The total cryptocurrency market cap today is near $200 billion, per coin market cap. To the un-initiated, that sounds like a high figure, but to put this in context, the North American asset management industry controlled more than $88.5 trillion at the end of 2017, according to McKinsey. As Ryan Selkin of Messari recently wrote, unless this asset class learns to deliver on transparency, it risks being relegated to the shadows.

Crypto needs its own version of GAAP disclosure standards

The crypto asset space today is somewhat reminiscent of the wild west days in equity markets nearly a century ago, where publicly traded companies lacked a defined set of standards. It was only after the stock market crash of 1929 that accountants, regulators and investors aligned on a set of disclosure standards, which we now know as GAAP (Generally Accepted Accounting Principles). While crypto networks can use blockchain ledgers to create a transparent financial system, the governance and finance management of these networks is just as important as the technology and ideological beliefs they are selling.

“I did get the Ethereum Foundation to sell 70,000 ETH like basically at the top” — Vitalik Buterin

At the end of 2019, we learned that the Ethereum Foundation had sold $100 million of $ETH at the top of the 2018 market. While some would reason that liquidating an asset at the top of a market is a good use of treasury management, I believe not disclosing this sale presents ethical challenges, as dumping a large amount of asset invariably puts sell pressure, which would have caused many retail investors to lose money.

I believe there’s an opportunity for projects to differentiate themselves on the basis of transparency. This is one of the several reasons I am attracted to the ethos of the Decred DAO.

Transparency as a feature of the Decred DAO:

While most crypto projects rely on offline LLCs for funding support, the Decred DAO is governed by a self funding mechanism where its treasury lives on the blockchain, and can be viewed in real time. Here are three ways the Decred DAO differentiates itself based on transparency:

A real time view of cash on hand:

Unlike other cryptocurrencies which selectively disclose their finances, Decred’s Treasury balance can be viewed 24/7. This kind of disclosure goes beyond even public markets, where companies disclose their finances on a quarterly basis.

Frequent Execution updates:

Most people aren’t going to be checking the GitHub repos, so we need a better mechanism of seeing community progress. Decred’s monthly Journal provides an interesting example of a recurring disclosure, where a monthly update covers roadmap highlights, community engagement updates, and financial reporting rolled into one. What’s particularly interesting about this journal is how based on an open source input, with contributors from around the world. It’s a very crypto native take on traditional Edgar filings, which will be familiar to institutional investors.

A transparent decision making process:

Cryptocurrencies are programmable money, and will need change management processes in order to have long term software support. In this aspect, the transparency of Decred’s community governance is a differentiator from other cryptocurrencies.

In many ways, Decred’s design is a contrarian approach to Bitcoin, with community governance being the largest example. Bitcoin’s governance premise is that by not having well defined change processes, the code base can push out major decisions, leading to an unchangeable base layer. By contrast, Decred’s ethos says that change is inevitable, and we need to make the change management as transparent as possible, while also setting high thresholds for consensus changes. Bitcoin’s governance process also doesn’t specify who is going to pay for improvement proposals, and changes are left to a handful of developers and miners before they can be activated. By contrast, in Decred’s governance process, improvement proposals are publicly proposed on Politeia, where $DCR owners can vote and give feedback.

Bitcoin pushes out hard decisions, hoping the current software will be good for infinity. Decred tackles the difficult decisions head on, while setting high thresholds to retain community consensus.

I believe that transparently allowing token holders to give input into community decisions will not only lead to greater long term adaptability, but also a differentiating aspect of Decred’s network effect.

Still not perfect, but a cut above others.

I did some earlier analysis to show that Decred’s self funding Treasury has the potential to grow to be worth billions of dollars some day. As the community matures, it makes sense to evolve its financial disclosures to reflect a categorized breakdown of expenses. This would potentially bring Decred’s disclosures in line with other investable assets which disclose their R&D, Marketing and other expenses.

We will look back at the 2010s as the wild west days of crypto, where standards were scarce, and scammers were aplenty. As time goes on, markets will learn to value projects which have a track record of quality and consistency.

Cryptocurrencies are about more than trusting a code base over traditional human led monetary institutions. They are about building trust in distributed networks. Ultimately, trust will only be possible if they have a foundation of transparency to build upon.