people who would like to buy tokens and gamble on them essentially. So that we we kind of learned all the wrong lessons during the the initial period of of the industry when it comes to fundamentals and and and what happened is since then you know we've been in the market since then people have been waiting for another massive super bubble you know I think we hear about it less but for the past you know four years all in you know all all we

heard about was when's the next cycle that 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. And you know, I think 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 and and now it seems like only now we're asking the hard questions, right? Yo, Dan, both of you have been, you know, vocal about rev for for projects. um like basic fundamentals have have come into vogue vogue, you know, as a solution to this to this to the problem of of no buyers look at tokens recently and and now we're only now confronting these

questions. That's that's why we're here, right? Yeah. And even to give like a little bit of extra context to some of the points Lou was making as well about like the uh discrepancy between the token and the equity, I think we're seeing a lot of that start to change tune a little bit. uh you know you had Morpho just the other day I think it was uh the co-founder Paul put out a post that basically says you know today we're announcing that Morpho Labs is becoming a wholly owned subsidiary of the Morpho Association a share shareholder free entity um and even a couple days before that Mile Miles Jennings from A6Z put out a piece that was basically titled the the end of the foundation era right he's talking about how Dunas and Borgs which are two emerging legal structures basically help get you to that point

right because you still do need this off-chain entity to basically conduct business or like sign contracts and things of this nature. And that is that was sort of like why the foundation era existed, right? If you think back a couple years ago, you had the SEC that was saying the SEC at the time was saying, you know, come in and register, but they had no tools to be able to do so. Um, and now we're starting to actually see some of that shift, right? We have Hester Pierce writing uh the safe harbor pieces on you know what does it actually look like for a a you know builders in this space um that want to transition from a centralized entity into a decentralized one right so like you have this three-year grace period that she proposes where you have to follow certain uh rules and requirements

but that kind of can get you to that point right or you have the market structure bill working its way through uh the US Congress as well um and this is it that bill specifically touches very lightly on disclosure which is really what we wanted our framework to be like the focus of. Again going back to the core principle uh that we kind of had in mind the three of us was you know we wanted to give 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 because you know I think uh Louis said something similar to this earlier about the just the lack of trans transparency helping these projects right you know in my head I've always been calling this like the ability to profit off of ambiguity right

if you don't know anything about me like 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, right? But if we have this tool that allows you to communicate that, right, and we have some of the best projects in the space, you know, even with this first co cohort that we just launched with, super excited to have them on board, right? And you know, them putting their foot forward and saying, "Hey, we're doing the right things." And all we wanted was an ability to communicate that. Um, now, right, we have the ability for the peaches to to kind of show themselves, and that's we're really excited about. Definitely. Maybe one last thing on Morphos's example that I think is is very interesting. Uh and one last thing about this equity versus a token

relationship is basically the way we are right now is sort of like in a Schroinger's equivalent in that relationship. And basically what will happen is during a bull market you know tokens are going up. Everybody's happy. All the revenues go to the token. Tokens are pumping and you know nobody's really worrying about anything. Now during more depressed phases at least in the alcoin market when seven eight figs revenues are starting to matter that's when teams realize that actually they still have that equity component and maybe they will redirect all those revenues to the equity component instead of the token and I think what morph did is super interesting because they basically open the shortening box you know and you know

made sure that there's no more equity component and whatever happens all the value will go to the token. So, it's still, you know, something to monitor, but I think a lot of other teams will start looking at this um and maybe take it as an example. Yeah. Um guys, before we get into the solution, we're talking about a lot of problems here, and I you know, we will get into the solution in a second. I actually want to go a little more into the problem and I think uh uh I think that non I think that 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. So, um, maybe Felipe, I'd throw it to you to kick it

off and then, you know, Dan, Lou, I'm sure everyone's got stories here. I'm sure I can share some stories, too. But, um, there's a lot, right? Weak legal protections, opaque information, magnified principal agent problems. Tell me, these are kind of these like fluffy words. like what does this actually mean in practice and what have you guys seen on the ground? I'll start with some some stories just to paint paint the picture. Uh we we had one investment um that was a token trading at at $40 million of FTV. We h we helped them quite extensively, spent dozens of hours with them to bring them onto Salana. The project did well, started making about $40 million in cash flow, which as you can imagine is pretty good for a $40

million FTV investment. Uh one day we get a call from the team and they uh you know with a public release they tell us that they're leaving the token. You know our question is like what what do you mean you're leaving the token? Well they decided to take take the IP and out of you know away from the token and keep all the cash flow for for themselves. A team of four that is um that is not that unfamiliar to you to any of you on the on the on on the pod or the crypto natives. It's called rugging the token.

We have a term for it. Happens all the time. But that is unthinkable in public markets. There is no chance that Tim Cook would rug the Apple shareholders, right? It's not something not something they have to worry about. I'll give um one more example uh that actually turned out, you know, has turned out okay so far. Um A was looking at launching a real world asset um business line, right? and they uh there was talk on the forum about you know if you invest in a you're investing at kind of a higher than 20 times revenue multiple because you believe not because you believe they can take share in EVM market that exists today because they're already at 70% market share right so the whole growth

story is launching into additional market market markets and the whole growth story of the industry is real world assets and and you know internet capital markets and and bringing the whole the the whole world on chain. But if you were an a 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 a type of stressful situation you don't have to deal with as an equity investor. Now, that one resolved well. They uh public Mark Zelder publicly stated he would not launch a second token for the RWA business. You know, there's still some debate about what's exactly going on, but but that's one that that you know turned out okay. There's a lot of second

token stories that have not turned out okay at all. Right? Again, I mentioned it earlier. If you invested in unis swap, you you were thinking, oh, great business, great moat, majority market share in EVM, they'll find a way to monetize this, right? Most tech investors, that's how they think. You have a great moat, great business, you will find a way to monetize it. And they did find a way to monetize it with the front end. But as a union investor, and there are many union investors, you got zero dollars of revenue from the way that they figured it out. So I think again, Go ahead, Anna. Yeah, I was just going to say, so how many of these problems, Felipe, are due to Okay, so some I could uh some of these are due to I mean founders rugging the project like that should be in equities that would be

what's called illegal and they would get in trouble. Uh 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. So that's right. Yeah. Okay. Okay. That's that's right. And I'm I'm I'm actually, you know, 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 um You're not saying the founder should have been doing this the whole time. You're just saying these tokens are not that investable right now. If you're an institution, I'm not trying to bring shame on the founders. I'm just saying if this happens we can invest you know as somebody who's a steward of capital. Dan and Louis any other I mean things that

come to mind for me are like you know founder secondaries um like there I mean I I'm in the camp of founders should take secondaries but there are some who take such outside secondaries in the token markets that you know actually their project ends getting ends up getting killed forever. There's like these kind of backdoor market maker deals. I'm curious what what other stories come to mind for you? Yeah. Yeah. So about that one specifically, I think it's just all about communication, right? like the only people who will know that are the investors that participated in the round if there was a secondary and and you know I think that related party transactions are very common and to be disclosed in public markets and that's no different for in our mind here right so um even things around like disclosing your cash flows like if you sell a token

to the market or launch a token in that in that regard uh I think you have some level of uh requirement to say just again just to communicate to the to to your token holder base um there is this interesting line that you sort of need the thread, right? Because a lot of these teams have less than 10 people on them. And that's kind of the beauty of a permissionless capital formation is you can get to market much quicker at a much lower cost. And we're absolutely not trying to like say that's a bad thing or that shouldn't happen. Uh we're just trying to give the teams that are doing the right thing this tool, right? And so because 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. Uh it has just created a a sort of like this 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, you know, in traditional markets as an investor, uh, you're sort of just like being asked to say like, all right, what's the intrinsic value here? Uh, what's the, you know, how can I forecast that going forward? And it's really just this like numbersbased game. Of course, there's some like narrative pieces to this as well, but broadly that's what you're doing. Um, and while you have to do that also in token markets, you're sort of also being asked to be a ballerina in the middle of a minefield in the middle of a war zone.

uh because there's just landmines left and right of all these projects that are actively trying to scam you. Uh and that's the unfortunate reality. So that's kind of why I think this is so important and yeah on like more concretely and like what is the actual impact of that? Um I I think the whole foundation regime has been pretty interesting to see really get backlash now right I think earlier Felipe mentioned advisory billings to the foundation from the core team. So that's like specifically one of the things we we asked for requests for in this disclosure form as well. Um, another one I think that could also be interesting on this same vein as well is sort of just like uh I guess actually taking one step back that all basically just becomes accelerated investing schedules, right? If you say, "Hey, these tokens are with the foundation. They're like

out of the control of me as the founder and then I am like getting the shortened investing schedule by doing some like very small amount of work for a very large reward." Um, I think that's really what the problem here is as well. Uh and so yeah, we we're really pushing for related party transactions to be disclosed or any relationships between the equity and uh the foundation and the the dev development team as well. Yeah, Louie, anything that we're missing here? I think you know I think we've covered a lot of examples just maybe ju to I'm going to keep you hitting the the nail on the head, but to explain for you know those who may not exactly be familiar with what Dan was referring to. So the foundation uh billings thing generally what you have is you have um cryp crypto is a bit different uh than you know

normal public equity markets. So you'd have a foundation which is in charge of you know managing sort of like 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 which is you know devs founders who are working on a day-to-day basis to you know work on the code push some updates speak with the users build a front end etc etc and the thing is you know those two entities are roughly managed by people who are heavily connected And you can pretty much be paying yourself 15 $50 million worth of tokens per year that would go from the foundation to the labs for extremely minimal amount of work. As Dan was

saying, you know, just pushing a minor front-end update. And 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 with this framework, the quality. We just want to have more transparency. So just like public markets, it's more a question of uh disclosure over merit. Transparency fundamentals. Mhm. One more thing I actually want to add on this this vein real quick is um market makers and centralized exchange listings. So we've kind of not talked about this one and candidly I wish we could have pressed harder here but there's a lot of barriers we can get into on actually bringing this information to market. So uh whenever you launch a token uh it is

the liquidity largely relies on resides on centralized exchanges today. Um that is where the majority of the 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 uh and so a lot of the top tier exchanges have very aggressive or extractive requests say hey we'll list you but we need you know two to 5% of supply and you know large listing fees that you have to pay in cash. Um, and it's it's that information is not known to any of the public market as well, right? And so you'll get these uh supply schedules that don't even mention that because they're signed under NDA. Uh, and so that's like an interesting angle as well like, okay, we we want to push for disclosures on the centralized

exchange listing fees as well because in our conversations with projects and key players in the space, that seems to be a very meaningful pain point of where a lot of uh sort of abuse, let's call it, is happening. So that's one thing we want to focus on again on the centralized exchange listing side. But the other important piece of the the liquidity equation is your market maker. There's a lot of great market makers out there doing the right thing and like bringing projects liquidity. Um but there's also unfortunately a lot of uh market makers that are abusing that privilege. Um we've seen a lot of these examples recently where a project that is doesn't exist beyond a foundation and a token runs up to a multiundred billion dollar valuation and everyone's kind of looking at each other saying, "Guys, what the heck's happening?" And then

boom, all of a sudden one day you see a huge draw down 50 to 90%. And then you know it turns out like some documents will get leaked and you're like oh their market maker agreement ended and they had this crazy option uh token option involved in this and that's why it hit like this crazy step-wise pattern on the chart and everything starts to make sense. Of course that's after the fact when everyone who had touched that token is in tremendous pain. Um, and so actually getting that information to market and knowing the terms of these market makers or centralized exchanging uh, listings is something we certainly want to press harder on in the future.

Uh, but there's sort of like this spectrum of like don't let perfection be the enemy of good here. If I were to rate the industry on it's a current disclosure regime regime on a scale of 0 to 10, I would give it a negative two. And candidly, I think this this framework gets us well above zero, but it is far from 10 as well. Um, and so there's a lot of we can touch we can touch on why I think it's still not a tent and what needs to happen to get there, but we really wanted to take this approach of like let's build something iterative that we're really excited about that's doing the right thing. Uh, and then work on it in in prod as an industry, right? Because when we already see a change in tune 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 got to regulate you." If there's like like they come in like, "All right, show me what you And the answer is nothing. Uh I think it's going to be very hard to get a you know have a meaningful voice in that conversation. But if it's like hey here's where we're at and I think this is like you know 80% of the way there but we want to do like X Y and Z. Uh then I think you have like 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 and there's been a lot of success stories of self-regulation within an industry being for the net benefit of that industry.

And so that's what why we're really excited about this. Yeah. We're we're uh we're teasing out this token transparency framework obviously which we'll touch on in a second. I just got to tease it a little bit more. But before before jumping into it, let's talk about maybe how you guys thought about this. There's there's a bottoms up way and a top down way to do this. There's kind of like bottoms up would be like self-disclosure. Top down would be like, you know, you go to the exchanges or you go to the regulators and it's a mandated disclosure. Um how did you guys think about that? How did you think about this in relationship to like the market structure bill? Um, you know, you mentioned Hester Pierce a little bit.

Like, how did you think about this in in relation to that question of bottoms up versus top down and in relation to like what's happening right now on the regulatory scene? Sweet guys, I'll take a first pass at this one then. But, uh, 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, uh, people can say, okay, boom, we've got the disclosure for it. Let's take a look at this. Do we like this structure? Do we not? That is the goal, right? And I think Louie 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 grounds up. Um, and then additive to a lot of the disclos or the regulation that's moving through the US right now, right? So I mentioned the market structure bill earlier. There's a very very brief disclosures piece of that. It is a disclosures piece, but it's if it's like talking to investors and the three of us getting together like will this be sufficient if this was what was, you know, law tomorrow and the answer is overwhelmingly no. It doesn't get at a lot of these like uh areas of abuse that we've noticed just from being boots on the ground in the industry. And so Felipe, Louie, and Ryan Connor uh the four of us sort of got together and uh we said, "Hey, okay, like 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 let's like let's pretend as if we were going to do this and like let's go, you know, what's the process we'd have to run through. Um, and so basically the first step one was 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. And the overwhelming response was absolutely this needs to happen. Like how can we help? Like you've I've never felt the market pull something out of me personally like that before. It was just so obvious like okay this isn't just like a problem I see in my head in crypto Twitter like this is real. Um the amount people were like some like interesting quotes from those conversations were like you know I miss equities markets where I can just like

know if I'm not going to get rugged or and I'm short many names right now or this industry is becoming uninvestable and that's like huge red flags obviously. Uh so that's sort of like the demand side right like retail and investors. Uh the supply side is of course the projects themselves and this was where admittedly I was a little bit nervous of I was like okay like you know it's not that this is like a a huge thing but I'm still just like asking you to do something. U but we were very surprised by the well the the positive reception here from the project side because they 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. Like yeah you can write a blog post on you know like my project.blog.com blog.com,

but like if no one sees that, it doesn't really do you any good. And you can talk to investors and you can say all the things in the world, but just a central repository of these things is sort of what you need to be like boom, all right, everybody gets the same form from the same every project and has the same information in the same spots and that's sort of the unlock here. So to succinctly answer your question, from my view, it's like absolutely additive to US regulation. Um, and we're really excited about pieces like I think Hester Pierce wrote a great piece again on on safe harbor 2.0 And a lot of those ideas are certainly coming to life in this framework. And um yeah, certainly a grounds up or bottoms up approach where this is a self-disclosure framework um to kind of just help push the industry forward. And

and one thing I'll add uh as well uh I think like many things in crypto um we're true believers in in in open source. So you know Block Works will be using it. We're using it as investors. 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 wells, users, you know, simple retail. Uh, since there's no, you know, one source of truth, at least we're sharing some of some of that information. It may seem obvious for us investing uh in crypto on a on a daily basis, but, you know, if you're just uh a normal crypto user, you may not be you may not see the behind the scenes. 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 you know then share it on Twitter, 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 uh project with each other. Nice. Yes. Uh let's get into what the the transparency framework actually is. I feel like we're kind of teasing around it. So what what what is the token transparency framework Dan? Yeah. Yeah. Perfect. So, I feel like I just answered that question, so I'll try to do it succinctly here. But again, it's just an it's a tool for a project to commun communicate a basic set of information to the market and it's a lot of the

information that investors care deeply about. Um, and again, we have to try to thread this needle of if you created like this full gap accounting style disclosure regime, uh, nobody could do it because again, these are generally quite small teams that launch tokens. And that's a good thing. Like the fact that you can do that is a very core tenant of of of crypto. Um, and something we're excited about. So it's like all right you need to understand that the the supply side of the projects actually doing this is a burden. It takes time to execute on um but it's important and the demand side is like foaming at the mouth for this basically of like 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 less builders which is sort of this doom

loop. Um so again it's a it's just a framework that uh asks projects to disclose this basic set of information about themselves. It's broken up into four categories that we'll touch on. All right, before hold on before going into the categories, it is when you say it's a tool, is this a software platform? Is it a is it a Google form? Is it an Excel sheet? Like what is the what are they using? What is this? Yeah, great point. So, think of it as like a cryptonative S1 in some regard, right? So, like 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. You know, here's some basic information like a description of what we do and how we make money and things of that nature."

And so a lot of like that's the most uh if you needed like an analogy like that's that's the comparable is like when you launch a token ideally is when you would submit this form. Um and then a lot of this will be retroactive obviously because many tokens exist but uh that's basically the tool. So it's going to be like a form. Um the rubric sort of looks like this uh Excel doc basically or a large table. Cool. So they have a so maybe if you're a token project you would pull up this form and it will ask you a series of questions and at the end of the series of questions we're going to give you a grade or a score and then that score goes somewhere public for everybody to see something along those lines precisely yeah so there's a set of respon like I think it's officially 20

questions uh give or take one or two and each of those questions will require a response with like you know links so for example if it's like you know disclosure of supply schedule, right? You'll have to like actually provide that. Um, if you need to link out to like a docs or whatever, that's perfectly okay. Um, so you ask for these scores and then based on the response, you'll be there's like a scoring framework as well. So, for example, I think the first question is a disclosure or just a basic description of what the project does, right? And so like the scoring there is zero if you didn't respond, one if you responded. Um, and then some are a little bit more advanced, right? So like especially when you get into the market maker sections or the centralized exchange sections, you know, a lot of this is under NDA. So

it's like how do we like you can't you can't be punitive if the project physically cannot disclose this information. So each question is scored slightly differently and then in in aggregate those are rolled up to like a simple understandable grade and as Louis mentioned the entire framework is um open source so anybody can see the responses in full and if you don't like the way that we have we wanted to make this like useful for the industry and simplicity is super important right so if there was a full response with you know 20 different questions that all had long you know paragraph multi paragraph answers I don't think that would do as much as like hey you know project XYZ scored this and that's an Hey, like boom, now I know. I'm like, okay, I can just see one simple uh summary of their responses versus, you know, some people

like both. So, we wanted to provide both tools. Yeah. One thing I'll I'll add in terms of the weights themselves. So as Dan was describing the the the way we came up with those specific weights going from zero to three is just by by quering a very large database of of on one hand funds liquid funds in the space some PC funds as well and on the other hand a lot of the top builders top devs working at a at miscellaneous projects all over the crypto space and just aggregating uh the answers we got. So if one category has a three, it's that you know most people agree that it was probably the most important uh line item whereas some other categories are a bit less important and we'll get a one.

I think just just to add on to that quickly, the questions are mostly pretty basic, right? It's things like describe the equity token relationship. um you know describe what your can can you point to somewhere where investors can see your asset balance and your basic expenses at a high level. um you know things that are in in in the S1 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 basic expense profile of a company looks like describe you know represent whether or not your team members are are building the the foundation for additional compensation beyond your kind of salary and and

compensation describe whether your team members are selling OTC again things that we consider basic And why would someone answer that? Uh, 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, you know, this rating to rate you poorly, you're going to say, "No, they are not selling OTC." Well, we might wake up in a year and turns out they were selling OTC. So, how do you think about that? Um yeah, I think people can lie when it comes to, you know, one we try to get whenever possible, we try to get um actual onchain information, right? That's that's that's like label

your team wallets, see if they're selling. So that's that's kind of the the best case scenario here, right? But two, there's some some answers where people will 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 lie actively lie on a website that people go to for investment information is very different. So ideally, you know, most of the answers will be linked to onchain data where you can see team wallets, you can see expenses, you can see wallet balances.

That won't be always be possible. It certainly won't always be possible at the beginning. So, at the beginning, we're we're we are relying on teams to tell the truth. Um, I wouldn't lie about about my financial information to investors publicly, but if teams want to do that, then then they can go ahead and and we all we can do is do our best to to try to common sense check it. And one more thing on that is this is sort of like, you know, earlier I mentioned us being at a negative two and this getting us to maybe a three or four or five. Um, that that this is part of that, right?

And um I think a lot of getting that is out of like 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. Um and then one other thing that I think is super important that will, you know, we have to kick the can on as an industry as on the future and see if it's a good idea and just kind of publicly discuss this is this is a one-time filing today, but uh in Safe Harbor, it talks about Hester Pierce's Safe Harbor proposal talks about like a six-month update, right? it's every six months you sort of have to like redo this you know their their form that you discussed in that post but that same logic can be applied here where you sort of have to do this every six months um

it's not extremely tedious but and many of things won't change every six months but I think it is important to kind of get to that end state but again you know we're pushing a massive boulder uphill right now and don't let perfection be the enemy of good and like let's just take progressive steps forward uh but just yeah I agree I think over the long term we certainly need to continue iterating and improving yeah the way that I think about this is um reputation ation. It starts with reputation and it eventually ends up being law if this is successful. And you you don't just jump something into uh law. Like you actually have to start like Dan said, write a negative two. Like you don't go from a negative two to a 10. Like so if you file on your S1 and you lie about your

um your revenue or you know and you hire an audit firm who you pay off or something like that is illegal. If you raise money and you're raising your series B and you lie about your user base, your VCs, that that is illegal. Um, if you are getting acquired and you sell your company to an acquirer and you lie about the financials, that is illegal. But you don't it didn't actually jump to being illegal at the beginning. It actually starts with reputation. And so what I kind of my vision for this thing is, yeah, we're at a negative two. We're going to go to a three, a four out of 10, five 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 I mean you can basically like say

whatever you want on in tweets. And I often times I'll see I mean I think the four of us will see founders who we know they're lying white lying like kind of misconstring information but like what are you g I mean what are you what are you going to do basically? And so like you can't really come after them legally, but what like their reputation actually doesn't really get burnt by it. But once you have something like this, which which is an industry-wide framework, you can say, "Hey, look, you know, in May of 2024, you submitted this thing about your market makers. Well, now as this is coming out, you I mean you it was clear that you were lying and this is uh you know, your reputation like you you'll never be able to raise capital again. You'll never be able to

hire a team again." So it starts with we've tried to make you know those criteria as quantitative as possible but obviously a lot of them you know may be internal or non-transparent information but generally if you add different sources such as onchain as Felipe mentioned other investors angels etc you just need one guy to have the information to call them out. It's it's it's information that is quite easy to verify as soon as you have it. So the sum of all those generally gives that aggregated score which shouldn't be too off in terms of transparency. And think about it at the end of the day it's the

type of framework that we use us as investors on a daily basis to assess projects. So generally down the line this also translates in in price at some point on a long enough time frame. The projects which rank well or very transparent and show that they have strong fundamentals if they do have fundamentals will tend to trade at higher prices than the ones who are non-transparent and will have that uh discount because there's more risk associated with the the lack of certainty around the the transparency of that information. Yeah, Dan, walk me through the four categories maybe and then the sub questions inside of the categories and how you guys how the scoring and the waiting actually work.

So walk me through how the model actually works here. Yeah, good question. So the four categories uh we try to make these as like the four kind of like areas of you know what the project ultimately comes together to be and what's important to to to investors and that the categories that team should be wanting to disclose to the market. So project and team is one, token supply and allocation is two, transactions and market structure is three and financial disclosure is four. Uh and so maybe just like working down those order, we can talk about each of these things. And we've kind of like touched this na on this naturally going through the the the problem statement, right? We're basically putting the problem statement into a set of criteria. Uh so on the project project and team piece, uh there's some simple responses for uh

descriptions of the project and what the revenue streams will be. Uh and again this is an interesting one where adding in this like six-month update is really interesting because when you launch a project and even you know Jason you has block works let's say uh what you made money from on day one is probably not what you make money from eight years later right and so I think it is again important to trend towards this uh m the the the update period as well um within this section as well we have things like equity and token relationship and team and foundation relationship. So again, we've we touched on both of those problems earlier, but just giving the opportunity to communicate that. Um, and so on the framework specifically, the scoring here, let me just pull this over, but the scoring basically works as again for the simple description piece.

Zero if you didn't respond, one if you responded, super straightforward. Uh, but then it gets a little bit more complex on some of the tougher to answer questions, right? So like the equity and the token relationships. Um, if there's like direct competition for the uh value acrruel from the operations of the protocol or the project, then that would that would rank you lower on this spectrum. Or if there's like no response or if it's super unclear where the rights of the project actually live, again, that would score you a lower. um where if like rights and value acrruel and the differences between token and equity holders are clearly and explicitly defined um within the constraints of of existing regulations and maybe like actually point to things such as you know uh you know we don't plan to return cash flow to the to the

equity ever. Uh so if like even you're not saying you're going to return it to the token, but you are saying the cash flow of the operations of the the protocol will not go to the equity. Um whether that's to like share repurchases or dividends um as a whole or if you do something that we're starting to see a little bit more of where it's like there is no equity entity that's obviously sort of the best end state as well. And then so based on that uh each category has a different weight depending on the importance right so in this example simply disclosing a simple description of your project would score you less points than a detailed explanation of the uh token token and equity relationship. Uh and then so basically each of these categories can be subscored and rolled into a total transparency score. And Louie did a

great job hitting on this earlier but I just want to double down on it. This is not a value judgment of like good project, bad project or doing the right things, wrong things type thing from a like a business perspective. It is simply like a a transparency score. So how transparent is the information for investors to go get their hands on. Um so you you'll definitely get more uh rewarded heavily in our rating system if you um you know have everything on chain and invisible for example. Um or even using like a a real trusted custodian is like an acceptable end state in in this the current iteration of the framework. Um, and so that's just one thing I really want to drive home is we're not trying to create a value judgment sheet.

That's just not the intent of this. These aren't valuations, right? We're not saying this, you got a 98 on this, you're you're a go buy your token and you got a 70 and you know, short that token or something. We're just saying you could have a horrible business that has a very transparent piece to it and it's just like run terribly and it's in a terrible subsector. But that doesn't mean it's a great buy, right? That's not the intent of this that like we Good. I was going to say and and the reason for that is because, you know, we're we're, you know, it's it's kind of four of us in the project. We're not trying to dictate what the market um like wants or what the market deserves or anything like that. Like I know you said earlier that you were in favor of

teams selling OTC, right? But not too much. And I think we could argue about that for an hour where some people would say teams shouldn't sell OTC at all. Some people would say teams can sell whatever they want OTC, you know. And our answer with the 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 where the market punishes you punishes your token valuation and see where it doesn't. Right? So markets work when you have symmetric information and the whole lemon problem comes from just a lack of a and the best and the best example of this is uh people I just saw a headline it's like Jeremy or sorry not Jeremy Lair Circle executives selling circle shares or something like that and um and

you know we've published similar things like Coinbase executives p selling Coinbase shares that's 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 It's just you legally have to disclose that and that's that's what we're trying to get to. Um and so just to run I'm not going to say all of them but maybe to paint a better picture than like oh they gave us their description or not of their company would be like um future and related token launches. So one of the 20 things would be future and tok related token launches. A zero would be language around new tokens is vague, non-committal or missing entirely. A one would be plans around additional tokens are defined clearly. And number two or and getting a two out of two would be team represents it will not launch

additional tokens. And then the waiting of that uh we put a two. So if you got a one multiply that by two you're going to get a two score. If you got a two you got a multiply that by two you get a four score. That is that correct? Uh without the multiplication piece really right. So you can just score up to two points because that's like a a medium. Yeah. Yeah. But but directionally exactly that. Right. So you score up to two points. Um, you know, again, and so like a lot of this hits on exactly the problems we mentioned earlier and and one of those was, hey, you know, we've built this great product and now we're going to go launch three more tokens.

It's like, oh gosh, well that's cool, but you know, the the premise is this was the future operations of the of the protocol as a business, not just this one product line. Um, so that's just important for investors to know. Yeah. Um, what do you guys hope happens here? What's the best case scenario that happens here? Yeah, I think the the best case scenario is the project's doing the right thing. See this as the opportunity to, you know, showcase that they're doing the right thing. Um, and a lot of them are to be completely candid. A lot of them are. Uh, we've spoken to many of them and we're working to get everybody on board here. Uh, and all the credit in the world to the the first adopters here. They kind of had to be the ones to to take the leap of faith here and, uh,

kind of push the industry forward because that's that's the crux that we're in. Uh, 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 uh with a grass grassrootsled initiative of bringing more transparency into the industry that promised transparency so for me the success story is not only do the projects get excited about it but sort of those third party entities that I was mentioning earlier uh that 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 make it better I'm sure it's you know not perfect again I think we want to

trend towards at 10 out of 10. Um where where are the shortcomings? So it's like sort of like a call to action for all of the crypto community as well. Um do you think these are the right questions and if not like this is an open source framework that we should iterate on together and um help push it forward. So market makers and exchanges as well certainly a call to action there. Yeah. Do you think um yeah Felipe go ahead? I was going to say for for me I I agree with Dan. My measure of success would be that in a year if you asked a liquid fund who had never seen this uh you know who are the good actors in terms of token holder um transparency who are the bad actors and they give you a list and then you looked at this framework it

would separate it out just the same way and I think that's that's kind of what we're seeing already where um 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 you know the the uh opaque asymmetric information discount. So they're very enthusiastic and eager to participate to show that they are not lemons, they are peaches, you know that they will score well in this dashboard. So hopefully in a year we have all all the good projects participating and not not participating is a sign in itself. Yeah. One thing that I was thinking could happen is like imagine you pull up Coin Gecko and um so what's obvious what will obviously happen to me here is all the good projects are going to submit themselves

because if you're if you're the founder of a good project right now or a transparent project you're actually extremely frustrated because 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 like why does the market not get this and this token transparency framework is going to separate the peaches from the lemons so the peaches are going to the maybe to extend the analogy to stop using peaches and lemons, the the good the good tokens and the transparent tokens and teams are going to actually submit. Um I'm I'm almost imagining like Coin Gecko and Coin Market Cap and Block Works Research and you know all all these anywhere you look to go check like your prices uh DeFi Lama wherever it is it's uh it's like almost green if it they've gone

through the token transparency framework and it's just red or something like that or it's got a blue check mark if they've done it, red if it's not. I'm also thinking about, you know, we've brought this up with a few exchanges and I think the response has been very very positive where exchanges say, "Hey, we have no idea what to list like just no no clue what to list anymore. What if you used the token, you know, folks who have gone through the token transparency framework, what if that becomes a listing standard?" And by the way, which is not a crazy idea because the S1 is a required uh listing process, part of the listing process for going, you know, live on New York Stock Exchange or NASDAQ. Another interesting one as well is think if you're building an ecosystem, right? Is if you're like a

any any type of platform, let's use just a blockchain as the easiest example here. You want to help teams building on you. Uh but the worst case scenario or the fail state for you is you unintentionally aid and embed a scammer in that process. uh and this could be a great tool of like okay I can if you do this and I can read your responses and I'm excited about the way you've structured your your um you know your operation then like okay we'll help you because now I do have that ability to uh actually understand that set of information in a trusted way that um you know you're not actively trying to harm the market and so it could be an interesting screening tool for any sort of platform but largely blockchain ecosystems as well um will this be public or private so let

so will Will the results of these live on is it going to live on Blockworks's website? I don't officially live as of a couple minutes ago with the announcement. So it will the responses will be fully available. So anything that the team replied uh that will be available uh for everyone to access. The framework itself is open source so you can see all the questions and and our view of the waitings. Uh if you hate the waitings then don't use them. The all the full response is there. the the intent of the waitings is like to again to give that very simplistic like okay can I without reading you know multiple paragraphs on this protocol like just give me a yes no like is it something I need to think deeper of right if you score an A+ not super concerned and maybe I don't want to read it all so

that 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 and we and to your point about like the coin geckos and the where will the results live Dan uh blockworks.comtokenparency Cool. So that will that will all live there. It be very easy to access. Um we're going to continue iterating on that site as well. So be even easier to access, but we do provide all the information there publicly available today. Um and to your point about Coin Gecko and whatnot using this as well, like that's the intent of the open source nature of this is that everybody can leverage the responses for however they, you know, deem worthy. Whether you're an investor, whether you're a product builder, there's a million different ways this could go, but we did want it like that. We view this as like

an industry good that is incredibly important and is the largest boulder that needs to be pushed uphill at this current point in time. Yeah. Um Felipe, how will this impact token prices? I I think that teams that are on and score reasonably well, I don't think you need to score a perfect score or anything close to it. people who are scoring kind of 60 70% plus on these on these um dashboards will have a token premium over time. And you won't see the you won't see it pop immediately because the people that this appeals to is liquid token um funds, right, which are in my view the largest pocket of holding

demand. They're not the largest pocket of buying demand in any single day, but they're the only pocket of capital with a mandate to hold for years. Every liquid manager that I know of values all these criteria um and is frustrated by the by the currency of the market. So projects that disclose information will get a will get a premium. You know, I'm almost certain of that as certain as it can be in financial markets. What I'll say is if it's adopted across the whole market, I think we may also see additional inflows to the overall liquid token market because this is something that's holding back institutional capital. And you know, Louisie knows this better than anybody, but I've heard it in so many conversations.

Yeah. to to add to what Felipe was saying, I think in the short term, the group of the subset of 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 and are drowning in the noise in the narratives in in the hype of the uh of the crypto ecosystem. you know, 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, whale whales token holders the true nature of the fundamentals, and I really think they'll

be able to surface more easily the noise and, you know, rise rise to the top in in some sense. Yeah. Who who do you think gets upset with this? I think it's going to smash valuations for for projects that are acting nefariously or or really using tokens as a way to extract value from the market. Um and there are a lot of those token projects as we know where they see token as as just a way to funnel money to their investors and themselves. And um you know they're going to be I think we've already seen some people who 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 token or the way they think about um you know,

kind of making money off the current the current market structure. But it's important that we that we really haircut those valuations because you know entrepreneurs follow price signals. And to the extent that you can become a multi-millionaire by doing a token scam and and and doing all the things we talked about in this podcast, people will do that, right? people will follow that price signal and kind of use the valuable resources of the industry and by resources I mean kind of developers VC capital time um narrative space to launch these scam tokens. So if we can 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. Guys, anything? I know you guys have spent a lot of time on this and lot a lot of hours have gone into this, a lot of thinking about this, a lot of 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 want to participate, we've got a link to apply on the website. Um, and also please feel free to DM either myself, uh, Yano, uh, Ryan Connor on our team as well, or Felipe and Louie.

please, the, you know, the the the four of us really put this together and we're extremely excited about it. Um, but the whole point is is for the project to participate, right? And and so if you're excited about it, please reach out and we will help you get on boarded. Um, and if you look at this and you're like, hey, I this is great, but I have like X, Y, and Z. I think we can be tweaked or improved upon or please let us know. Again, this is the goal of this is to make the industry a better place to build things and allocate capital. And if we're not achieving that, then we're we're missing our goal. So that's that's the point of this. And if you have feedback, we are all ears. Cool. Louie, Felipe, extremely open to feedback. So, you know, anyone in the space, you know,

apply to your project, share it around, comment, uh, reach out to us if you have any questions if you disagree or agree and we'll be extremely open to discuss uh, with every one of you. Yeah, likewise, echo all that and I'll just say, you know, encourage others to participate as well. The lemon problem does not only this means that people's actions hurt your valuation. So if you if somebody does a market maker scam halfway around the world, it will impact your tokens valuation because you get lumped in with them. Um to the extent that we can solve that with a credible signal like this framework, it it helps your projects, your valuation. So encourage people to get get involved.

Cool. Felipe, Louie, Dan, great work on this. Uh everyone give us feedback. uh just you can probably just Google Blockworks token transparency framework. It's all over our Twitters. You can see it on our website. So go check it out. If you're a company, go you know apply or a project go apply and uh submit the thing. And if uh you're an investor, go take a look. So thanks everybody. Thank you. Cheers. [Music]