Introducing The Token Transparency Framework With Dan Smith, Louis T and Felipe Montealegre

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.

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. All right, everyone, welcome back to Empire. 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. 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 Crypto's 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 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 a lack of transparency into the token markets. And I think the four of us 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 partnership with some other folks as well, launched the Token Transparency Framework. I wanted to have Louie, 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, the token market, 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, Ian. Thanks for having me on. So 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. So the term lemon market is kind of a well-known term 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%, 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 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 and needing more car seats, or a lemon, 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 it. So because there was no signal to separate these two cars, what happened is everybody priced the— 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 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 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. This lack of protection bites liquid investors all the time, right? You have, for example, you have the concern of multiple tokens, right? If you back a founder 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 kind of changes the world that way. And that's story after story. Early-stage investing, it means 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 early-stage investing. That's one problem. You have the problem of parasitic equities, right, where 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 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 Uniswap is a great company. If they can do it, then it kind of gives you a glimpse into what's going on in the market. If the best, you know, one of the best-run, most well-respected companies can send all of their revenue to equity holders, you know, as a token holder, you can have founders sell OTC in an upmarket, become truly wealthy, you know, 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, well-respected team, they look good on paper, 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 $5-10 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 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 closer to 20% or higher. And if you just follow the math, you know, 5% equity risk premium, 20% token premium, you start looking at valuation discounts for tokens in the order of magnitude of 80%, right? Which is very serious. So what is that doing? I'll wrap it up here. If you are a good founder 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 familiar with the market for lemons? Just— and I'm going to try to do my best here. So You've got like a, you've got a car seller, right? And in markets, this, 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 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, look, 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 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, you know, this gets into your second part of your conversation about the discount. Oh man, 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, Daniel, I see you kind of nodding your head and smiling.

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 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 could talk to any team that's like doing things the right way and building a great product and not trying to, or trying, like exerting effort to avoid all a lot of these scam techniques that Felipe has described, 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 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, you know, a lot of variables at play here. But if we 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, 3 or 4 days after 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 I, you know, this business that is 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 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 going to 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 other, like, an interesting, uh, point of 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 For those maybe unfamiliar with that math, can you walk us through what you're describing there?

Yeah, absolutely. I think that the broad point is all capital competes, all assets compete with all assets for capital. 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 equalizing those opportunities.

Right.

So equity, um, the math, the math that you referenced, you know, 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 4.5%, then you need to earn a 9.5% 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 9.5 And so you need a 4.5% cash yield because approximately cash yield plus growth over a long period of time gives you your return on an investment, right? There's some factors around that, but that's basically the way it shakes out over many years. So if you need a 5 or 4.5% kind of cash yield, that you do 1 over the cash yield— sorry for all the math— you get to price your earnings multiple of 22, right? That's kind of 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 4.5%, 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 stocks. And 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.

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. Okay, 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, just because Felipe and Dan have been talking more, Louis, do you want to take some of the structural issues of tokens right now?

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, you know, throughout the entire world, apart when there's either regulatory or like structural 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 go to market, 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, so moving to some of the main transparency structural problems that we have in this space that Felipe has covered quite extensively, but that is related to overall project and team structure. I would say the main one that is sort of like close to my heart is the equity versus token relationship. You know, for instance, I'll give an example, 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, 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 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, 9 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. 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, um, 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 TradFi 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 zero and had been zero for, you know, almost a decade with a small intermission. And there was, you know, massive, massive printing and fiscal policy directed at people who would like to buy tokens and gamble on them, essentially. So 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, 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, 4 years, all, 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 now it seems like only now we're asking the hard questions, right? Yeah, I know, Dan, both of you have been vocal about REV, revenue for projects. Like basic fundamentals have come into vogue, you know, as a solution to the problem of no buyers for liquid tokens recently. And now we're only now confronting these questions. That's why we're here, right? Yeah.

And even to give like a little bit of extra context to some of the points Louis was making as well about like the, discrepancy between the token and the equity. I think we're seeing a lot of that start to change tune a little bit. You know, you had Morpho just the other day. I think it was 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 shareholder-free entity. And 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? 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, um, 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, uh, you know, come in and register, but they had no tools to be able to do so. And now we're starting to actually see some of that shift, right? You have Hester Peirce writing the Safe Harbor pieces on, you know, what does it actually look like for a, you know, builders in this space that want to transition from a centralized entity into a decentralized one, right? So like you have this 3-year grace period that she proposes where you have to follow certain 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 the US Congress as well. Um, and this is— it just— that bill specifically, uh, touches very lightly on disclosure, which is really what we wanted our framework to be like the focus of. Um, 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 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, all 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 cohort that we just launched with, super excited to have them on board, right? And you them putting their foot forward and saying, hey, we're doing the right things and all we wanted was an ability to communicate that. Now, right, we have the ability for the peaches to just kind of show themselves and that's what we're really excited about.

Definitely. Maybe one last thing also on Morpho's example that I think is very interesting. And one last thing about this equity versus token relationship is basically the way we are right now is sort of like in a Schrödinger'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 altcoin market, when 7, 8 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 Morpho did is super interesting because they basically opened the Schrödinger's 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 and maybe take it as an example.

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 and I think 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 trad fi and you're listening to this, you would be astonished by what actually happens behind closed doors. So, um, maybe Philippe, I'd throw it to you to kick it off. And then, you know, Dan, Louis, 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 stories just to paint the picture. We had one investment that was a token trading at $40 million of FTV. We helped them quite extensively, spent dozens of hours with them to bring them onto Solana. The project did well, started making about $40 million in cash flow, which as you can imagine is pretty good for a $40 million FDV investment. One day we get a call from the team and they, you know, with a public release, they tell us that they're leaving the token. You know, our question is like, what do you mean you're leaving the token? Well, they decided to take the IP away from the token and keep all the cash flow for themselves, a team of 4. 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's 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. Aave was looking at launching a real-world asset business line, right? And they, uh, there was talk on the forum about, you know, if you invest in Aave, 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, market, markets. And the whole growth story of the industry is real-world assets and, you know, internet capital markets and, and bringing the whole, 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. Now, that one resolved well. Mark Zeller 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's a lot of second token stories that have not turned out okay at all. Again, I mentioned earlier, if you invested in Uniswap, you were thinking, oh, great business, great moat, majority market share in EVM, they'll find a way to monetize this. 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 frontend. But as a union investor, and there are many union investors, you got $0 of revenue from the way that they figured it out. So that's again— go ahead, Yano.

I was just going to say, so how many of these problems, Felipe, are due to— okay, so some I could— some of these are due to, I mean, founders rugging the project. Like, that should be inequities. 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. That's right. Yeah. Okay.

That's right. And I'm actually, when I see 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 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 institutional—

I'm not trying to bring shame on the founders. I'm saying if this happens, we can't 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. Like, I mean, I'm in the camp of founders should take secondaries, but there are some who take such outsized secondaries in the token markets that, you know, actually the project ends up getting, ends up getting killed forever. There's like these kind of backdoor market maker deals. I'm curious, what other stories come to mind for you?

Yeah, it's 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, you know, I think the 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 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, I think you have some level of requirement to say, just again, just to communicate to your token holder base. There is this interesting line that you sort of need to thread, right? Because a lot of these teams have less than 10 people on them. And that's kind of the beauty of 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. 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. It has just created, created 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, you're sort of just like being asked to say like, all right, what's the intrinsic value here? What's the, you know, how can I forecast that going forward? And it's really just like numbers-based game. Of course, there's some like narrative pieces to this as well. But broadly, that's what you're doing. 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, because there's just landmines left and right of all these projects that are actively trying to scam you. And that's the unfortunate reality. So that's kind of why I think this is so important. And then, yeah, I'm like more concretely and like, what is the actual impact of that? I think the whole Foundation regime has been pretty interesting to see really get backlash now, right? I think earlier Felipe mentioned advisory billing to the foundation from the core team. So that's like specifically one of the things we, we ask 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 vesting 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. I think that's really what the problem here is as well. And so yeah, we were really pushing for related party transactions to be disclosed or any relationships between the equity and the foundation and the dev development team as well.

Yeah.

Louis, anything that we're missing here?

I think, you know, I think we've covered a lot of examples. Just maybe, I'm gonna keep hitting 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 billings thing, Jenny, what you have is you have— crypto is a bit different than normal public equity markets. So you'd have a foundation which is in charge of 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 devs, founders who are working on a day-to-day basis to work on the code, push some updates, Speak with the users, build a frontend, et cetera, et cetera. And the thing is, those two 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 extremely minimal amount of work, as Dan was saying, you know, just pushing a minor frontend 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 disclosure over merit. Transparency, fundamentals.

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 and actually bringing this information to market. So whenever you launch a token, it is— the liquidity largely relies on— resides 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. Uh, and so a lot of the top-tier exchanges have very aggressive or extractive, uh, requests, say, hey, we'll list you, but we need, you know, 2 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 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 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. But there's also, unfortunately, a lot of market makers that are abusing that privilege. 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 multi-hundred 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 drawdown, 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 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. And so actually getting that information to market and knowing the terms of these market makers or centralized exchange listings is something we certainly want to press harder on in the future. 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 its current disclosure regime, regime on a scale of 0 to 10, I would give it a -2. And candidly, I think this, this framework gets us well above zero, but it is far from 10 as well. And so there's a lot we can touch on. 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 of like, 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 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 got, and the answer is nothing, uh, I think it's gonna 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, 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 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 why we're really excited about this.

Yeah, we're, we're teasing out this token transparency framework, obviously, which we'll touch on in a second. 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 Peirce 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 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 grounds up, um, and then additive to a lot of the disclosure 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 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, Louis, 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 go, 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 never, 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. The amount of 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 I'm short many names right now or this industry is becoming uninvestable. And that's like huge red flags, obviously. So that's sort of like the demand side, right? Like retail and investors. 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 huge thing, but I'm still just like asking you to do something. But 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. Like, yeah, you can write a blog post on, you know, like myproject.blog.com, but 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 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. And, um, yeah, certainly a grounds-up or bottoms-up approach where this is a self-disclosure framework to kind of just help push the industry forward.

And one thing I'll add as well, I think like many things in crypto, we're true believers in open source. So, you know, Blockworks 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 whales, users, you know, simple retail. 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, you know, if you're just 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 project with each other.

Nice.

Yes.

Let's get into what the transparency framework actually is. I feel like we're kind of teasing around it. So 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 a— 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. And again, we have to try to thread this needle of If you created like 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. It's something we're excited about. So it's like, all right, 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 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 4 categories that we'll touch on.

Oh, 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 crypto native S-1 in some regard, right? So like when a company goes public, they have to fill out a, 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. I was 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 gonna 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 response, like I think it's officially 20 questions, give or take 1 or 2. 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 the supply schedule, right? You have to like actually provide that. If you need to link out to like a docs or whatever, that's perfectly okay. 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 0 if you didn't respond, 1 if you responded. And then some are a little bit more advanced, right? So like especially when you get into the market maker sections of the centralized exchange sections, A lot of this is under NDA, so it's like, how do we— like, you can't be punitive if the project physically cannot disclose this information. So each question is scored slightly differently, and then in aggregate, those are rolled up to like a simple, understandable grade. And as Louis mentioned, the entire framework is 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 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 A, like, boom, now I know. I'm like, okay, I can just see one simple summary of their responses versus, you know, some people like both. So we want to provide both tools.

Yeah. One thing I'll add in terms of the weights themselves. So as Dan was describing, the way we came up with those specific weights going from 0 to 3 is just by querying a very large database of, on one hand, funds, liquid funds in the space, some VC funds as well. And on the other hand, a lot of the top builders, top devs 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 that 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.

I think just to add on to that quickly, the questions are mostly pretty basic, right? It's things like describe the equity token relationship, you know, describe what your— can you point to somewhere where investors can see your asset balance and your basic expenses at a high level? You know, things that are in the S-1 world would be considered just the bare necessities. If you're investing, you want to be able to see what the basic balance sheet, basic expense profile of a company looks like. Represent whether or not your team members are billing the foundation for additional compensation beyond your salary and compensation. Describe whether your team members are selling OTC. Again, things that we consider basic. And—

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. Well, we might wake up in a year and turns out they were selling OTC. So how do you think about that?

Yeah, I think people can lie when it comes to You know, one, we try to get whenever possible, we try to get actual on-chain information, right? That's like label your team wallets, see if they're selling. So that's kind of the best case scenario here, right? But two, there's some answers where people will 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 on-chain data where you can see team wallets, you can see expenses, you can see wallet balances. That won't always be possible. It certainly won't always be possible at the beginning. So at the beginning, we are 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 all we can do is do our best 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 -2 and this getting us to maybe a 3 or 4 or 5. This is part of that, right? And 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. 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 in 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 in Safe Harbor, it talks about Hester Pierce's Safe Harbor proposal, talks about like a 6-month update, right? So every 6 months you sort of have to like redo this, you know, their, their form that she discussed in that post. But that same logic can be applied here where it's you sort of have to do this every 6 months. It's not extremely tedious, but many things won't change every 6 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. But 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 reputation. It starts with reputation and it eventually ends up being law if this is successful. And you don't just jump something into law. Like you actually have to start— like Dan said, we're at a -2. Like you don't go from a -2 to a 10. Like, so if you file on your S-1 and you lie about your, 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. 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. So what I kind of my vision for this thing is, yeah, we're at a -2. We're going to go to a 3 or 4 out of 10, 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— I mean, you can basically like say whatever you want on in tweets. And I oftentimes 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 misconstruing information. But like, what are you going to— 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 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, I mean, it was clear that you were lying. And this is, you know, your reputation. Like, you'll never be able to raise capital again. You'll never be able to hire a team again. So it starts with reputation.

We've tried to make those criteria as quantitative as possible, but obviously a lot of them may be internal or non-transparent information. But generally, if you add different sources such as on-chain, as Felipe mentioned, other investors, angels, etc., you just need one guy to have the information to call them out. 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 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 who are not transparent and will have that discount because there's more risk associated with the lack of certainty around the transparency of that information.

Yeah. Dan, walk me through the 4 categories maybe, and then the sub-questions inside of the categories and how you guys— how the scoring and the weighting actually work. So walk me through how the model actually works here.

Yeah, good question. So the 4 categories, we try to make these as the 4 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 a 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 now on this naturally going through the, the, the problem statement, right? We're basically putting the problem statement into a set of criteria. So on the project and team piece, there's some simple responses for descriptions of the project and what the revenue streams will be. And again, this is an interesting one where adding in this like 6-month update is really interesting because when you launch a project and even, you know, Jason Yanowitz, Blockworks, let's say what you made money from on day one is probably not what you make money from 8 years later. Right. And so I think it is, again, important to trend towards this 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 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, 0 if you didn't respond, 1 if you responded. Super straightforward. 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, if there's like direct competition for the value accrual 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 lower. Where if like rights and value accrual and the differences between token and equity holders are clearly and explicitly defined, within the constraints of existing regulations and maybe like actually point to things such as, you know, you know, we don't plan to return cash flow to the equity ever. So it's 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 protocol will not go to the equity, whether that's like share repurchases or dividends 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, 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 token inequity relationship. And then, so basically each of these categories can be sub-scored and rolled into a total transparency score. And 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 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? So you'll, you'll definitely get more rewarded heavily in our rating system if you, you know, have everything on-chain and invisible, for example, 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— 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 gonna say, and the reason for that is because, you know, we're, we're, you know, it's, it's kind of 4 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, you 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. 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 it, 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 it.

Yes, 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 Allaire, Circle executives selling Circle shares or something like that. And, um, and you know, we've published similar things like Coinbase executives 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 thing. 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 future and related token launches. So one of the 20 things would be future related token launches. A 0 would be language around new tokens is vague, noncommittal, or missing entirely. A 1 would be plans around additional tokens are defined clearly. And number 2, or in getting a 2 out of 2, would be team represents it will not launch additional tokens. And then the weighting of that, we put a 2. So if you got a 1, multiply that by 2, you're going to get a 2 score. If you got a 2, you got to multiply that by 2, you get a 4 score. That is that correct?

Without the multiplication piece, really. Right. So you can just score up to 2 points because that's like a medium.

I see.

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

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

Yeah, I think the best-case scenario is the project's doing the right thing. See, this is 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. With a grassroots-led 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 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 that 10 out of 10. Where are the shortcomings? So it's sort of like 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. So market makers and exchanges as well, certainly a call to action there.

Yeah. Do you think— Felipe, go ahead.

I was just saying, for me, 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, who are the good actors in terms of token holder transparency, and 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 kind of what we're seeing already, where 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. That they will score well on this dashboard. So hopefully in a year we have all, all the good projects participating, and yeah, not, not participating is a sign itself.

Yeah. One thing that I was thinking could happen is like, imagine you pull up CoinGecko, 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 be good. Maybe to extend the analogy, to stop using peaches and lemons, the good, the good tokens and the transparent tokens and teams are going to actually submit. I'm almost imagining like CoinGecko and CoinMarketCap and Blockworks Research and, you know, all these anywhere you look to go check like your prices. DeFi Llama, wherever it is, it's, it's like almost green if they've gone through the token transparency framework and it's just red or something like that, or it's got a blue checkmark 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. Let's just— 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 S-1 is a required listing process, part of the listing process for going live on New York Stock Exchange or Nasdaq.

Another interesting one as well is think if you're building an ecosystem, right? As if you're like any type of platform, but you're just a blockchain is the easiest example here. You want to 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. and this could be a great tool of like, okay, I could— 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's— so will, will the results of these live on— is it going to live on Blockworks' website?

It's 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 weightings. If you hate the weightings, then don't use them. The, all the full responses there, the intent of the ratings 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 CoinGeckos and there was, where will the results live, Dan?

Blockworks.com/tokentransparency.

Cool. So that'll, that'll all live there, be very easy to access. 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. And to your point about CoinGecko 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 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've used this as like an industry good that is incredibly important It is the largest boulder that needs to be pushed uphill at this current point in time.

Yeah. 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 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 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 current state of the market. So projects that disclose information will get a, will get a premium. Oh, you know, I'm almost certain of that, as certain as you 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, Louis knows this better than anybody. But I've heard it in so many conversations.

Yeah, to add to what Felipe was saying, I think in the short term, the group of 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 and are drowning in the noise, in the narratives, in the hype 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, 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 to the top in some sense.

Yeah. Who do you think gets upset with this?

I think it's going to smash valuations for projects that are acting nefariously or really using tokens as a way to extract value from the market. And there are a lot of those token projects, as we know, where they see token as just a way to funnel money to their investors and themselves. And 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 token or the way they think about, you know, kind of making money off the current market structure. But it's important that we really haircut those valuations because, you know, entrepreneurs follow price signals. And to the extent that you can become a multimillionaire by doing a token scam, 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, 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 a lot, a lot of hours have gone into this. 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 want to participate, we've got a link to apply on the website. And also please feel free to DM either myself, Yano, Ryan Connor on our team as well, or Philippe and Louis, please. You know, the 4 of us really put this together and we're extremely excited about it. But the whole point is for the projects to participate, right? And so if you're excited about it, please reach out and we will help you get onboarded. And if you look at this and you're like, hey, this is great, but I 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 missing our goal. So that's, that's the point of this. And if you have feedback, we are all ears. Cool.

Louis, Philippe?

Extremely open to feedback. So, you know, anyone in the space, you know, apply to your project, share it around, comment, reach out to us if you have any questions, if you disagree or agree, and we'll be extremely open to discuss with every one of you.

Yeah, likewise, I 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 token's 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 helps your projects, your valuation. So encourage people to get involved.

Cool. Felipe, Louis, Dan, great work on this. Everyone give us feedback.

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 apply, or a project, go apply and submit the thing. And if you're an investor, go take a look. So thanks, everybody.

Thank you. Cheers.