Token Transparency Framework: Driving the Encryption Industry Towards Openness and Trustworthiness

The cryptocurrency industry has developed for 15-16 years and is at an important turning point. Although crypto companies are going public, there is a significant issue in the Token market that hinders the industry's development: a lack of transparency. Tokens are considered the direction for future capital formation, but without addressing the transparency issue, progress cannot be made.

The token market is currently facing the "lemon market" problem. Without a standardized and transparent disclosure mechanism, investors cannot assess the quality of projects. As a result, quality projects are reluctant to issue tokens, while speculative projects are rampant, leading to a decline in the overall quality of the market.

In the token market, investors face many issues that equity investors do not have to worry about:

• Insufficient legal protection
• Multi-Token Issues
• Parasitic equity issue
• Founder misconduct
• Foundation Abuse

These structural issues have raised the "risk premium" of tokens to as high as 20%, far exceeding the 5% of stocks. According to the pricing logic of capital markets, this high premium has resulted in an 80% discount on token valuations.

Circle's IPO is an interesting side note. Its IPO pricing was around $30-31, with an opening price on the first day of about $70, and a trading price reaching $120 a few days later. This may partially reflect the market's preference for equity, as equity has more clear guarantees. This suggests that in the future, more companies that should issue Tokens on-chain may choose to go for an IPO.

A core structural problem in the current token market is the ambiguous relationship between equity and tokens. For example, the failure of many GameFi projects is partly due to tokens being used to incentivize user behavior, where users invest real money, but the majority of the profits generated ultimately flow to equity holders, while the value of the tokens themselves may trend towards zero.

In response to these issues, there have also been some positive changes at the industry and regulatory levels. For example, Morpho Labs recently announced that it will become a wholly-owned subsidiary of the Morpho Association, ensuring that value flows to the Token. On the regulatory front, a commissioner of the U.S. SEC proposed the "Safe Harbor 2.0" initiative, providing a three-year grace period and guidelines for projects transitioning from centralized entities to decentralized networks.

To address the serious lack of information disclosure in the industry, an open and standardized self-disclosure template—the Token Transparency Framework has been proposed. This framework requires project parties to answer about 20 questions covering business description, supply timeline, and agreements with exchanges, among other content, and to provide relevant supporting materials. The scoring mechanism assigns different weights to questions based on their importance, ultimately generating a simple and easy-to-understand grade.

The introduction of this framework may have a profound impact on the Token market. Teams that participate and receive reasonable ratings may see their Tokens appreciate in the long term due to increased transparency. If this framework is widely adopted by the market, it could drive more institutional capital into the liquidity Token market, thereby alleviating the main issue of insufficient transparency that hinders institutional capital entry.

In the short term, projects with strong fundamentals that have been overlooked due to market noise, narratives, or hype will become the main beneficiaries of the new framework. By applying the framework to their own Tokens and projects and publicly releasing results, these projects can more clearly demonstrate their true fundamentals to investors, thereby enhancing market awareness and attention.

However, projects that view tokens as arbitrage tools, lack real products, or abuse market structures will be cast aside due to a lack of transparency. The emergence of a framework will end the overvaluation of "fraudulent tokens" and allow resources to flow more effectively to projects that truly have product-market fit.