Brian

@brian_smith_0

Industry would greatly benefit from a crypto-native rating agency like Moody's that can assess protocol risks and project tokenomics. Trust gap is a key barrier to growth

227

9:04 PM • Apr 19, 2025

What if we rated tokens like bonds? How would all the high FDV low-float protocol tokens be rated? I imagine a world where most of these tokens, governing protocols, would be rated quite highly despite underperforming $BTC or the native blockchain token on which they were built.

Think about an analogy to The Big Short. In the film, Wall Street banks packaged garbage loans into fancy "CDO" tranches and slapped AAA ratings on crap. Now, take your classic protocol token; insider allocation greater than 60%, no value accrual mechanism, standard one-token one-vote governance. Tokens are Broken. Why?

Felipe Montealegre (IFS)

@TheiaResearch

Tokens are Broken

Tokens are broken for teams who spend too much time looking at price charts and not enough time focused on customers and product-market fit. Tokens are broken when morale fluctuates with macro and market beta, and for teams attempting to negotiate funding

122

5:09 PM • Apr 22, 2025

Felipe's take (a good one, imo)

Because we think packaging all those bad mechanics with lock-ups for 2+ years and decentralized governance solves everything! Let's slap an "AAA" on that protocol token, have users hold on for dear life, and watch the token bleed out over 5 years.

It's kind of reminiscent of the shenanigans that played out in 2008. We wanted open, transparent markets where we wouldn't get duped by insiders and dumped on. Sure, tokens are not mortgage bonds, and the comparison is crude, but plenty of crypto assets are being misrepresented to buyers in a similar way. They are broken.

A Rating System for Tokens:

What's our current rating model? We essentially trust crypto's "rating agencies" – i.e., influencers, VCs, the founders – who may have skin in the game to rate a product. (Remember when Mark Baum asked the ratings officer why they stamped junk as AAA? The answer was basically: "if we don't do it, someone else will." In crypto, the incentive to call out garbage is low; in fact, the incentive in some cases is to promote garbage, at the expense of some marginal reputation risk.)

I think there are a few main ways to evaluate a token:

1. Launch Fairness – Was the token fairly launched (e.g., via fair mining or broad airdrop)? Or was it pre-mined/seeded heavily in favor of insiders? Fair launches (like Bitcoin's) score higher; pre-sales with massive insider allocations get dinged.

2. Insider Allocation & Lock-ups – How much of the supply is held by VCs, founders, and advisors? And are those tokens locked up long-term, or can they dump on day one? If a huge percentage (say >50%) is insider-owned (even with lock-ups), that's a red flag. Long lock-ups help somewhat, but 3 years later, those tokens still hit the market eventually.

3. Governance Rights – Does the token confer governance power over the protocol/project? And is that governance actually decentralized (or just theoretical)? Tokens that give holders real voting power (and incentivize holders to participate) score better. If the token has little to no say in the project (or if all decisions are off-chain/by a foundation), it's basically just a show for regulatory arbitrage.

4. Value Accrual – Is there any mechanism by which the token accrues value from the project's success? Examples: revenue share, buy-and-burn programs, fee discounts, staking rewards from actual usage – anything that ties token fate to the platform's prosperity. If yes, that's a plus. If the token's value is 100% based on greater fool theory (attention and speculation), that's a bad sign.

Applying the Rating System (A-C):

• A – "Prime" Tokens: Fairly launched, minimal insider grip, active decentralized governance, and tangible value accrual. These tokens are as solid as it gets in crypto; the structure isn't perfect, but it's aligning with community interests.

  • Example: Bitcoin is the OG A-rated asset – Satoshi didn't pre-mine a stash for himself (he mined by himself publicly and then vanished), no VCs owned Bitcoin at launch, and its distribution over time has become highly decentralized. Bitcoin has no formal on-chain governance, but changes require broad consensus, effectively social governance. It has proven itself credibly neutral and unstoppable for over a decade.

  • Another example: let's talk $AERO – a newer token that, by all accounts, checks the A-grade boxes. It had a true fair launch (no VCs lurking in the background), a community-driven process from day one, and a governance model built into the token that incentivizes participation and value accrual.

    

• B – "Meh" Tokens: These are acceptable, somewhat middle-of-the-road tokens. Usually, B-rated tokens have some positive qualities but also notable weaknesses. Perhaps they did a generous airdrop to users (good), but also set aside a big chunk for investors (not so good). They often grant governance rights to holders, which is nice in theory – except governance turnout is low, and core teams or whales still end up steering the ship. Crucially, B tokens typically lack direct value accrual; they exist more as governance chips or network tokens than profit-sharing instruments. I think these tokens bear an uncanny resemblance to the "slop" shilled in The Big Short.

  • Most protocols operate like this, and while it's less than ideal, you can still rationalize holding the token in your head because you have "governance rights." That's also why so many teams are working on fixing governance now: It may be the best chance to fix tokens as they're currently modeled.

  • Still, most of these projects have lax governance, insiders begin dumping their allocations after their cliff expires, and tokens slowly bleed down as they unlock. And why would you blame insiders? Unless there's active governance or high attention to mask all the sell pressure, why would anyone be incentivized to hold?

  • 

    Taran

    @Taran_ss

    

    Locked token holders have taken massive losses over the last 12 months. The average drawdown from OTC value then vs spot now is approx. -50%, meaning on average, holders had the opportunity to exit locked positions at 2x current spot prices last year (follow: @stix_co).

    

    

    Taran

    @Taran_ss

    

    Recent OTC prices (in FDV):
    Pre-launch:
    $EIGEN @eigenlayer 6B (blocked)
    $BLAST @Blast_L2 2.5B
    @gensynai 1B (blocked)
    $ZRO @LayerZero_Labs 3B
    @babylon_chain 500M (blocked AFAIK)
    $IO @ionet 1B (blocked)
    $BERA @berachain 2B (blocked)
    $SCR @Scroll_ZKP 1.7B
    $ZKS @zksync 3B (blocked)

    142

    4:19 PM • Apr 22, 2025

      

  • Finally, if value can accrue to tokenholders from the protocol, most tokens would be in Category A. But often, that's a hard no from legal (to avoid securities issues).

  • It's also really hard to build a protocol without funding and token promises to your earliest believers. (That may be changing soon)

  • So, fixing governance is typically what we're left with to maximize value to tokenholders!

• C – "Junk" Tokens: The memecoins – the tokens that will likely go to 0. C-rated tokens usually have no governance for holders, or poor launch fairness (e.g., heavy insider ownership or a stealth launch that favored insiders), and zero inherent value accrual.

  • In other words, these tokens have any price only because of attention and speculation. A lot of these tokens may pump on short time-horizons, but structurally, they offer you nothing but the hope that someone else will buy higher.

  • Obviously, there are a few exceptions to the rule, but if you expand your time horizons, most memecoins will go to 0.

Rating the Zora Token

I've been thinking about tokens so much recently because of Zora. Zora's founder, Jacob, published an essay about Hyperstructures—crypto protocols that run free and forever as public goods, with qualities like being unstoppable, permissionless, valuable, and credibly neutral. It's a great read if you're into governance, and I think you can see its influence in the way Zora is structured. I remember reading the article 3 years ago, so it's cool to see the vision that Jacob has, even if I don't agree with it.

Here's what I know:

• $ZORA is "a memecoin for the Zora community"​ support.zora.co. It will have no governance, and the primary utility will be to use it to buy content on Zora's protocol.

• Insider Heavy: Only 10% of the total 10 billion supply was earmarked for a community airdrop to users. 45%+ went to insiders (about 18.9% to the team and 26.1% to investors and "strategic contributors"). Investors have their tokens locked for 6 months, then vest over 36 months as per support.zora.co.

  

• No Governance, No Rights: Zora straight-up states in its official docs that "$ZORA is for fun only and does not entitle its holders to any governance rights or a claim on any equity" support.zora.co. I'd assume that gives tokenholders no rights to the treasury, so you could increase the insiders' percentage to 65%. For me, this token is like when you go to an arcade, spend USD to buy tokens, then play the games using tokens, and then you can redeem the tokens for prizes (in this case, pieces of content). Who knows, maybe if I were able to sell my arcade tokens to someone on the street, people would really want to buy them.

• Value Accrual: At the end of the day, the value accrues to the tokenholder as a derivative of the content being posted on Zora. Is there good content? Then, more people will want to buy $ZORA to purchase prizes at the attention arcade. You're essentially betting on the social network itself.

Look, is $ZORA going to go to 0? No one knows. But if you're a holder, you're betting that the platform generates more attention and buy pressure than there is sell pressure from insiders looking to realize a liquidity event. There's no floor of cash flows or governance power to fall back on. In some ways, this is nice; there are no Machiavellian claims of decentralized governance that pretend that this protocol token will be more valuable than others, but at the end of the day, its token's value is derived from attention. It's a C-grade token. You have to hope the content on its platform is really good at drawing attention.

IMO, the biggest problem is the insiders + VC funding. For this C-grade token model to work, it needs to be completely fair launched, then retail is playing with better odds at the arcade. Most memes that were successful, like $DOGE, were fair launches. A memecoin, like Zora's, backed by VCs and with an allocation to insiders, seems destined to hurt retail. There's too much sell pressure. Show me the incentives, and I'll show you the outcomes.

Special thanks to Gramajo.eth for reviewing

TL;DR: Demand better tokens, embrace real decentralized governance, and don't be the sucker at the poker table. You don't want to be left holding the bag when the music stops. Also, futarchy fixes this. A token rating system run by Futarchy might be exactly what the doctor ordered.