Why Investable Tokens Need Real Disclosures | Roundup

The Token Transparency Framework, created by Blockworks roughly one year ago in collaboration with L1D and Fei, scores projects out of 40 points and has attracted voluntary disclosures from approximately 40 protocols. It addresses two distinct problems: the operational and business strength of a project, and token-holder-specific risks that exist independently of business performance, analogous to S1 filings and quarterly earnings in traditional finance. Disclosures cover project description, known team and investors, token supply and allocations, airdrop processes, and market structure details including agreements with exchanges and market makers, with market maker agreements described as often the most sensitive element.

Less than one percent of tokens currently disclose their market making agreements, and some tokens score as low as four or five out of 40 on the TTF while centralized exchanges continue to list them, which undermines the framework's ability to enforce accountability. Token holders have been harmed by factors entirely independent of business performance, including undisclosed inflation that renders announced buybacks meaningless, and opaque structures involving labs entities, DAOs, and foundations that have allowed entire IP stacks to be bought out from under token holders with no compensation. The framework does not prescribe any particular governance structure but requires that whatever structure exists be fully disclosed, treating mandatory sunlight rather than structural mandates as its core principle.

The bar for investable tokens has risen to require demonstrated product-market fit with revenue plus trust established through transparency. Launching a token creates a second product requiring dedicated attention, and historically investors pressured projects to get liquid before reaching product-market fit. Projects previously believed they had to launch tokens alongside products to avoid SEC action, but layer 1s and app-level projects are now launching without tokens and not facing legal consequences, removing that justification for premature token launches.

Institutional and liquid investors entering on-chain in the next cycle are not expected to invest in tokens where price drivers are opaque or unexplained. The growing concentration of centralized exchange trading volume in Bitcoin and ETH, with retail having largely abandoned altcoins, is described as unequivocally bad for exchange business models and is creating new incentive for exchanges to address disclosure problems. The comparison was drawn to South Korean and Japanese conglomerates trading at roughly three times lower multiples than US peers due to governance problems, with the same discount applied to crypto tokens lacking disclosure.

The CLARITY Act includes provisions on token classification requirements and DeFi developer protections, with tokens expected to receive a safe harbor period of approximately three years before final classification, though disclosures will be required even during that period. The SEC has publicly stated it will categorize tokens within its existing asset classification structure rather than inventing a new asset class. Either CLARITY legislation or SEC and CFTC rulemaking is expected to ultimately enforce token disclosure requirements. Disclosure frameworks for crypto are not a new idea and have been discussed since at least the 2018 cycle, but progress has historically stalled when bull markets return and retail investors enter as exit liquidity, reducing urgency for reform.

Only around 40 to 50 tokens currently carry a recognized stamp of approval for transparency, making them far easier to evaluate than the roughly 2,000 tokens listed on CoinMarketCap. A protocol can score perfectly on a disclosure framework yet still run on a one-of-one multi-sig or retain admin rights to upgrade or effectively rug the protocol, which the speakers flag as a separate and serious risk axis. Hacks have picked up significantly over the past couple of months, making security infrastructure investment more urgent and positioning protocol security as a meaningful area of competition among projects.

The goal for the framework is to function as an equivalent to EDGAR for mandatory disclosure combined with a FactSet or Bloomberg analytical layer, so that a single standardized attested disclosure would allow all data providers including DeFi Llama and Token Terminal to use the same numbers rather than separate methodologies. Using tools like LLMs, a functional disclosure query system covering officer identities, publicly disclosed wallets, and current organizational structure could be built in a couple of hours and require minimal ongoing maintenance. The speakers estimate the industry is roughly a year away from a step-function improvement in disclosure quality and accessibility, and argue the opportunity is not simply to match traditional finance but to exceed it. The US, as the largest capital market in the world, is expected to set disclosure rules that effectively govern the global crypto market, with Asian exchanges already orienting their strategies around US market entry and the transparency standards that will require.