Influencer-Investors Get Perks to Pitch Tokens: Inside Crypto’s ‘KOL’ Economy

Members of crypto’s influencer class write checks for countless startups and then promote them on social media.

In return, these so-called key opinion leaders receive discounted valuations and the option to sell earlier than other early investors, sometimes at the token launch.

“KOL tours” are an increasingly popular way for founders to market their projects with no out-of-pocket expenses, as opposed to the old paid promotion model.

KOL regulations are not always disclosed to investors, several insiders said.

Crypto founders have long relied on Silicon Valley-style investors to fund their risky ideas. But in the last few months, venture capitalists and angel investors have ushered in a new generation of influencer-turned-investors: KOL.

Key Opinion Leaders are filling the social media feeds of global crypto users with “alpha” on which protocols to follow and invest in. They can be as pseudonymous as a cartoon penguin or as recognizable as a YouTube personality.

A CoinDesk review of KOL fundraising found a burgeoning economy of influencers writing checks for crypto startups and promoting them to thousands of retail traders on YouTube and X (formerly Twitter). Projects believe that KOLs will help attract users and, more importantly, willing buyers before issuing their tokens.

“The more they shake their purse, the further the token can go, which is super good for both the project and the price movement,” said Vlad Svitanko, CEO of Cryptorsy, a marketing firm that helps organize KOL tours. .

KOL rounds are a version of the paid shills of earlier crypto cycles, namely high-flying influencers like Ben Armstrong (aka BitBoy Crypto) who charge tens of thousands of dollars to promote tokens to large online audiences. Rather than billing projects for their services, KOLs now fund them, albeit on very generous terms. These terms include discounted valuations and options to sell tokens earlier than other private investors are allowed.

In CoinDesk’s more than two dozen interviews with founders, developers, investors, and other insiders who insisted on anonymity to discuss fundraising from influencers, it became clear that Crypto’s upper class was acutely aware of how these “KOL rounds” worked.

It is less clear how well individual investors (those affected) understand the financial relationship of KOLs to the projects they strengthen. Many KOLs do not disclose their paid agreements. Failure to do so could violate U.S. consumer protection laws, according to an attorney familiar with these regulations.

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“When influencers fail to disclose such arrangements, they mislead their audiences, many of whom rely on these confirmations to make financial decisions,” said Ariel Givner, an attorney who runs a crypto law practice near Philadelphia. “This lack of transparency undermines the trust necessary in digital commerce and can lead to significant financial losses for unsuspecting followers.”

As the multibillion-dollar “creator economy” reshapes online life, KOLs’ fame is set to soar. Crypto may be strengthening the trend.

“This is a huge thing. It bypasses not only venture capitalists, but marketing as well,” said one well-connected person who works with KOLs. “People will say they don’t even need marketing, they get capital from distribution.”

Humanity Protocol

One recent startup moving into KOLs is Humanity Protocol, a rival to Sam Altman’s billion-dollar digital identity project Worldcoin.

The much smaller Humanity Protocol raised $1.5 million from a combination of angel investors and KOLs in early March, according to an investor presentation. A document titled “The Humanity Protocol Compliance Form for KOLs” gave influencers a six-month social media assignment: “liking” and commenting on three tweets per week, writing a series of three tweets about the Humanity Protocol, each month writing about the Humanity Protocol. Joining at least one of the Twitter Spaces, among other requirements.

The project gave detailed tasks to content expert influencers. Trader KOLs must publicly purchase Humanity Protocol’s yet-to-be-announced tokens “to demonstrate commitment post-launch,” one document said. YouTuber KOLs directed to create “two speculative videos about Humanity Protocol and Airdrop, Worldcoin’s main competitor.”

“We are monitoring all activities and will void the SAFT and refund KOLs who are not willing to support the project,” the Humanity Protocol document said. SAFTs (simple agreements for future tokens) are contracts where crypto startups pledge their potentially valuable tokens to backers, including VCs, angels, and KOLs.

Flashback to 2017 | SAFT Arrives: ‘Simple’ Investor Agreement Aims to Eliminate ICO Complexities

A spokesman for the Humanity Protocol declined to comment.

The host of YouTube channel Altcoin Buzz, which has 419,000 subscribers, praised Humanity Protocol’s “huge competitive advantage” over Worldcoin in a recent video. Two eyewitnesses said that Altcoin Buzz employee Shitij Gupta shared the video on a private Telegram channel managed by Humanity Protocol (called “Humanity Protocol – KOLs”). KOLs are asked to join the channel after filling out the “compliance” form reviewed by CoinDesk.

Contacted by CoinDesk, Gupta stated that “Altcoin Buzz does not invest in humanity” and said that he was on the private KOL channel on Telegram “because we wanted to get information about the project.”

He didn’t rule out receiving compensation in the future (he said “not yet” when asked about compensation), but said Altcoin Buzz would disclose any “sponsorship.”

Crypto companies often give equity capital to their VCs and angels. KOLs rarely buy shares in the company. Instead, they receive tokens: a share of the decentralized crypto network the company is building.

Tokens are where the money is in crypto anyway. Humanity Protocol wrote in its undated KOL document that its rival Worldcoin has a fully diluted valuation (the sum of all WLD tokens) of $80 billion.

Tokens are easier to sell than equity. Among private investors in crypto startups, few can sell them faster than KOLs.

Evolution of KOLs

Influencers began monetizing their followers BitBoy style years ago. The old pay-to-play model is still valid.

“KOLs can charge tens of thousands for just one tweet,” said one VC’s general partner. “Probably one of the most lucrative businesses” in crypto.

The startup world is a paradise of “angels”: wealthy (often well-known) investors who write small checks for startups, providing cash and credibility. They are impressive; KOLs on their own. Sometime last year, angels and KOLs started coming together. Convergence then accelerated.

A senior employee at a crypto startup said that by 2024, not only those who participated in KOL tours, but also “anyone with a pulse” with thousands of followers.

“Funny fact is, 75% of the more or less well-known TGEs that have happened since the beginning of the year have had KOL rounds,” said influencer Stacy Muur, who has 46,000 followers and said she did so via text message. Do not enter into these agreements. (TGEs are token generation events).

According to research conducted by market intelligence firm The Tie, which tracks token prices and KOL activity on social media, influencers move crypto markets on a regular basis.

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“They definitely have an impact,” CEO Joshua Frank said of KOLs, adding that they likely have an outsized impact on cryptocurrencies with smaller market caps.

‘Fast money’

KOL tours have essentially become a means for projects to fund their marketing without having to pay anything out of pocket. Instead, they bring dozens of influencers to their cap tables.

“I think it’s better for influencers to have real skin in the game, buying their own share,” the prolific investor with tens of thousands of followers wrote in his text message.

Incentive arrangements are not always designed to last. Participants in KOL rounds usually unlock a large portion of their tokens on token launch day, meaning they can sell the token as soon as it is released.

“The trend right now is that no one will agree to qualify for more than 12 months,” said Matas Čepulis, director of car-focused metaverse project OBS World and partner at marketing firm KOL HQ. “Everyone wants to make quick money.”

An AI-focused crypto project called Creator.Bid is allowing its KOLs to access 23% of its BID token allocation on May 15, when it receives its airdrop, according to terms circulating among investors. According to its documentation, the second organization, called Veggies Gotchi, gives KOLs the same number of tokens as sales to the community. Neither project commented.

Project consultant Julian Leitloff said that token launch platform Citizend, which is about to conduct a community token sale, provides KOLs with a less advantageous unlock and vesting time than retail buyers. In a text message, he said Citizend asked KOLs to promote the project but left the explanations up to them.

“It’s their obligation and there’s nothing we enforce contractually,” he said.

‘Heavy loss in retail’

The impressive Muur, who said he did not accept these deals, said the KOL regulations were “a win for protocols, a win for KOLs, but a heavy loss for retail.” “These deals are not properly disclosed in most cases, so the community is left uninformed about KOL rounds and qualifying conditions,” he lamented, voicing a sentiment also echoed by other insiders.

People from the KOL industry said that since most crypto projects do not consider their tokens as securities, they do not comply with the transparency rules that apply to promoters on exchanges.

Givner, the Philadelphia-area attorney, said U.S. securities law aside, many KOLs may be violating Federal Trade Commission rules that require “clear and conspicuous disclosures.” “The bottom line is that if you are getting compensated for lying about something, it MUST be disclosed so as not to mislead consumers.”

The regulation leaves retail traders in the dark about the financial stakes of KOLs and their ability to sell tokens to those they get excited for launch day.

“Obviously you’re enabling your community to get out of liquidity,” Muur said.

We sort the ‘garbage’

The KOL economy is becoming increasingly efficient at capturing value. Multiple crypto marketing agencies said they have compiled lists of hundreds of KOLs. For a fee, they connect influencers to projects where they can make the most impact.

KOLs are also evolving. Smaller companies are starting to form unions with which they can get better deals on KOL tours, two people familiar with the practice said.

Of course, not every crypto project runs a KOL round. One KOL marketing executive said 95% of teams are laid off for being “random bulls**.” He said only top-tier projects can get support from influencers. He attributed this to credibility: If influencers promote obvious failures, they will lose their audience’s trust.

Still, this upper tier fills the potential KOLs with almost incessant sounds. A prolific investor, he said he gets offers to join KOL rounds “10 times a day.” Nearly all of them require promotions, he said. Almost none of them require explanation.

Projects themselves can also afford to be selective about who they use to promote their products. Or at least to try.

“We picked 100 KOLs, we really spent time sorting through the garbage,” said the manager of a well-known crypto project that recently held a KOL tour. “Ultimately most, if not all, just want their tokens to be pumped and sold as quickly as possible.”