Logan Paul had a message for his 6 million Twitter followers: he was “all in” on a new cryptocurrency called Dink Doink.
According to the project’s creator, Dink Doink investors would receive shares in a cartoon character, which would entitle them to a share of the profits if the wide-eyed figure appeared in a TV show or movie.
Last June, Paul, a 27-year-old boxer and social media influencer, praised Dink Doink on Twitter and in a public Telegram chat, before endorsing him again on his podcast, “Impaulsive.” [trocadilho com o nome Paul e a palavra “impulsivo”].
By mid-July, however, the price of Dink Doink had plummeted to a fraction of a cent on the dollar, and Paul faced a backlash online. In his endorsements, he did not mention some relevant information: he and the creator of the project were friends and came up with the idea for the cryptocurrency together. It also received a large allocation of Dink Doink coins when it was released.
“I don’t know what went absurdly wrong,” Paul said in an interview. “That’s the project from hell, and I just cleaned my hands of it.”
The collapse of cryptocurrency prices in May has renewed scrutiny of celebrities who sell virtual currencies to the masses. Last year, actor Matt Damon and comedian Larry David starred in high-profile TV commercials for cryptocurrency platforms, heralding digital assets as an unmissable opportunity to make money. These ads drew criticism from crypto skeptics, but they were tied to traditional companies with revenues in the hundreds of millions of dollars.
A much more decadent way of promoting cryptocurrencies has flourished on social media, fraught with undisclosed conflicts of interest and exaggerated claims about fantastic profits. Influential celebrities like Kim Kardashian and Floyd Mayweather have made millions of dollars endorsing specific and often dubious investments in crypto, urging fans to buy shady coins that quickly plummeted in value, or touting little-known collections of non-fungible tokens, the well-known unique digital archives. like NFTs.
In some cases, promoters like Paul admitted that they failed to disclose personal or financial ties to projects advertised in their feeds, a possible violation of federal marketing regulations. And even before the recent cryptocurrency market downturn, a number of these influencer-backed ventures failed spectacularly, hurting amateur traders and sparking lawsuits that could compel some celebrities to compensate investors for their losses.
“You see a blatant profit from celebrities and others who are not the least bit disinterested or unbiased,” said John Reed Stark, former head of the Securities and Exchange Commission’s (SEC) internet enforcement arm. “There’s a lot of potential for damage.”
Cryptocurrency entrepreneurs hire influencers to boost the value of their digital currencies, hoping to ignite the kind of online buzz that briefly turned Dogecoin, a meme-based joke coin, into one of the most valuable investments in cryptocurrencies.
Some promoters are not well known outside of cryptocurrency circles, but they have a large following on social media, where they spread market tips, interspersed with sponsored content. Others are big-name celebrities like Kardashian, who is facing a lawsuit from investors over her marketing of an obscure cryptocurrency called EthereumMax.
The amounts paid to cryptocurrency promoters can be astronomical. An NFT project called Hive Investments is recruiting influencers, offering payouts of up to $400,000, according to a presentation seen by The New York Times.
The promotion of cryptocurrencies occupies a gray area of legislation. Under federal law, people who trade in securities are required to publicly disclose payments received for promotions. In 2018, Mayweather paid more than $600,000 to settle SEC charges for failing to properly disclose his compensation for marketing initial coin offerings, the cryptocurrency equivalent of an initial public offering on Wall Street. But the rule he broke only applies to securities, such as a company’s stock, and it’s unclear which crypto products meet that legal criteria.
Cryptocurrency promoters can also run afoul of Federal Trade Commission rules, which require marketers of all stripes to disclose when they have a financial stake in the projects they endorse.
“The world’s social media companies and influencers see this as the Wild West,” said David Klein, a New York attorney specializing in marketing rules. “Real world laws still apply, and you have to follow the guidelines. Otherwise, regulators will come looking for you.”
Even celebrities who publicized cryptocurrency payments got into legal trouble. Last summer, Kardashian endorsed EthereumMax in an Instagram post with a brief disclaimer at the bottom: “#ad”. Few cryptocurrency experts have heard of EthereumMax, which is different from Ethereum, one of the most well-known cryptocurrency platforms.
The promotion led to an increase in trading, but the price of EthereumMax soon collapsed. This year, nine traders who bought EthereumMax sued Kardashian, the project’s founders and other promoters, including Mayweather and former basketball star Paul Pierce, accusing them of disguising their control over EthereumMax tokens and circulating “misleading” ads.
According to the lawsuit, Pierce received over 15 trillion EthereumMax tokens in exchange for tweets endorsing the coin. None of the tweets extracted from the lawsuit mentioned a business relationship he had with the token’s creators. Shortly after promoting the project, the suit alleges, Pierce sold his tokens in an apparent “pump and dump” operation, in which he profited by encouraging fans to buy the tokens, before selling his own holdings for a higher price.
A lawyer for Kardashian said the allegations in the lawsuit “have no merit”. Mayweather, Pierce and the project’s founders did not respond to requests for comment.
As cryptocurrency prices have plummeted, investors have also turned on low-profile influencers who post sponsored content on social media. Ben Armstrong, a cryptocurrency influencer with nearly 1 million followers on Twitter, runs a YouTube channel where he discusses market trends and talks about his favorite projects. He used to charge startup founders $40,000 for a YouTube interview, but canceled the service this year after his price list was published by an influential cryptocurrency researcher.
Some of the projects that Armstrong promoted were small experimental cryptographic ventures that ended up running into problems. In such cases he also considers himself a victim, he said.
“They are attacking the rookie crypto influencer who has just become popular and is trying to figure out what they should and should not do,” he said. “It’s hard to go from 12k followers to a million in a year and make all the right decisions.”
Not long after the Dink Doink crash, Paul started an NFT collection called CryptoZoo, which was widely derided for featuring images of animals. Paul blamed the team that helped manage the project for CryptoZoo’s problems. Now, he is working with a new team at a cryptocurrency venture called Liquid Marketplace, which uses blockchain technology to allow investors to buy fractions of physical objects.
The recent cryptocurrency crash “will definitely weed out the weak,” Paul said. But he added that it also made him rethink some of his promotions after he personally lost $750k.
“I don’t want anyone to feel like they’ve gone bad because of some move they made for me,” he said.
Translated by Luiz Roberto M. Gonçalves
I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.
