Verifiability Discount in Crypto Protocols: Ambiguity and Turnstile Runs

01 ABSTRACT

Privacy-preserving protocols can repair a vulnerability without confirming whether it was exploited, even with no reported theft and protected aggregate supply; the authors call the potential value reduction from this gap the verifiability discount. A turnstile model shows early withdrawal can shift a possible shortfall to remaining holders and that credible evidence becomes more valuable as exposure grows. The VDISC framework separately records reported loss, exposed value, public evidence, returns, and pool flows, and is applied to Orchard disclosures, reconstructed on-chain flows, and a 40-event security panel.

02 KEY FINDINGS

1. The verifiability discount is the potential value reduction from an unresolved gap after a vulnerability is repaired without ruling out past abuse.
2. In the Orchard case, market responses were muted after repair and supply assurance, while the largest negative return and aggregate shielded-pool net outflow aligned with the acknowledgment that past abuse could not be ruled out.
3. Across 38 events with a public loss figure, market-cap-normalized reported loss and unresolved exposure overlap (Pearson 0.86, Spearman 0.56), partly because exposure is often coded from the loss itself, so returns alone cannot distinguish reported loss from unresolved history.