Source: Tiger Research
Compiled by: Vernacular Blockchain
Brief Overview (TL;DR)
Blockchain transparency enables the community to uncover misconduct and redistribute power but also introduces new vulnerabilities. Today, transparency is both an asset and a liability for Web3 projects, creating pathways for strategic attacks and crowd-driven volatility.
While transparency amplifies systemic risks—including internal exposures and protocol exploitation—abandoning transparency would contradict the fundamental principles of open verification and decentralized trust in Web3.
The long-term success of Web3 will not be achieved by hiding activities but by building sufficiently robust systems that operate and thrive under continuous public scrutiny.
1. New Risks of Transparency: From Monitoring to Attacks
Blockchain transparency has become a core value in the Web3 industry. Unlike centralized databases where a single entity controls data access, blockchain operates on a transparent and immutable ledger that all participants can verify in real-time. Transparency has now become a foundational element of Web3.
With this transparency, Web3 users can now monitor the projects they care about in real-time. They can track the wallet activities of founders, investors, and large holders, identifying suspicious token movements within minutes. In the Web2 environment, internal activities are often hidden behind private bank accounts, inaccessible to the public. In contrast, Web3's radical transparency immediately exposes all transactions. Compared to traditional finance, where such disclosures might take months, the real-time visibility of blockchain represents a transformative shift.
However, this shift introduces a structural paradox. Transparency, originally intended to enhance accountability and user oversight, is increasingly weaponized to attack projects and large holders, even in the absence of evidence showing their behavior is unethical.
This report explores the positive and negative effects of blockchain transparency and poses a critical question: Should Web3 pursue absolute transparency at all costs?
2. The Double-Edged Effect of Transparency
2.1 Positive Effects: Exposing Internal Behaviors, Restoring Market Fairness
Source: Tiger Research
In 2024 and 2025, a series of internal monitoring actions exposed that in some projects, team wallets, influencers, and early supporters seemed to be involved in token sales. These internal activities were immediately exposed by blockchain transparency, triggering a strong backlash from the community.
For example, Bubblemaps flagged suspicious concentration phenomena of the $HAWK token. Source: Bubblemaps
Taking HAWK Memecoin as an example, it was found that over 96% of the token supply is concentrated in the project team and its affiliates. After this information was disclosed, the market reacted sharply: the token's market capitalization plummeted from a peak of $500 million to below $60 million, triggering regulatory scrutiny and undermining its credibility.
Blockchain transparency enables the community to act as real-time enforcers. Whether led by influencers or anonymous founders, project teams that fail to interact transparently often face accusations of manipulation, even if their actions are technically compliant with legal requirements.
Although trading data is publicly visible to all participants, interpreting its significance remains a complex task. Accurately understanding the intentions and context behind each transaction requires expertise, making it difficult for ordinary users to fully interpret the information. However, as on-chain analytical tools advance, this gap is gradually narrowing. Users are now increasingly able to extract actionable insights from complex transaction flows and apply them to their decision-making processes.
2.2 Negative Effects: Transparency Backfires on the Platform Itself
Today, advanced on-chain analytical tools enable participants to more easily access and interpret blockchain data. However, this increased visibility also introduces new risks. As the monitoring capabilities of on-chain analysis expand, transparency itself may become weaponized. Projects with weak governance structures or highly concentrated token distributions face higher risks of manipulation and coordinated exploitation.
A frantic run led to losses for Hyperliquidity Providers (HLP). Source: Lookonchain
On March 26, 2025, Hyperliquid faced a new type of protocol-level risk, which was facilitated by the transparency it advocates. According to Arkham's analysis, the event unfolded as follows:
Attackers analyzed Hyperliquid's publicly available liquidation thresholds and HLP treasury sizes to calculate precise liquidation points.
Using three wallets, attackers opened a $4.1 million short position and two long positions ($2.15 million and $1.9 million), artificially pushing up the price of JELLY.
As the price of JELLY rose, the first short position was liquidated, transmitting losses to the HLP treasury.
External traders joined long positions due to rumors of an OKX listing and anticipated short squeezes, exacerbating price volatility.
Hyperliquid mitigated systemic risk by forcibly delisting JELLY and closing all open positions at $0.0095.
Hyperliquid's architecture publicly displays treasury exposures, margin levels, liquidation thresholds, and open positions, inadvertently enabling attackers to exert precise pressure. In this case, transparency not only failed to prevent manipulation but actually facilitated real-time coordinated financial attacks.
Official statement from Hyperliquid regarding the manual delisting of JELLY. Source: @HyperliquidX
Ironically, the transparency that Hyperliquid advocates has led to financial losses and raised broader concerns about its governance and resilience. To prevent further systemic harm, the team was ultimately forced to delist JELLY—an action that contradicts the principles of decentralization.
Other projects may also face similar risks. Even with sound technical designs, transparent protocols remain prone to unexpected attacks. Without accompanying defensive mechanisms and a clear response framework, transparency, while aimed at establishing credibility, can become a source of systemic instability. In such cases, transparency is not only an advantage but also a strategic vulnerability.
2.3 Neutral Effect: Transparency Becomes a Tool for Group Strategy
The outcomes of transparency cannot be simply categorized as positive or negative. In some cases, transparency as a tool blurs the line between promoting market integrity and achieving individual self-interests.
The public call to hunt Hyperliquid's large holders has sparked significant attention. Source: @Cbb0fe
This emerging trend is clearly illustrated on Hyperliquid, where some investors began targeting large traders based solely on visible positions. One notable case involved a trader named CBB, who publicly called for the coordinated liquidation of a large holder, claiming to have mobilized eight-digit funds. Importantly, the targeted trader had not violated any protocols or engaged in misconduct; the sheer size of their position made them an inevitable target.
Moreover, this behavior reflects a psychological pattern in Web3 known as the modern iteration of 'David vs. Goliath.' In traditional narratives, David is portrayed as the righteous underdog, while Goliath, though just a powerful soldier in the same arena, is perceived as the adversary due to his strength. Similarly, in the Web3 environment, large holders often become symbolic targets, regardless of their intentions or actions. Visibility amplifies perceptions, and perceptions—rather than facts—are increasingly shaping collective behavior.
Innocent investors may suffer reputational damage or financial loss simply due to visibility. The fear of being publicly targeted may deter large-scale capital from entering the ecosystem, ultimately limiting growth opportunities for new projects. At the same time, organized group behavior may consolidate power within influential groups, ironically creating new forms of centralization within a system originally designed to be decentralized.
3. New Reality: Should Projects Be More Transparent?
Transparency in Web3 is a double-edged sword. On the positive side, it enables the community to expose internal misconduct and redistribute market power through collective action. On the negative side, it exposes projects to unexpected attacks, including strategic market manipulation. Although transparency aims to establish trust, it can also become a catalyst for systemic instability.
Despite these risks, abandoning transparency is neither feasible nor advisable for most Web3 projects. Transparency is at the core of the Web3 ethos: it enables open verification, reduces information asymmetry, and shifts trust from centralized intermediaries to decentralized systems. Without transparency, the core principles that distinguish Web3 from traditional finance and technological structures would be eroded.
Rather than abandoning transparency, projects must develop strategies to coexist with it. This includes embedding resilience in protocol design, establishing clear crisis management frameworks, and actively managing perceptions and communications with the community.
For example, some projects are establishing DAO-based emergency procedures to ensure interventions are governed by a transparent and community-approved framework. Other projects regularly conduct bug bounty programs to identify vulnerabilities before they are exploited.
Transparency in Web3 cannot be reduced; it is a structural inevitability. Projects must recognize that transparency will continue to amplify both opportunities and risks. Successful projects are not those that hide better but those that build systems robust enough to withstand being seen.
