Monad Labs' $3B Valuation Draws KOLs Amid SEC Gaze

Crypto influencers gain from preferential investment terms amid regulatory scrutiny, raising market and legal risks.

By Barry Stearns

5/15, 19:45 EDT
Bitcoin / U.S. dollar

Key Takeaway

  • Monad Labs raised funds at a $3 billion valuation with "KOL rounds" offering influencers terms like 20%-50% discounts and shorter vesting periods.
  • SEC's crackdown on undisclosed influencer promotions raises regulatory concerns for such crypto deals, despite no explicit violation by Monad Labs.
  • Controversy grows around KOL rounds' impact on retail investors and market integrity, amid increasing scrutiny from both regulators and the crypto community.

KOL Rounds Stir Controversy

In the burgeoning world of cryptocurrency, a new trend has emerged that sees key opinion leaders (KOLs) receiving preferential investment terms. This practice, reminiscent of celebrity endorsements scrutinized by US regulators, has gained traction as the crypto market rebounds. Monad Labs, a startup valued at $3 billion by investors including Paradigm, allowed KOLs to invest at a significantly lower valuation, highlighting the growing influence of influencers in crypto financing. These KOL rounds offer benefits such as valuation discounts and shorter vesting periods, raising concerns over disclosure practices and potential risks to retail investors. Despite the controversy, there's no indication that Monad Labs's fundraising breached US securities regulations, with CEO Keone Hon and Paradigm opting not to comment on the specifics of these arrangements.

Influencers' Impact on Crypto Markets

The role of influencers in the crypto market cannot be understated, with their endorsements historically leading to rapid gains for new tokens. This influence has led to a proliferation of KOL rounds, where influencers receive favorable investment terms in exchange for promoting crypto projects. The allure of quick returns has attracted a wide range of influencers, from those with massive followings to those with niche audiences. However, this practice has attracted regulatory attention, with high-profile cases involving celebrities like Kim Kardashian and Floyd Mayweather highlighting the potential legal pitfalls of undisclosed promotional activities. The SEC's crackdown on such practices underscores the need for transparency in influencer endorsements in the crypto space.

Regulatory and Market Risks

The increasing prevalence of KOL rounds in crypto financing raises significant regulatory and market risks. The lack of disclosure in some of these deals potentially violates US regulations, posing a risk not only to the influencers involved but also to retail investors who may be unaware of the influencers' financial incentives. The SEC's recent actions against celebrities for failing to disclose paid promotions signal a tightening regulatory environment for influencer marketing in crypto. Furthermore, the practice of offering steep discounts and shorter vesting periods to KOLs can contribute to market volatility, as these investors may quickly sell off their holdings for a profit, potentially destabilizing token prices.

Street Views

  • Michael Selig, Willkie Farr & Gallagher LLP (Neutral on crypto projects involving KOLs):

    "Projects that include key opinion leaders and influencers in a financing round with the expectation that such persons will go out and promote the project’s token as an investment may be scrutinized by the Securities and Exchange Commission."

  • Emily Meyers, Electric Capital (Cautiously Optimistic on avoiding KOL rounds due to SEC actions):

    "She would caution projects against KOL rounds in light of the SEC’s actions against Kardashian and a similar case last year, where the regulator charged eight celebrities including Lindsay Lohan with failing to disclose they were paid to promote tokens."

Management Quotes

  • Keone Hon, CEO of Monad Labs:

    Declined to comment on what vesting terms and disclosure rules were applied to such investors.

  • Terence Kwok, Founder of Humanity Protocol:

    "KOLs put in around $1.5 million in March — but they did so at 'literally the same terms as some of the VCs' and their investments were capped at $25,000 per person."

  • Joshua Cheong, Product Engineer at Parity Technologies (Investor perspective):

    "The company didn’t require him [Cheong] to promote the project when he invested."