Empire | Introducing The Token Transparency Framework
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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 grass 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 company's funds or projects discussed. Alright, everyone. Welcome back to Empire. Very excited about this episode. It is rare to have three guests, so you know it's gonna be a good one. We've got Dan Smith, head of data block at BlockWorks. We've got Felipe, CI
Absolutely. Thanks for the question. Yeah. I know. 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 in economics. It comes from a nineteen seventies paper where one researcher, Akerlof, realized that used cars were selling at really low prices, and even driving your car out of the out of the store would drop its price by 40%. And the reason that was happening is because there was no credible signal if you were selling a used
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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 is closer to 20% or higher. And if you just follow the math, you know, 5% equity risk premium, 20% token token premium, you start looking at, valuation discounts for tokens in the order of magnitude of 80%, right, which is very serious. So what does that do? And I'll wrap it u
Can I try to summarize that maybe for people who aren't familiar with the the market for lemons? Just and, I'm gonna try to do my best here. So, you've got, like, you've got a car seller. Right? And in markets, this what 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 in 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
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. It was like, look. You know, if you talk to any team that's, like, doing things the right way and building a great product and, not trying to or try like, f exerting effort to avoid all a lot of these scam techniques that Felipe has described, those people want a tool to
Felipe, can you you mentioned, 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 ris
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