KOL is undoubtedly a very special existence for the encryption industry.

Because they often have huge followers, under the influence of influence, they can usually be used as a tool to attract traffic, but they are also a powerful target for cutting leeks. To use an inappropriate metaphor, KOLs can be both referees and athletes.

But for crypto, an industry where emotions and liquidity play an important role, KOLs, who are closer to front-line investors than institutions, have more advantages than disadvantages to a large extent. After all, the marginal cost of issuing coins is close to zero, but Liquidity is priceless. Obviously, the project party has also smelled this trend.

In recent months, there have been endless discussions about the relationship between KOLs and VCs. KOLs often have shorter unlocking periods and lower valuation discounts, but compared to VCs, they not only need to invest large amounts of real money, but also have to invest in sales, Operational and technical directions share resources, and KOLs often seem to end their obligations just by posting a few posts.

Some VCs have complained about this, and even retail investors believe that KOL is an entity that makes it easier to obtain benefits in the bull market. But is this the case?

Amid various controversies, Bloomberg recently published an in-depth report on KOL rounds - "A Familiar Path to Instant Cryptocurrency Windfalls Reopens", which analyzed the advantages and challenges of KOLs. The following is the full text compiled by Gyro Finance:

The timeline goes back to March, when the cryptocurrency market was booming, Bitcoin continued to hit record highs, and billions of dollars continued to flow into spot ETFs. Among them, there is a special group of investors who cheer more than most others.

At that time, startup Monad Labs completed a new round of fundraising, with venture investors including Paradigm giving it a valuation of up to $3 billion. According to cryptocurrency standards, Mona is already a project with a very large scale of fundraising transactions, but it also has a distinctive feature - according to people familiar with the matter, some people known as "KOLs" in the industry are allowed to raise funds with only one-fifth of the amount. Investing at Paradigm Valuation.

These so-called “KOL wheels” are quite similar to the celebrity marketing that US regulators have cracked down on in recent years. As digital assets have emerged from the bear market, “KOL wheels” have sprung up and become a wonder in the crypto world. Compared with celebrity transactions, investors who receive preferential terms are more likely to be crypto authors or big Vs, rather than athletes or other celebrities who are common marketing targets.

Source: Bloomberg

According to interviews with KOLs, entrepreneurs and legal experts, in exchange for promoting cryptocurrency projects, KOLs often receive various preferential terms such as valuation discounts and shorter lock-up periods. Similar deals have become a source of controversy in recent months, with opponents focusing on inadequate disclosures and potential risks to retail investors.

Several industry insiders familiar with such transactions said that at least some new start-ups did not require KOLs to disclose project affiliations when financing, which is a clear violation of relevant U.S. regulations.

Of course, there is currently no indication that Monad Labs’ financing violated any U.S. securities regulations. One investor said the company did not make any explicit requirements for KOLs, while CEO Keone Hon declined to comment on what lock-up terms and disclosure rules were given to such investors.

San Francisco-based Paradigm, which operates one of the largest crypto venture capital funds, also declined to comment.

1. KOL and cryptocurrency

Michael Selig, a partner specializing in securities law at Willkie Farr & Gallagher LLP, responded in an email: “Include KOLs and influential industry influencers in a round of financing and hope that these people will promote the project tokens. , may be subject to review by the U.S. Securities and Exchange Commission.”

KOL rounds exist in part because of the unique nature of the cryptocurrency market. In crypto financing, digital asset startups often offer equity to raise venture capital funding, while others raise capital by selling issuance tokens or affiliated tokens. Project valuations depend on the number and price of tokens sold, similar to stock sales, and there are also hybrid rounds that mix tokens and equity, such as the aforementioned Monad Labs.

Purchasing a token generally does not give investors the same protection as an equity round, but it does offer one obvious advantage: investors can sell their tokens in just a few months, whereas equity investors often have to do so for the first time. Liquidity events such as public offerings are tied up for years before they occur.

Additionally, the role KOLs play in the cryptocurrency market is also very unique. Over the years, cryptocurrencies have spawned an altcoin industry as well-known figures ranging from celebrities to athletes to self-proclaimed experts promote projects online. During the initial coin offering craze in 2017, having a large number of fans on Huge gains.

Didn't you get started by following the KOL in the currency circle? Harvard study: Copying a trade of US$1,000 will result in an average loss of US$79 after one month!

2. The temptation of “making big money”

It’s worth noting that you don’t necessarily need too many followers to become a KOL investor.

Simon Chadwick, co-founder of the cryptocurrency platform Eclipse Fi, said: "Almost anyone can become a KOL as long as they have a certain influence or a community." He said, "For example, this may be a person with 5,000 people on X A user and a person who writes research reports.”

Eclipse Fi’s main business is assisting projects in issuing tokens on the Cosmos blockchain. Chadwick mentioned that in order to make issuing coins more convenient, the company has formed a network of more than 400 KOL investors, which new companies can take advantage of. “The potential for quick returns is so great that some KOLs try to set up multiple accounts using fake social media accounts, through which they can invest multiple times in the same funding round.”

Chadwick emphasized that KOLs participating in such transactions can receive discounts of 20% to 50%, as well as shorter unlocking periods. In short, they can sell tokens earlier than other investors.

The KOL wheel is indeed the secret to wealth creation. “Some KOLs have invested hundreds of rounds and made a lot of money,” he said.

The U.S. Securities and Exchange Commission, as a regulator, has been cracking down on influencer marketing of cryptocurrency projects. In October 2022, Kim Kardashian agreed to pay $1.3 million to end regulators’ accusations that she violated U.S. rules by promoting digital tokens without disclosing that she was an employee. , although she has not commented on the allegations. Four years ago, the SEC fined boxing champion Floyd Mayweather for failing to disclose a similar cryptocurrency marketing scheme.

Source: Bloomberg

Emily Meyers, general counsel and chief compliance officer of crypto venture capital fund Electric Capital, said that in light of the SEC’s prosecution of Kardashian and similar cases last year, she would remind projects not to conduct KOL round financing. In a case last year, The SEC accused eight celebrities, including Lindsay Lohan, of being paid to promote the token without disclosing it.

The six accused celebrities, including Lohan, reached settlements without admitting or denying the SEC charges.

The SEC did not respond to Bloomberg's request for comment on the KOL round.

3. Pump up and sell off?

Regardless of the regulatory implications, influencer rounds are undoubtedly controversial in the cryptocurrency industry.

A crypto KOL who posts under the pseudonym CL on CL, who is not based in the United States and spoke on the condition of anonymity due to the sensitivity of the topic, has steered clear of such transactions due to potential reputational risks.

CL, who has nearly 200,000 followers on

Eclipse Fi's Chadwick said KOLs are often willing to accept longer lock-up periods in larger deals backed by big VCs. But for this, they will ask for a higher discount rate in the deal.

Source: Bloomberg

Orla Browne, head of corporate strategy at Dealroom, believes that because investment details about KOLs are often difficult to make transparent, statistics on venture capital data do not include separate reports on KOL rounds of financing.

In practice, they often take different forms. For example, some transactions are in the form of written contracts outlining what the KOL should do in terms of promotion, while some transactions are completed through Telegram. Some of these are part of venture capital-backed financings, while others are more early stage projects that are not yet mature enough to attract large venture capital investment.

While the vast majority of KOL deals are comprised entirely of tokens, some combine equity with warrants in digital currencies that have yet to be launched.

Bloomberg reviewed a written contract for KOL financing, which stipulates that KOLs who invest at a discount must promote projects through podcasts and TikTok videos. The agreement also mentions that KOLs must disclose their affiliation with the project when promoting it.

But many projects don’t choose to do this.

“It’s not a requirement,” said 0xJeff, who runs crypto consulting firm Steak Capital, which lists KOL management as one of its services. “It really depends on whether the KOL wants the community to know about their investment relationship and whether they are associated with the project.” OxJeff, similar to CL, requires posting anonymously and not using their real names.

4. Uneasiness is spreading

Jed Breed, founder of Breed VC, said that large cryptocurrency projects usually do not have clear requirements for KOL investors. Instead, publishers aim to build a so-called “secret network” within the cryptocurrency KOL community. “I’ve never seen a venture capital deal work like this, which is, if you want to get this allocation, you need to do X, Y, Z and so on,” Breed said.

Of course, there are also new startups that are very popular and do not need to provide preferential terms to KOLs.

Humanity Protocol, which is building a blockchain network that uses palm prints to verify identity, raised funding this month from venture capital firms including Animoca Brands at a $1 billion valuation. KOLs invested about $1.5 million in March, but their investment conditions were "the same as some venture capital firms," ​​and the investment cap per person was only $25,000, Humanity founder Terence Kwok revealed.

Joshua Cheong, a product engineer at Parity Technologies who participated in Monad Labs’ financing as a KOL, said the company did not ask him to promote the project when investing. He declined to comment on the valuation and lock-up period.

According to OxJeff, KOLs in the United States are more cautious about SEC scrutiny, so they usually choose to disclose their relationship with the project party when promoting projects or tokens.

OxJeff believes that no matter where the KOL is located, uneasiness in the entire community has begun to spread. This is largely because “on-chain detective” ZachXBT, a Twitter user with nearly 600,000 X followers, has begun publicly criticizing and exposing KOL transactions.

OxJeff said: "If I said that KOLs don't have to worry, I would definitely be lying. All KOLs are panicking right now, especially now that there are so many KOL rounds, and many of them are actually not going well."

  • This article is reprinted with permission from: "PANews"

  • Original author: Bloomberg

  • Compiled by: Gyro Finance