When Tokens Meet Reality: Why Crypto Needs Disclosure Standards

Transcript

Thank you. Yeah, it's nice to be here for the first time at East Prague. I'm Lloyd Peterson. I've been at Blockworks for 4 and 1/2 years, which I know in crypto is an absolute eternity. And yeah, they call me senior editor, but these days I'm the only editor, so most people just think senior means that I'm old, which is kind of true, but Blockworks has a goal to build trust in on-chain markets. And one market that's lost some trust in this bear cycle is tokens.

So, in an ideal world, tokens mean alignment. If you hold a token, you're economically and directionally aligned with the system that issued it. That's certainly how most people thought of it in the past, that the token was the business, and that assumption is how many investors and builders conceptualized crypto as an asset class. But it's turned out to be rather unreliable. And yet the market has no standard way to see where it's broken down. So, let's consider the problem with the status quo and what an industry-led answer could look like.

When you look at many protocols today, there's often a foundation in one jurisdiction like the Cayman Islands, a separate labs or devco entity somewhere else that writes the code, a front-end interface, sometimes monetized, sometimes not, often by yet another entity, a DAO that may or may not control the IP, the brand, or the upgrade process. So, you have Swiss associations, BVI corporations, Cayman service providers, and this offshore plumbing is what keeps this whole structure compliant, quote unquote.

On top of that, you have market maker agreements that no one outside a small circle sees, exchange listing fees paid in tokens, KOL relationships with allocations. So, while the blockchain itself is transparent, this off-chain structure that governs what happens on chain is, for most token holders, completely opaque. Compare that to traditional equity where the management has a fiduciary duty to act in the interest of shareholders, and that may relationship may be imperfect, but it exists and it's on paper and in law.

In crypto, there's no such relationship. Off-chain entities with equity holders may pursue one set of interests, while on-chain holders are an entirely different group pursuing another. Sometimes they align, but when they don't, the misalignment only becomes visible after the damage is already done. So, these are problems that the market pays for every day. If you don't know who controls the intellectual property, who can pause the contracts, where protocol fees actually go, or what market maker arrangements look like, you're not pricing risk well, you're guessing.

And the market prices guesses with a discount. So, imagine a buyback program that quietly stops, or an interface that gets monetized separately. IP that ends up in public dispute. When token holders discover material information that they weren't told about, they leave. We've watched this pattern play out at some of the most mature and most respected protocols in the industry, causing negative price action and reputational damage at the same time. These aren't bad faith teams. They're teams operating without a shared format for getting the information on the record.

So, what can we do about it? One approach is to wait for regulators, but aside from being slow and fragmented, that outsources the standard to people who don't write the code and don't always know what's actually material. By the time the rules arrive, they tend to miss the point or solve last cycle's problems. The second is what you might call vibes-based pledges. Let's say marketing posts. We're committed to transparency. These are, at best, useful signal, but useless as infrastructure. A third path that I want to propose is not revolutionary, but one which every other major financial market has actually taken.

So, let's look at some history. I'm from New York, so we'll take the US capital markets example, and there's a pattern, and it shows up consistently in how we go from innovation to law. In 1792, 24 brokers met under a buttonwood tree on Wall Street and started trading securities. That was the innovation. 25 years later, they wrote a constitution and formed what became the New York Stock Exchange, a private rule book for how members would trade with each other, self-regulation.

More than a century later, the Securities Exchange Act codified parts of that rule book into federal law. The same pattern with futures. Chicago Board of Trade was founded in the mid-19th century as a cash market for grain innovation. In 1865, they instituted formal trading strategies, such as margin, delivery, contract standardization. That's self-regulation. And again, in the 20th century, the Grain Futures Act made the practice official. Likewise with listed options, much more recently when the CBOE launched, dramatically improving on a system of opaque OTC deals.

So, the market invents, market participants write rules so that the invention can scale, and the state eventually codifies the rules that were already in effect and already successful. Crypto is in this middle step, or at least it should be. Stablecoins now have the Genius Act in the US and MiCA. Tokens have largely been left behind, however. In the US, and the uh Clarity Act is passing through working through Congress. It looks increasingly likely, but it's not yet certain.

And while we wait, the part that the industry is supposed to do for itself has barely been attempted. There's a gap. And the question isn't whether someone will eventually fill it, it's whether the people who understand the technology, maybe some of you in this room, will fill it first or whether it gets filled badly by people who don't. So, one possible path is Blockworks token transparency filings, an open-source disclosure standard. The protocols own the filings and the decision on what gets published.

There are two filing types. Again, I'll use the analogy to US capital markets. First is the B1, the S1 of crypto, a one-time disclosure at or near token generation. And there's the B2, which will be launched in June. That's the 10-Q of crypto, a continuously updated filing for mature post-launch protocols. Each filing covers what the market actually needs. Things like entity structure, who exists, who controls what, token allocations investing market structure, including market maker agreements, exchange listings, listing fees that are paid in tokens, financial disclosures, including off-chain income statements, and

on-chain dashboards. Liquidity activity like buybacks, protocol-owned liquidity, token-collateralized loans. Each completed filing receives a disclosure percentage, not a quality rating, not a judgment on whether the protocol is good or bad, but just a measure of how much has been put on the record. So, we've been making progress. The current cohort includes three dozen assets such as these, and we're looking to scale that to 200 by the end of the year. The premise is that when serious teams commit to public disclosure, it raises the bar immediately. Other teams, they either have to match it or they have to explain why they won't.

A recent example is Turtle XYZ published last month. So, they have a billion token supply with clearly laid out vesting. Their insider vesting terms have on-chain streaming, so anybody can verify it. And on market structure, where almost nobody discloses anything, they named their counterparties. I want to emphasize this last point because only a tiny fraction of protocols currently disclose their market maker terms publicly. Yet, Turtle did and so the market can now evaluate them on facts instead of speculative inference.

So, we advocate for an industry-led standard as a good faith effort to meet the market with public level disclosure norms. We're not pretending tokens are already securities. They're not necessarily. But, these norms developed elsewhere for good reasons. The industry needs something it can converge on without anyone owning the rails. Not a standard run by an exchange or fund or an issuer. The TTF is built as a neutral data layer and it follows the precedent of other markets.

The best version of self-regulation has always been built by people closest to the technology before the state showed up to formalize it. But, a standard only matters if it reaches a critical mass. When the standard is referenced wherever tokens are evaluated, like launch pages, listings, governance forums, and investor decks. When we have a TTF filed badge, it'll mean something because everyone can see what's behind it. So, I have three asks depending on who you are. If you're a protocol, file with us.

Put your information on the record. Differentiate with disclosure. If you're a launch platform or an exchange or other trading venue, add it to your listing checklist. Not as a gatekeeping mechanism, but as a way to stop pricing ambiguity. And lastly, if you're a fund, a DAO, or part of a community, treat the absence of disclosure as a risk signal, because that's what it is. Disclosure is how we bring back the proper token alignment so that tokens can become the powerful tool of capital formation that we all know they can be.

Thank you. >> Thank you very much.