The Necessity of a Fiduciary Standard in Cryptocurrency | Opinion

By voluntarily embracing fiduciary responsibilities, crypto can help this industry graduate from a high-risk experiment to a respected, enduring asset class

The cryptocurrency industry lacks a fiduciary standard similar to that found in traditional finance, which leads to unchecked behaviors and a decline in project credibility. By adopting fiduciary standards, the crypto sector can enhance accountability and improve investor protections, moving toward a more sustainable and respected asset class. This article discusses the importance of voluntary self-regulation, transparency, and the need for a robust framework to foster trust and stability in the market.

Key Takeaways

Current Situation: Unlike traditional finance, the cryptocurrency industry lacks fiduciary duties, resulting in risky founder behaviors and failed token launches.
Importance of Accountability: Establishing fiduciary standards can help legitimize the crypto sector, aligning it more closely with traditional financial markets.
Voluntary Self-Regulation: Encouraging third-party ratings and disclosures can restore credibility and transparency, allowing investors to make informed decisions.
Investor Protection: Without proactive measures, the crypto industry risks facing severe regulations that prioritize investor protection over innovation.

The Lack of Fiduciary Duty in Cryptocurrency

In the realm of traditional finance, fiduciary duty is not merely a guideline; it's a legal requirement. Corporate leaders are required to prioritize their shareholders’ interests, ensuring a level of transparency and accountability between businesses and their stakeholders. Conversely, the cryptocurrency landscape operates without such standards, allowing billions of dollars to flow into token projects with little oversight or accountability. This gap has given rise to a culture where founder misconduct is commonplace, leading to projects that often treat their communities as mere exit liquidity. Consequently, many token launches fail, leaving token holders without recourse when projects falter.

For cryptocurrency to be taken seriously as a credible asset class, it must adopt a principle that has formed the bedrock of financial markets for centuries: responsibility to those who invest.

Voluntary Self-Regulation: A Path to Accountability

Due to the slow and complicated nature of formal regulations, the crypto industry should take the initiative to create standards aimed at enhancing its credibility and protecting investors. One effective strategy could be the implementation of voluntary fiduciary standards through independent rating organizations, mirroring the functions of agencies like Moody’s or Standard & Poor’s in traditional finance.

Such a ratings agency would ensure discipline in tokenomics by requiring projects to provide standardized documentation on essential aspects like distribution, emissions, utilities, and demand mechanisms. This information would be assessed based on industry benchmarks and rated for clarity, transparency, and long-term holder benefits. Follow-up updates would be necessary post-launch to ensure that models stay relevant and accurate.

To examine vesting discipline, the agency could analyze the token unlock structure and timeline, rewarding projects with conservative releases and penalizing those with opaque practices. Transparency in liquidity strategies, including exchange listings and market maker arrangements, could also be mandated, allowing prospective investors to understand available liquidity right at trading onset.

To promote long-term accountability, ratings agencies could track a shared score based on past conduct, involving on-chain activity and delivering on previous roadmaps. This score would generate reputational incentives, similar to a credit score in traditional finance.

Although these ratings wouldn't have legal weight, they would provide valuable signals to the market, helping exchanges, investors, and communities discern reliable projects from opportunistic schemes.

The Current Accountability Vacuum

Presently, many crypto projects launch with little more than attractive websites and charismatic founders, often backed by whitepapers filled with jargon. Despite often missing clear roadmaps, these ventures manage to raise substantial sums, driven by speculation and a lack of understanding of token fundamentals. The absence of fiduciary duties means there’s minimal pressure on founders to use capital wisely or build lasting value. Instead, many prioritize short-term hype, leading to price spikes that often crash once initial excitement diminishes.

The fallout extends beyond individual project failures. Research from CoinGecko notes that 95% of tokens from the 2021 bull market have seen their values plummet by over 90%. This trend continues, with more than 1.8 million tokens collapsing in just the first quarter of 2025. These projects weren't set up for longevity; they often exploit token holders as liquid exits. Such dubious projects perpetuate a cycle of collapses, eroding trust in the crypto space and driving investments away from legitimate initiatives.

Even earnest teams face challenges due to flawed launch strategies. Early allocation of tokens to venture investors can absorb initial market demand, but once the tokens go public, institutional interest has often already been satisfied, leaving retail investors with illiquid assets that might flood the market as unlocks begin. Without clear standards, even capable teams struggle to launch effectively, and investors, especially retail ones, lack reliable ways to differentiate between promising and doomed projects.

Crypto's Credibility Crisis

The global scrutiny from regulatory bodies, highlighted by policies like Europe’s Markets in Crypto-Assets Regulation and the GENIUS Act in the U.S., indicates that the crypto industry is under close observation. Should misconduct and misaligned incentives continue unchecked, drastic regulatory interventions are likely, threatening innovation. The industry must act urgently to self-regulate and showcase its ability to govern responsibly.

Simultaneously, institutions—the next major potential drivers of crypto’s evolution—are scrutinizing the space, hesitant to enter a market seen as volatile and unregulated. Establishing a credible fiduciary framework could unlock greater capital inflow.

While cryptocurrency champions decentralization and innovation, it cannot equate to lawlessness. Innovation without accountability will only stall progress. By embracing fiduciary responsibilities voluntarily, the stakeholders in cryptocurrency can elevate the industry from a precarious experiment to a respected asset class.

If the industry fails to act, we shouldn’t be surprised when serious investors turn away from us.