“KOL round” financing exists partly because of some unique features of the cryptocurrency market.

• Written by Ryan Weeks, Muyao Shen, Hannah Miller, Bloomberg

• Compiled by: Yangz, Techub News

Cryptocurrency markets boomed in March, with Bitcoin hitting all-time highs and billions of dollars flowing into new ETF products. But there is one particular group of investors who are cheering more than most.

At that time, Monad Labs completed a funding round that valued it at $3 billion from venture capital firms including Paradigm. By the standards of the crypto community, this round of financing for Monad is huge, and it also has one notable feature. Some people, known in the industry as "key opinion leaders" (KOLs), were allowed to invest up to a fifth of Paradigm's valuation, people familiar with the matter said.

This type of "KOL round" is similar to the celebrity trading that US regulators have cracked down on in recent years. As the market picks up, these "KOL rounds" are springing up like mushrooms after rain. This time around, it’s more likely to be crypto bloggers than athletes or reality TV stars who are getting investment discounts.

Interviews with some influencers, entrepreneurs and legal experts reveal that in return for promoting cryptocurrency projects, KOLs often receive favorable terms such as investment discounts and shorter token vesting periods. The transactions have become a source of controversy, with focus focused on inadequate disclosures and potential risks to retail investors.

Several people familiar with such deals said that at least some startups have raised funds without requiring KOLs to disclose their relationships, an apparent violation of U.S. regulations.

However, there is currently no indication that Monad Labs violated any U.S. securities regulations with this round of financing. One investor said the company did not make any explicit requirements for KOLs. Chief executive Keone Hon declined to comment on what vesting terms and disclosure rules apply to such investors. Paradigm also declined to comment.

KOLs and Cryptocurrency

Michael Selig, a partner specializing in securities law at international law firm Willkie Farr & Gallagher, said in an email: “Including influencers such as KOLs in financing and expecting them to promote the project in the name of investment is a good idea. currency may be subject to scrutiny by the U.S. Securities and Exchange Commission.”

“KOL round” financing exists partly because of some unique features of the cryptocurrency market. Some cryptocurrency startups offer equity to raise venture capital, while others raise funds by selling self-issued tokens or affiliated tokens. A project's valuation depends on the number and price of tokens sold, similar to a stock sale. Additionally, there are hybrid rounds that mix tokens and equity, such as Monad Labs.

Purchasing a token generally does not give investors the same protection as equity financing, but it does have the big advantage that investors can sell the token in just a few months, whereas stock investors often have to Wait years before a liquidity event such as an IPO occurs.

Another part of the reason lies in the role influencers play in the cryptocurrency market. For years, celebrities ranging from reality TV stars to athletes and self-proclaimed experts have been promoting cryptocurrency projects online, spawning an industry of copycats. During the initial coin offering (ICO) craze of 2017, having a large following on CT was like getting a ticket to riches in the form of early access to these popular tokens and getting paid for hawking them.

However, you don’t necessarily need a large number of followers to become a KOL investor.

Simon Chadwick, co-founder of Eclipse Fi, the Cosmos modular multi-chain token issuance platform, said: "Almost anyone with influence or community can become a KOL." "For example, a person with 5,000 followers on Twitter who can write research Thread-type people."

Chadwick said that in order to help project parties issue coins, the company has built a network of more than 400 KOL investors. He revealed that because the possibility of getting rich suddenly is so high, some KOLs even try to use fake social media accounts to invest multiple times in the same round of financing.

In such deals, KOLs receive discounts of 20% to 50% and shorter token vesting periods, meaning they can sell their tokens earlier than other investors, Chadwick said. “Some KOLs have invested hundreds of rounds and made a lot of money,” Chadwick said.

In fact, the US SEC has been cracking down on influencer marketing of cryptocurrency projects. In October 2022, Kim Kardashian agreed to pay $1.3 million to settle regulators' accusations that she violated U.S. regulations by failing to disclose her employment when promoting a crypto project token. . But Kardashian has not admitted or denied the accusations. Similarly, four years ago, the SEC fined former professional boxer Floyd Mayweather.

Emily Meyers, general counsel and chief compliance officer of crypto venture capital fund Electric Capital, said that in light of the SEC’s indictment of Kardashian and a similar case last year involving eight celebrities, including Lindsay Lohan, she would remind the project Party should not conduct KOL round of financing.

Pump and Sell

Regardless of the regulatory impact, influencer rounds are becoming increasingly controversial in the cryptocurrency space.

A member of the early investment group eGirl Capital and a cryptocurrency KOL named CL on Twitter said that recently they have "constantly" received promotions from cryptocurrency projects, hoping that they would invest as KOLs. But they rejected such deals because of the potential reputational risks. CL, who has nearly 200,000 followers on

Eclipse Fi's Chadwick said KOLs are often willing to accept longer vesting periods in larger deals backed by big VCs. But on the other hand, they also tend to demand higher discounts in such deals.

Orla Browne, head of research at Dealroom, said weavers of venture capital data don't report KOL deals separately because details of such deals are often "hard to come by."

Such deals often take different forms, with some taking the form of written contracts outlining what the KOL is expected to do in terms of promotion, while others are done via Telegram. Some are part of a venture-backed funding round, while others are early-stage projects that are not yet mature enough to attract investment from major institutions.

While most KOL deals consist entirely of tokens, there are also deals that combine equity and subscription rights for yet-to-be-launched tokens.

A written KOL financing contract seen by Bloomberg stipulates that KOLs who invest at a discount must promote projects through long-form podcasts and TikTok videos. The agreement stipulates that KOLs must disclose their affiliation with the project when promoting it.

However, not all projects do this.

“This is not a requirement,” said 0xJeff, head of Steak Capital, a cryptocurrency consulting firm that lists “KOL management” as one of its services. “It basically depends on whether the KOL wants the community to know that they have invested in this project, and Are they affiliated with this project?"

spreading unease

Jed Breed, founder of Breed VC, said in an interview that large cryptocurrency projects usually do not have clear requirements for KOL investors. Instead, these issuers aim to build what’s known as a “whisper network” within the cryptocurrency influencer community. “I’ve never seen a venture capital deal where it was: ‘If you want to get this allocation, you need to do X, Y, Z,’” Breed said.

For popular cryptocurrency startups, they don’t need to offer KOLs very favorable terms.

For example, Humanity Protocol, which aims to build a palm-print authentication system based on blockchain networks, this month raised $30 million in seed funding from venture capital firms such as Animoca Brands at a $1 billion valuation. KOLs invested about $1.5 million in it in March. But their investment terms are "the same as some venture capital firms," ​​and investments are capped at $25,000 per person, said Humanity founder Terence Kwok.

Parity Technologies product engineer Joshua Cheong initially said in an interview that Monad Labs did not ask him to promote the project while investing as a KOL. But after this article was published, Cheong said that after reviewing the contract documents, he was not actually involved in this round of investment. But Cheong said he still "supports the technology."

OxJeff said that in terms of region, KOLs in the United States are more cautious about potential scrutiny from the U.S. SEC, and they often disclose their affiliations when promoting projects or tokens. But no matter where people are, unease has begun to creep in throughout the community. This is largely because ZachXBT, a Twitter user with nearly 600,000 X followers, has begun publicly railing against KOL trading.

“If I said KOLs weren’t worried, I’d be lying, right? All KOLs are worried,” OxJeff said. “Especially now, there are too many KOL rounds of financing, and many of them are not going well.”

Original link, compiled by Techub News

This article is reprinted from Shenzhen Chao TechFlow with permission

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