Token Transparency and The Hot Ball of Money (Hyperliquid/Circle) | Weekly Roundup

This episode unpacks the critical need for token transparency in crypto, spearheaded by Blockworks' new framework, and explores where investor capital is flowing, from surging public crypto equities like Circle to high-growth DeFi protocols like Hyperliquid.

Introducing the Token Transparency Framework

• Jason (Yano) and Santi kick off by discussing the launch of Blockworks' Token Transparency Framework. Santi emphasizes its importance, stating, "I think it is one of the biggest opportunities in crypto because it is probably top two or three problems that we have as an industry...standardizing reporting and disclosures to create market integrity and fairness."
• The framework aims to address the pervasive mistrust in tokens and markets due to opaque dealings and lack of standardized information.
• Santi notes that while others have attempted similar initiatives, the timing and approach of this framework could make it different and highly impactful, especially as the industry matures.

Deep Dive into the Token Transparency Framework

• Jason elaborates on the framework's structure and goals.
• It's an open-source disclosure system designed to combat issues like hidden information, backroom OTC (Over-The-Counter, referring to trades made directly between two parties outside of public exchanges) deals, and uncertainty around circulating supply.
• The framework launched with six initial projects: Aerodrome, Jupiter, Morpho, Radium, Stride, and Jito, evaluating them on 18 criteria. These include disclosure of revenue streams, equity-token relationships, advisory billings, governance, insider vesting, and initial allocations.
• Jason highlights that the initial cohort scored well (e.g., Jito 39/40, Radium 38/40), aiming to celebrate transparency. The next phase will involve rating less transparent projects, which he anticipates will be more revealing.
• Strategic Implication: Investors can use this framework as a due diligence tool to assess the transparency and potential risks associated with token projects. Researchers can study the evolution of disclosure standards.

Framework Operations and Business Model Integrity

• The conversation touches on the operational aspects and ethical considerations.
• Jason firmly states Blockworks will not accept payment for listings or score changes, drawing a parallel to reputable exchanges like Coinbase that didn't charge for listings, ensuring credibility. "Very, very, very importantly we decided no...you can't pay to have your score changed or whatever."
• Updates to scores can happen in real-time. Jason shared an anecdote of a project improving its score from 35 to 38 by disclosing a previously unrevealed multi-million dollar advisor deal after the framework's launch.
• Potential business models discussed include providing alerts for score changes (similar to Moody's) and API access to the data, though these are future considerations.
• Actionable Insight: The commitment to unpaid listings enhances the framework's credibility. Real-time updates mean investors should monitor scores for dynamic changes reflecting new disclosures.

Industry Reception and Potential Impact of the Framework

• The framework has garnered significant positive attention.
• Law firms are interested in incorporating it into legal documents for new foundations, DAOs (Decentralized Autonomous Organizations, which are community-led entities with no central authority), or protocols.
• Exchange listing teams see it as a valuable third-party tool for making listing decisions, moving away from inconsistent internal processes.
• Venture funds are also supportive, with some considering making adherence to the framework a requirement for their portfolio companies. Jason notes, "If I were a fund...I would make sure that it was like part of the docs where it's like you have to commit to token transparency."
• Strategic Implication: The framework could become an industry standard, influencing how projects structure their disclosures from inception and how exchanges and VCs evaluate them.

Addressing Skepticism: Score Contestation and Verification

• Jason addresses how the framework handles score disputes and verification.
• Projects can "contest" a low score by providing the missing information. For example, if rated poorly on insider vesting, submitting vesting contracts can improve their score.
• Regarding enforcement, Jason mentions a "phase two" involving verification. Blockworks has even met with the SEC to discuss the framework, covering issuer and market maker disclosures.
• Actionable Insight: The transparent process for score improvement incentivizes projects to become more open. Engagement with regulatory bodies like the SEC signals a serious attempt to build a robust and recognized standard.

Understanding the Framework's Scoring Criteria

• Jason provides an example of how criteria are assessed, using "Market Structure."
• For "insider and related person transactions," a score of zero means no commitment to disclosure, while a three means the project commits to disclosing related party transactions within 30 days. Related party transactions involve deals with individuals or entities closely connected to the project, like founders or affiliated companies.
• For "prior token sales and fundraising," scores range from zero (no disclosure) to two (all sales disclosed with terms provided).
• Other criteria include public token holder relations reports, where a high score requires on-chain, publicly labeled foundation assets and quarterly reports.
• Strategic Implication: Researchers can analyze these specific criteria to understand the nuances of project transparency and identify common areas of opacity.

Data Flow: From Framework Reporting to Analytics Dashboards

• The information gathered through the framework directly enhances Blockworks' data offerings.
• Projects self-report information, which is then audited by Blockworks and made public. This data feeds into Blockworks' analytics dashboards.
• Jason uses Radium as an example: Radium scored 38/40 and provided detailed information (multi-sig holders, buybacks, treasury), which populates their comprehensive dashboard on the Blockworks analytics platform, covering financials, tokenomics, trading volume, and TVL.
• "It also gets people to self-report to us. So it feeds into our data business quite well," Jason explains.
• Actionable Insight: The framework acts as a data acquisition funnel, meaning Blockworks' analytics tools will likely offer increasingly rich, verified data on participating projects, valuable for both investors and researchers.

Ensuring Verification Accuracy and Building Trust

• Santi raises the question of confidence in the verification process.
• Jason acknowledges the possibility of projects lying or omitting information. The approach to tackle this is threefold: social capital (industry reputation), legal repercussions (working with entities like the SEC), and Blockworks' internal assessment capabilities.
• Blockworks is building a dedicated "token transparency team" by hiring crypto-native auditors, including those with experience from Big Four accounting firms, to scrutinize submissions.
• If Blockworks is unsure about information, they will rate it lower, placing the onus on the project to provide clearer data.
• Strategic Implication: The plan to hire specialized auditors is a crucial step towards robust verification, aiming to provide a higher degree of confidence than simple self-reporting.

The Genesis and Overwhelming Reception of the Framework

• The framework was a significant internal undertaking at Blockworks.
• Santi notes they had discussed the need for such a framework about six months prior.
• Jason reveals it was a "bottoms-up initiative" driven by Ryan (Head of Research) and Dan (Head of Data) at Blockworks, who worked nights and weekends, eventually convincing leadership of its necessity due to strong market demand.
• The launch was Blockworks' best-received ever, with Jason mentioning, "The post in and of itself has 200,000 views, 600 likes, like 225 people have quote tweeted or retweeted." They received 57 inbounds from projects within hours of launch.

Blockworks' Creative Ventures: AI in Action and Event Previews

• The discussion briefly shifts to other Blockworks initiatives.
• Jason mentions an upcoming presence at the Permissionless event, with a large Blockworks team attending.
• He highlights a video commercial created by Blockworks' Head of Creative, Reed Hannerford, in just two days using Google's new AI tool, Veo (a text-to-video generation model). Hannerford shared his prompts and process, showcasing rapid AI-driven content creation.
• AI Implication: The rapid creation of high-quality video content using AI tools like Veo demonstrates the evolving capabilities for marketing and communication in the crypto space, relevant for projects looking to enhance their outreach.

Exploring New AI Tools: The Story Score

• Jason introduces "Story Score," an AI tool he built using Replit AI.
• The tool analyzes audio (e.g., from a podcast or presentation), transcribes it, and rates its storytelling quality based on hook, emotion, structure, and delivery.
• It also identifies potential drop-off points and key storytelling moments. Jason tested it on their token transparency podcast episode, which scored 71/100.
• AI Implication: Tools like Story Score highlight the application of AI in content analysis and improvement, which could be used by researchers or projects to refine their communication strategies and investor pitches.

Major Regulatory Milestone: Stablecoin Bill Passes Senate

• Shifting to crypto news, the hosts discuss a significant legislative development.
• A stablecoin bill (referred to by the hosts as the "Genius Act") passed the U.S. Senate with a 68-30 vote.
• Jason notes this was largely expected, so the market impact might have been "baked in," but it paves the way for progress on market structure legislation.
• Strategic Implication: Regulatory clarity for stablecoins is a foundational step for broader crypto adoption and institutional involvement. This development could de-risk aspects of the stablecoin sector for investors.

The "Hot Ball of Money": Circle's Stock Surge and Public Crypto Equities

• The conversation turns to the performance of publicly traded crypto-related companies, particularly Circle.
• Circle's stock price has seen a dramatic increase, trading around $180-$182, up from a public debut price around $30, a 6x rise. Its market cap reached approximately $44 billion.
• Jason questions the drivers, while Santi suggests it's partly due to "extreme left curve" thinking – investors seeking exposure to the crypto growth story through regulated public vehicles, especially as a way to "long stablecoins."
• Santi notes, "JP Morgan just validated stablecoins. The only way to express that view today in the public markets is Circle. Boom, up bid bid bid."
• Actionable Insight: The strong performance of Circle and Coinbase indicates significant investor appetite for regulated, publicly traded crypto exposure. This trend may continue as more crypto companies (like Gemini and Bullish, who have filed) pursue IPOs.

Public Equities vs. On-Chain Tokens: Shifting Capital Flows

• A key debate emerges: will capital continue to favor public crypto equities over on-chain tokens?
• Jason observes that public market crypto exposure (like Coinbase, Circle) has recently outperformed most on-chain tokens.
• Santi believes this outperformance by public equities might persist as more companies go public, offering legitimacy and accessibility to traditional investors not yet comfortable with direct token investments.
• Hive's tweet about the "hot ball of money" moving to crypto public equities and treasury companies is discussed. Jason thinks this meta might last 6-12 months, shorter than Hive's 1-2 year prediction, believing the mania will eventually spill over into coins.
• Strategic Implication: Investors should monitor capital flows between public crypto equities and on-chain assets. While public equities currently attract significant capital, a potential future rotation back into tokens could present opportunities. Researchers can study the correlation and lead-lag effects between these market segments.

Analyzing Hyperliquid: Valuation, Buybacks, and Investment Thesis

• The discussion shifts to Hyperliquid, a decentralized perpetual exchange, and its HYPE token.
• Simon from Moonrock questioned HYPE's nearly $50 billion FDV (Fully Diluted Valuation), which is the total value of a crypto project assuming all its tokens are in circulation.
• Ansem's counter-argument highlighted Hyperliquid's rapid growth in crypto's most profitable vertical (exchanges), its significant buyback program (97% of protocol revenue annualized at $1 billion), and future catalysts like HIP3 (allowing external parties to create markets) and HyperVM (its L1 blockchain). L1 (Layer 1) refers to a base blockchain network like Ethereum or Bitcoin.
• Jason, who disclosed owning HYPE, believes its success stems from making many retail users rich (similar to Ethereum and Solana), strong buybacks, and a "no VCs" narrative. He notes, "Hyperliquid is the best trading venue that people...has captured the mind share."
• Santi suggests Hyperliquid at a $100 billion market cap "wouldn't flinch twice," comparing its potential to Solana or BNB's market cap, given trading remains crypto's killer use case.
• Actionable Insight: Hyperliquid's tokenomics, particularly its aggressive buyback mechanism funded by substantial protocol revenue, presents a compelling case study for token value accrual. Investors should analyze its volume, fee generation, and the impact of buybacks on circulating supply.

Gauging Market Sentiment: Insights from OTC Markets

• A brief mention of the OTC (Over-The-Counter) markets provides another sentiment indicator.
• Jason notes that many low-float, high-FDV tokens trade at significant discounts (20-90%) in opaque OTC markets.
• In contrast, HYPE trades with a minimal discount (around 5%) OTC, suggesting stronger underlying demand and belief in its valuation.
• Blockworks aims to bring more transparency to these markets by potentially integrating second-lane data.
• Strategic Implication: OTC market discounts (or lack thereof) can be a valuable, albeit less visible, indicator of true market sentiment and conviction for specific tokens, especially pre-exchange listing or for tokens with large locked supplies.

Tron's Public Market Ambitions and Stablecoin Play

• The news of Tron's potential public listing is discussed.
• Tron reportedly plans to go public in the US via a reverse merger (a method for a private company to go public by acquiring a publicly listed company) with SRM Entertainment, to be named Tron Incorporated.
• The new entity will focus on staking TRX, starting with a $210 million investment.
• Jason sees this as a way for public market investors to gain exposure to Tron's role in the stablecoin ecosystem, as ~60% of Tether (USDT) moves on Tron. He recounts an institutional investor interested in Tron Inc. as a proxy for Tether exposure.
• Actionable Insight: Tron's move highlights a trend of established crypto projects seeking public market listings to tap into traditional capital pools, often leveraging their role in key crypto infrastructure like stablecoin networks.

The Trillion-Dollar Stablecoin Thesis: Fueling Public Market Interest

• The broader investment case for stablecoin-related assets is reinforced.
• A tweet by "Bessant" projecting stablecoins could become a $3.7 trillion market by the end of the decade is cited.
• Jason argues this massive growth potential makes stablecoin-related investments (like Circle, and potentially Tron Inc.) an attractive thesis for investors looking for growth outside overvalued tech/AI sectors. "What are you buying right now? Boom. Stablecoins. Easy thesis."
• Santi adds that as assets cross certain market cap thresholds ($10B, $20B, $50B), they unlock new allocators who require larger minimum ticket sizes.
• Strategic Implication: The multi-trillion dollar stablecoin market projection provides a strong tailwind for companies facilitating stablecoin issuance, transaction, and related services. Investors should identify key players in this ecosystem.

Navigating the Market Cycle and Evolving Hiring Landscapes

• The conversation touches upon the current market cycle and its implications for hiring.
• Jason and Santi speculate they might be 70-80% through the current bull cycle, pondering if the traditional four-year cycle will remain intact.
• The discussion on hiring highlights a trend where entry-level positions increasingly require 3-5 years of experience, partly due to AI's capability to handle tasks previously done by new graduates. Jason states, "If AI can do the job of an entry-level grad and it's 50 times cheaper, this trend is only going to continue."
• Santi emphasizes hiring interns to gather unique, non-public data (e.g., user interviews) that AI cannot replicate, focusing on "data that doesn't exist."
• AI Implication for Researchers/Investors: The rise of AI is reshaping labor markets. Companies (and investors evaluating them) need to consider how AI impacts workforce needs, focusing on roles that require critical thinking, unique data generation, and skills AI cannot easily replicate.

Emerging Infrastructure: EigenLayer Launches EigenCloud

• A significant development from EigenLayer is briefly mentioned.
• EigenLayer launched EigenCloud, described as a "verifiable cloud that externalizes compute while preserving trustless guarantees."
• Prominent figures like Yuan Li (Blockchain Capital), Joe Lubin, and Shriram (founder of EigenLayer) lauded the launch, with some seeing it as potentially shortening the timeline for mainstream crypto adoption and establishing a foundation for a "verifiable economy."
• Jason admits he needs to dig deeper to understand "verifiability" in this context and its implications.
• Crypto AI Implication: EigenCloud's focus on verifiable compute could have profound implications for decentralized AI. If it enables trustless verification of computations performed off-chain, it could address key challenges in zkML (Zero-Knowledge Machine Learning), secure data processing, and building more robust decentralized AI models and applications. This is a critical development for Crypto AI researchers to monitor.

Conclusion: Transparency and Shifting Capital Define the Current Crypto Landscape

• This episode underscores the dual forces shaping crypto: a push for greater market integrity via initiatives like the Token Transparency Framework, and a dynamic shift in capital towards public crypto equities and high-utility protocols. Investors and researchers must track transparency metrics and evolving capital flows to navigate opportunities effectively.