FinTax Crypto Accounting and Auditing Series (III): Outlook on Web3 Disclosure from IPO to IEO
Gradually improving the disclosure of crypto projects can, in the long run, facilitate the transition of the crypto industry from a speculative market to a trusted financial tool, ensuring the industry’s sustainable development. However, the disclosure of crypto projects has its particularities: on the one hand, the blockchain technology underlying crypto issuance establishes a decentralized issuance model, making it difficult to replicate the centralized regulatory system of IPOs; on the other hand, not all current crypto projects have the value of compliant development. This article will start by defining the scope of disclosure projects to discuss which crypto projects need to standardize their disclosures. It will then explore the disclosure model of traditional IPOs for reference, and finally, in combination with the characteristics of the crypto industry itself, prospect the future of project disclosure standardization.
1 Defining the Scope
– Types of Projects
Before advancing the standardization of crypto project disclosures, the first question to address is: which types of crypto projects need to standardize their disclosures. We believe that venture capital (VC) coins are more in need of standardized disclosures compared to meme coins and other cryptos. VC coins are issued with the support of VC firms, typically to raise funds for technology R&D, backed by professional VC institutions providing funding, resources, and strategic support. The unique investment value of VC coins lies in their technological support, institutional backing, and long-term value capture mechanisms. Meme coins, on the other hand, rely on the popularity of specific internet cultural phenomena. The market buys them with a mix of humor and speculation, driving up valuation through short-term emotional hype. Unlike meme coins, VC coins emphasize technological innovation, with project teams investing more resources in R&D and ecosystem building, and leveraging cross-chain capabilities to expand application scenarios. These technological advantages enable VC coins to achieve real-world implementation in decentralized finance (DeFi) and blockchain infrastructure, such as Uniswap optimizing trading efficiency through Layer 2 expansion or Sui Network enhancing security via the Move language, both showcasing the technological edge of VC coins. VC coins, with long-term lock-up mechanisms and milestone development plans, are less favored by investors than other tokens. But as projects progress, their valuation will rise.
As representatives of technological innovation, the necessity for standardized disclosure of VC coin projects stems from the contradiction between their high initial valuation (FDV) and low circulation volume. The value assessment of VC coins heavily depends on team background, technological progress, and financial data transparency. Investors rely on the openness of project information to gauge their true value. If project teams conceal financing details or exaggerate milestone achievements, it could exacerbate market manipulation risks. Therefore, it is essential to promote the standardization of VC coin project disclosures to build a sustainable VC coin investment ecosystem and balance the interests of institutions and retail investors.
– Token Issuance Methods
In terms of token issuance methods, projects issued on centralized exchanges (CEXs) are more in need of standardized disclosures. As mentioned in the previous article, the biggest difference between IEO and ICO issuance models is that the former requires projects to collaborate with crypto exchanges and meet various exchange requirements, while the latter is entirely managed by the project team with minimal restrictions. Some argue that the emergence of CEXs deviates from the decentralized nature of crypto. However, this is not the case. Throughout the development of cryptocurrencies, blockchain’s distributed architecture, cryptographic principles, multi-node collaboration of consensus mechanisms, and the automated execution of smart contracts have collectively built a value transfer system without the need for trusted intermediaries. Nevertheless, these technological means can shift the focus and responsibility of information disclosure but cannot entirely resolve credit risk issues. This is because while these technologies can ensure the authenticity of on-chain data, they cannot verify the reliability of off-chain data such as team backgrounds and financial status. CEXs, as market infrastructure, provide institutional supplements to alleviate information asymmetry. On the one hand, exchanges act as de facto “market gatekeepers” by setting issuance thresholds (e.g., technical audits, team background checks, and assessments of token economic models), pushing projects to standardize their disclosures. This improves the quality of listed projects, reduces the number of low-quality coins, and lowers investment risks. On the other hand, unlike national regulatory bodies, CEXs are spontaneously formed within the industry and can accommodate market demands and changes. Thus, the IEO issuance model serves as a convergence point between decentralized fundraising in Web3 and traditional centralized regulation. In the work of standardizing project disclosures, it can both adopt traditional disclosure and regulatory models and introduce new measures tailored to the crypto industry’s characteristics.
2 Learning from Traditional IPO Disclosure Models
The IPO disclosure model in traditional finance has reached a high level of maturity, serving as a cornerstone for market transparency and investor protection. In contrast, disclosure in the crypto space is still in its infancy, lacking an industry-wide standard. The standardized disclosure framework, strict third-party audit requirements, and post-listing continuous disclosure regulations from IPOs are three key aspects worth exploring for the crypto industry.
– Standardized Disclosure Framework
The formation of a standardized disclosure framework is an inevitable outcome of securities market development and government regulatory needs. Regulatory bodies and exchanges worldwide have established a relatively uniform framework through a series of rules and guidelines. Additionally, international standards such as the EU Sustainable Reporting Standards (ESRS) are driving higher disclosure standards globally.
In terms of framework content, while disclosure requirements for IPOs vary across exchanges, they all center around a prospectus, covering key information such as the share issuance overview, issuer background, business and technology, and financial accounting data. Beyond this, companies must also disclose documents like the sponsor’s conclusion on the securities issuance, legal opinions from law firms, and audit reports from accounting firms. To ensure the authenticity of disclosed information, major shareholders are required to sign commitment clauses or issue commitment letters in various forms.
– Third-Party Audits
The inclusion of third-party audits in the IPO process is aimed at ensuring the financial transparency of listed companies. Independent third-party audit firms conduct systematic reviews of a company’s financial statements, accounting records, and internal control processes to verify compliance with accounting standards, thereby reducing investment risks caused by information asymmetry. Moreover, external audit firms help prevent financial fraud by companies, maintaining the fairness and order of capital markets. The traditional IPO third-party audit process typically includes three stages: audit preparation, audit implementation, and audit reporting. During the preparation phase, audit firms conduct preliminary due diligence, understand the company’s basic situation, and develop an audit plan, while the company prepares relevant financial data and materials. In the implementation phase, auditors enter the company to conduct a comprehensive audit of financial statements and internal controls, verifying data accuracy, completeness, and reliability, while also assessing compliance. Finally, in the reporting phase, auditors issue audit reports in line with regulatory requirements, including financial statement audit reports and financial review reports. If there are changes in the company’s financial status or new regulatory requirements, supplementary audits may be necessary.
– Continuous Post-Listing Disclosure
Post-listing continuous disclosure requirements for IPO projects are essential for aiding investor decision-making and maintaining capital market order. Since the market value of listed companies is influenced by their operational status and market environment changes, continuous and timely disclosure of significant events allows investors to make informed decisions and helps capital markets allocate resources effectively through sufficient information flow. Traditional IPOs require listed companies to disclose regular reports, including annual, semi-annual, and quarterly reports, which detail operational results and financial conditions. Temporary reports cover major events (e.g., asset restructuring, equity changes, significant litigation), resolutions from the board of directors, supervisory board, and shareholders’ meetings, related-party transactions, risk factors, and industry-specific operational information. These disclosures must adhere to principles of truthfulness, accuracy, completeness, timeliness, fairness, and materiality, and are published through channels such as stock exchange websites and media outlets designated by the securities regulatory commission. They are also made available for public review at the company’s residence and the stock exchange.
3 Outlook on IEO Disclosure
The IPO disclosure model offers valuable lessons for IEO projects. Standardized disclosure frameworks, third-party audits, and continuous disclosure are all aspects worth considering in the standardization of crypto project disclosures. At the same time, these practices should be adapted to the unique characteristics of the crypto industry. The following sections will prospect the future of IEO disclosure standardization from the perspectives of the industry, CEXs, third-party institutions, and project teams.
– Industry: Issuing Disclosure Guidelines
The lack of unified disclosure guidelines or self-regulatory constraints is a significant issue in crypto project disclosures, contrasting sharply with the mature IPO disclosure model. Constructing IEO disclosure standards requires careful consideration. Given that no single exchange can monopolize all project listings, it is unrealistic to expect all projects to follow the same exchange’s disclosure standards. However, the development of advisory or reference standards is feasible. Specifically, leading exchanges like Binance and Coinbase, or renowned third-party institutions, could publish crypto project disclosure guidelines (or recommendations), outlining core elements such as technical audits, economic models, and team backgrounds for IEOs. Exchanges could first incorporate these standardized indicators into their own project disclosure requirements and encourage smaller exchanges to adopt them, gradually evolving into industry-wide standards. Additionally, different exchanges could expand vertical-specific disclosure content within the recommended framework based on their positioning and project characteristics (e.g., public blockchains, DeFi protocols, NFT platforms).
For IEO-issued VC coin projects, the focus of disclosure guidelines should be on project technology, team, financial, and compliance information. This includes technical foundations, progress, market positioning, business plans, compliance risk management, as well as team backgrounds, financing details, registered capital, operational models, governance structures, and technological levels. Furthermore, as VC coins are a type of venture capital token, additional disclosure of institutional investment terms (e.g., unlocking schedules and sales restrictions) is required. This information is critical for projects and serves as the basis for investors to assess investment value. After public disclosure, investors can evaluate the project and team comprehensively before deciding to purchase project tokens, thereby reducing disorderly token issuance within the industry and enhancing investment stability.
– Centralized Exchanges: Strengthening Review and Information Transparency
One of the key objectives of enhancing disclosure transparency and standardizing project disclosures is to curb the proliferation of false and misleading information in the market. As the convergence point between decentralized Web3 ecosystems and centralized industry regulation, CEXs play a pivotal role in advancing the standardization of project disclosures. For IEO-listed projects, meeting exchange review requirements is essential for successful token issuance. Currently, CEXs face two main issues in IEO project disclosures: on one hand, large exchanges already gather extensive information from projects before listing but do not fully disclose it to investors. On the other hand, smaller exchanges may lower their listing review standards in pursuit of user growth and engagement, allowing projects with false claims to issue tokens and harm investor interests. Large exchanges may withhold certain information obtained during the review process to stabilize investment markets or protect projects from hacking risks. However, there is also the possibility of exchanges exploiting insider information for personal gain, such as engaging in ” frontrunning” practices. To address this, large exchanges should increase transparency by publicly disclosing all investment-relevant information after confirming with the project team which details to withhold. This will better assist investors in making informed decisions. Smaller exchanges, meanwhile, need to strengthen their listing review mechanisms and improve project quality to achieve sustainable user growth.
– Third-Party Institutions: Establishing Disclosure Evaluation Metrics
In traditional finance, third-party audits are a critical indicator for assessing whether IPO projects meet listing requirements, mandated by exchanges. However, decentralized crypto markets find it challenging to enforce similar mandatory disclosure requirements. A shift in approach is needed, integrating disclosure into market incentive mechanisms. Third-party institutions, acting as neutral entities, could establish evaluation metrics for crypto project disclosures and publish assessment results akin to a “reputation index report” for newly issued projects, providing investors with reference material. There are precedents for project-based evaluation metrics. For instance, bitsCrunch has developed an assessment system covering 2 million projects using AI algorithms weighted across 16 specific indicators, serving as a key tool for measuring project credibility and market health. Moving forward, disclosure evaluation metrics could be incorporated into similar comprehensive assessment systems as a reference dimension or developed into a standalone disclosure evaluation framework focusing on content, methods, and standardization of project disclosures.
– Project Teams: Proactive and Continuous Disclosure
As the primary source of project information, project teams are often an overlooked link in the standardization of disclosures. Project teams should recognize that publicly disclosing team financials, technical principles, milestone plans, token release schedules, and token allocation schemes can help investors verify their commitment and impact investment decisions. The degree of information transparency is positively correlated with investors’ willingness to invest. For teams with genuine technological innovation seeking token issuance for funding, it is essential to enhance disclosure willingness. By publicly sharing project information, teams can build investor confidence and, guided by ethical requirements, commit to the authenticity and accuracy of disclosed information. After a successful token listing, project teams should also adopt a regular disclosure model akin to IPOs, issuing quarterly, semi-annual, and annual reports to continuously update token circulation volumes, burn mechanism progress, governance proposal voting records, and operational metrics (e.g., TVL and user activity). This not only keeps investors informed of project developments but also serves as a motivator for project teams to steadily advance their initiatives. When disclosing continuously, teams can adapt to blockchain characteristics, forming a hybrid mechanism of “regular reports + on-chain transparency + dynamic updates” to better promote the standardization of crypto markets.
4 Conclusion
The thriving crypto industry owes its success not only to technological innovation but also to the accumulation of market trust. For project teams, disclosure should not be viewed as a “compliance burden” but rather as a strategic means to build a transparent ecosystem. Crypto disclosures must strike a balance between technological innovation and compliance. Drawing on traditional financial IPO disclosure models while forming effective innovations based on industry characteristics, disclosures can collectively drive the normalization of the crypto market.