Universal Token Ratings: The Disclosure-Performance Gap
We partnered with Forgd to build Universal Token Ratings, a tool that measures token disclosure and tracks token performance in real-time. This week, we’ll take a look at the disclosure-performance gap.
We partnered with Forgd to build Universal Token Ratings, a tool that measures token disclosure and tracks token performance in real-time. Last week, we dove into the UTR data, and came to several unexpected conclusions. Chief among them: token issuers are opaque.
We found that issuers’ limited disclosure is weighing on the scores of tokens that are otherwise performing quite well (as measured by liquidity depth, bid-ask spreads, volume, exchange coverage, derivatives conditions, market maker adherence, and on-chain tokenomics delivery). This was a surprise — disclosure might be tedious, but it’s easy. After all, it’s entirely within the issuer’s control.
While less common — this was true in just one quarter of rated tokens — some issuers who opted for transparency failed to earn high scores due to relatively middling or less-than-stellar token performance.
This week, we’ll take a look at the disclosure-performance gap. Before we get to the numbers, a quick reminder: the Disclosure and Performance axes are each scored 0 to 10. The overall score is their product, 0 to 100, not their average and not a percentage. A token scoring 7 out of 10 on both axes lands at 49 out of 100, not 70. That means strength on a single axis isn’t enough to lift a token to a top grade.
Transparent issuers, middling performance
The mean Disclosure score among rated tokens is 4.98 out of 10. Their mean Performance score sits at 6.07. For three out of every four rated tokens, the Disclosure axis is weighing down their total score.
Still, there were some standouts when it came to transparency. As of Tuesday, there were more than 30 tokens with a Disclosure score above 6. For the most part, they rated highly on the Performance axis — only four had a Performance score below 5: Decred, Saffron, CoW Protocol, and Turtle.
Those four suffer from some combination of the following issues: meager trade volume relative to their market capitalization, lack of access to a top-tier exchange, and modest fully-diluted valuation (a figure that includes the value of all tokens, even those that have yet to enter circulation). All lack any data concerning market maker performance, but in that regard, they were in good company — market maker data weren’t available for 88% of rated tokens.
These tokens’ ratings might improve along with data collection. In the UTR, an unmeasured criterion defaults toward zero rather than being excluded from the average. These category scores read low mainly because the underlying data isn't there yet, not because projects are failing the test.
The UTR difference
Monero’s XMR isn’t a standout on the Disclosure axis — it earned a rating of 5.19 — but it still outperformed in that regard, given the low mean Disclosure score across rated tokens. And its overall score was limited by a middling Performance rating of 3.6.
Among other things, the Performance axis flagged relatively weak trade volume and order-book depth for a token of that size.
This gets at the key difference between the UTR and several disclosure-only token rating frameworks that came before. While any disclosure-based framework can tell you whether an issuer is transparent, few can tell you in real-time whether you can, say, purchase a token in size.
Monero meticulously detailed its tokenomics, earning a AAA rating across three of the four sub-sub-categories. A would-be buyer might think they have all the information they need to make an informed investment. But middling order-book depth might give them pause.
High performance, poor disclosure
There are roughly a dozen tokens that perform exceptionally well despite a troubling lack of transparency. That group includes Hyperliquid, Pump.fun, and PancakeSwap.
Hyperliquid, for example, enjoys remarkable trade volume, 30-day price performance, order-book depth, and open interest. Incredibly, this is all relative to its sky-high $18 billion market capitalization. Those figures offset its high rate of annualized inflation — 53% — and a substantial number of locked tokens that could weigh on the price when they enter circulation.
This crop of tokens earns mixed scores regarding disclosure of tokenomics and service provider engagements. But they all suffer when it comes to detailing legal and financial arrangements and the makeup of the team.
This issue is understandable. The cypherpunk ethos that birthed Bitcoin and virtually every subsequent cryptocurrency doesn’t merely give teams an excuse to operate in the dark — it creates a moral imperative to do so. A fully-doxxed founder with a company registered in the continental US, for example, doesn’t scream “overthrow the financial system with censorship-resistant, stateless money.”
And yet there are few teams that seem to have that as their north star. More practically, crypto’s culture of anonymity has made it a favored industry for scammers and hackers. Investors are right to think twice before investing in a token run by “Chef Kids” (PancakeSwap).
This is why the UTR demands high scores across the board. Our hope is that it creates an incentive for token issuers to do better. Blockchains are transparent. Their creators should be, too.