Author: Chi Anh and Ryan Yoon
Source: Tiger Research
Translated by: Blockchain Plain Language
Brief Overview (TL;DR)
- Blockchain transparency enables communities to discover misconduct and redistribute power, but also introduces new vulnerabilities. Today, transparency is both an asset and a liability for Web3 projects, creating paths for strategic attacks and community-driven volatility.
- While transparency amplifies systemic risks—including internal exposure and protocol exploitation—abandoning transparency would violate Web3's fundamental principles of open verification and decentralized trust.
- Web3's long-term success will not be achieved by hiding activities, but by building systems robust enough to operate and thrive under continuous public scrutiny.
1. New Risks of Transparency: From Monitoring to Attack
Blockchain transparency has become a core value in the Web3 industry. Unlike centralized databases controlled by a single entity with restricted data access, blockchains operate on a transparent and immutable ledger where all participants can verify in real-time. Transparency has now become a fundamental element of Web3.
With this transparency, Web3 users can now monitor projects of interest in real-time. They can track wallet activities of founders, investors, and large holders, identifying suspicious Token movements within minutes. In the Web2 environment, internal activities are typically hidden behind private bank accounts, inaccessible to the public. In contrast, Web3's radical transparency immediately exposes all transactions. Compared to such disclosures potentially taking months in traditional finance, blockchain's real-time visibility represents a transformative shift.
However, this shift introduces a structural paradox. Transparency originally intended to enhance accountability and user oversight is now increasingly weaponized to attack projects and large holders, even without evidence of unethical behavior.
This report explores the positive and negative effects of blockchain transparency and raises a critical question: Should Web3 pursue absolute transparency at all costs?
2. The Double-Edged Effect of Transparency
2.1 Positive Effect: Exposing Internal Behavior, Restoring Market Fairness
Source: Tiger Research
In 2024 and 2025, a series of internal monitoring actions revealed that some project teams, influencers, and early supporters seemingly engaged in Token sales. These internal activities were immediately exposed through blockchain transparency, triggering strong community backlash.
For example, Bubblemaps marked suspicious concentration in $HAWKToken. Source: Bubblemaps
Taking the HAWK Memecoin as an example, over 96% of the Token supply was found to be concentrated among the project team and its affiliates. After this information was exposed, the market reacted dramatically: the Token's market value plummeted from a peak of $500 million to below $60 million, triggering regulatory scrutiny and weakening 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 manipulation accusations, even if their actions technically comply with legal requirements.
Although transaction data is publicly visible to all participants, interpreting its significance remains a complex task. Accurately understanding the intent and context behind each transaction requires expertise, making it challenging for ordinary users to fully decode the information. However, with the advancement of on-chain analysis tools, this gap is gradually narrowing. Users are increasingly able to extract actionable insights from complex transaction flows and apply them to their decision-making processes.
2.2 Negative Effect: Transparency Backfiring on Platforms
Today, advanced on-chain analysis tools enable participants to more easily access and interpret blockchain data. However, this increased visibility also brings new risks. As on-chain analysis monitoring capabilities expand, transparency itself can be weaponized. Projects with weak governance structures or highly concentrated Token distributions face higher risks of manipulation and coordinated exploitation.
Crazy liquidation caused Hyperliquidity Provider (HLP) to lose funds. Source: Lookonchain
On March 26, 2025, Hyperliquid encountered a new type of protocol-level risk, precisely enabled by its advocated transparency. According to Arkham's analysis, the event unfolded as follows:
- The attacker analyzed Hyperliquid's public liquidation thresholds and HLP vault size, calculating precise liquidation points.
- Using three wallets, the attacker opened a $4.1 million short position and two long positions ($2.15 million and $1.90 million), artificially driving up JELLY's price.
- As JELLY's price rose, the first short position was liquidated, with losses cascading to the HLP vault.
- External traders joined long positions due to rumors about OK listing and expected short squeeze, exacerbating price volatility.
- Hyperliquid contained systemic risk by forcibly delisting JELLY and closing all open positions at $0.0095.
Hyperliquid's official statement on manual JELLY delisting. Source: @HyperliquidX
Ironically, Hyperliquid's championed transparency both caused financial losses and raised broader concerns about its governance and resilience. To prevent further systemic damage, the team was ultimately forced to delist JELLY—a necessary action that paradoxically contradicts decentralization principles.
Other projects may face similar risks. Even with sound technical design, transparent protocols remain vulnerable to unexpected attacks. Without accompanying defense mechanisms and clear response frameworks, transparency, while intended to build credibility, can become a source of system instability. In such cases, transparency is not just an advantage but a strategic vulnerability.
2.3 Neutral Effect: Transparency as a Group Strategy Tool
The outcomes of transparency cannot be simply categorized as positive or negative. In some instances, transparency as a tool blurs the line between promoting market integrity and achieving personal interests.
Public call to hunt Hyperliquid whales sparked high-profile attention. Source: @Cbb0fe
This emerging trend was clearly demonstrated on Hyperliquid, where some investors began targeting large traders solely based on visible positions. A notable case involved a trader named CBB, who publicly called for coordinating the liquidation of a large holder, claiming to have mobilized eight-figure funds. Importantly, the targeted trader had not violated any protocol or engaged in misconduct; the sheer size of their position made them an inevitable target.
Moreover, this behavior reflects a psychological pattern in Web3, a modern iteration of the "David vs. Goliath" narrative. In traditional narratives, David is portrayed as the righteous underdog, while Goliath, merely a powerful soldier on the same battlefield, is perceived as an opponent due to his strength. Similarly, in the Web3 environment, large holders often become symbolic targets, regardless of their intentions or actions. Visibility amplifies perception, and perception increasingly shapes collective behavior rather than facts.
Innocent investors may suffer reputational damage or financial losses simply due to visibility. The fear of public targeting could deter large-scale capital from entering the ecosystem, ultimately limiting new project growth opportunities. Simultaneously, organized group behavior might consolidate power within influential groups, ironically creating new forms of centralization in 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 communities 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. While transparency aims to build trust, it can also become a catalyst for system instability.
Despite these risks, abandoning transparency is neither feasible nor desirable for most Web3 projects. Transparency is at the core of the Web3 spirit: 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 financial 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 proactively managing perception and communication with the community.
For example, some projects are establishing DAO-based emergency procedures to ensure interventions are managed by transparent and community-approved frameworks. Other projects regularly conduct vulnerability bounty programs to identify protocol weaknesses before they can be 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.
Article link: https://www.hellobtc.com/kp/du/05/5780.html
Source: https://reports.tiger-research.com/p/web3-paradox-how-transparency-builds-eng
