SEC Crypto Disclosure Guidance: A Blueprint for Web3 Projects as well?

The SEC's Division of Corporation Finance recently released guidance on disclosure requirements for crypto asset securities. While targeting securities offerings, the guidance serves reads as a valuable blueprint for the kinds of disclosures which all web3 projects should strive to achieve - whether their tokens are securities or not.

Why should non-security token projects care? Because given the amount of rug pulls and scams and hacks in crypto and the outsized narrative those have created, transparency builds trust, attracts quality participants, and creates sustainable communities in a longer term model. The framework offers a ready-made template for responsible disclosure that can benefit any project.

The Web3 Transparency Imperative

Token-based projects operate in an environment where information asymmetry can be extreme. Developers typically possess vastly more knowledge about the project, technology, tokenomics, and details of the governance than token holders. By adopting rigorous disclosure practices, projects can build better trust, attract more sophisticated participants, help rating sites understand the projects, reduce the risk of misledaing or deceptive conduct claims, and establish best practices.

The Essential Disclosure Checklist for Web3 Projects

Based on the SEC guidance, with a few tweaks, here's a practical checklist web3 teams should consider implementing:

Business Description

Clear explanation of the network/application's purpose and functionality:

• Current development stage and a realistic timeline to full deployment, too many projects are overly optimistic on their roadmaps;

• Technical architecture, consensus mechanism, and transaction validation processes;

• Governance system and update/upgrade processes, which is only becoming more important as 'control' is a rising theme in determining decentralisation;

• Revenue generation model and value creation mechanisms, but being mindful of the risk of offering returns which could trigger securities laws;

• Network roles (validators, users, developers) and their relationships with each other; and

• Security measures and third-party audit status and frequency.

Token Characteristics

• Technical specifications (divisibility, transferability, network fees);

• Token utility within the ecosystem;

• Total supply mechanics (fixed, inflationary, deflationary);

• Initial distribution and allocation (team, treasury, community, investors);

• Vesting schedules and lock-up periods;

• Smart contract audit status and results; and

• Token custody mechanisms and security considerations

Risk Factors

• Technical risks (code vulnerabilities, scalability issues, limits on the underlying chains being used);

• Operational risks (team dependencies, funding constraints, geographical risks);

• Market risks (liquidity, volatility, competition);

• Regulatory uncertainties and compliance approach;

• Network-specific risks (51% attacks, MEV exploitation); and

• External dependencies (oracles, bridges, third-party protocols).

Team and Governance

• Core team members' identities, experience, and roles;

• Governance structure (centralized, DAO, hybrid);

• Decision-making processes for protocol changes;

• Treasury management and fund allocation procedures;

• Conflict resolution mechanisms; and

• Incentive alignment between team and token holders.

Development Roadmap

• Key milestones with realistic timelines;

• Technical dependencies and potential bottlenecks;

• Resource allocation for different development phases;

• Success metrics and evaluation criteria; and

  Contingency plans for potential setbacks.

Implementation Approaches

Web3 projects can implement these disclosure practices through different ways including:

1. A documentation Hub: Comprehensive, regularly updated documentation that covers all disclosure areas;

2. Transparency Reports: Quarterly updates on development progress, treasury activities, and governance and other matters;

3. Community Calls: Regular AMAs addressing disclosure topics with recorded sessions;

4. On-Chain Transparency: Publishing key metrics and treasury activities on-chain; and

5. Audit Reports: Going beyond a transparency repot and having third party audits of processes (not just code audits).

   
   

Beyond Compliance: Strategic Transparency

The most successful web3 projects recognize that transparency isn't just about avoiding regulatory issues—it's a strategic advantage. By adopting rigorous disclosure voluntarily, projects can:

• Differentiate themselves from less transparent competitors;

• Attract institutional participation that requires robust disclosure;

• Build sustainable communities based on informed participation; and

• Reduce speculation in favor of value-based token economics.

  
  

While the SEC guidance specifically targets securities offerings, and is plainly inspired by the kind of disclosure that securities require, building something better in web3 than used to exist (i.e. giant and dense disclosure documents which no one ever read) is both a huge challenge and a great opportunity. Voluntarily adopted disclosure practices will demonstrate that crypto isn't scammers and hucksters, but filled with skilled professionals building real products and projects for a hungry market.

The future of web3 depends not just on technological innovation, but on establishing norms of transparency and accountability that can sustain trust in decentralized systems. The SEC's disclosure guidance offers a roadmap that all projects would be wise to follow—regardless of their regulatory classification.

By Michael Bacina