5000U becomes 400U, revealing the truth behind the "capital hunting" in KOL round financing

Author: Fairy, ChainCatcher

Editor: TB, ChainCatcher

Once a booming KOL round financing has now become a "nightmare" for many KOLs:

"Last year, I invested in more than ten KOL rounds, and I lost money on all of them. Most didn’t even issue tokens, they just disappeared."

"Let me put it this way, basically all KOL rounds this time didn’t make much money."

"I invested in over a dozen last year, and only 2 successfully issued tokens. I put in 5000U and got out 400U."

What was once thought to be a low-cost way to participate in quality projects and achieve wealth appreciation has turned into a complete loss. Some people helplessly joke: "Lost face while losing money."

KOL rounds seem to be on the verge of becoming a derogatory term, transforming from a wealth code to a "capital hunting ground."

The "win-win" persona, the imbalanced outcome

KOL round financing was initially set up as a mutually beneficial early financing model, aimed at building a win-win ecosystem for project parties and KOLs.

Project parties leverage KOLs' influence to quickly enhance visibility, attract initial traffic, and establish an active community to promote long-term project development. KOLs participate in early investments at a lower cost, and if the project succeeds, they can not only gain returns but also enhance their industry influence, achieving both fame and fortune.

However, the reality of the market is not as ideal. The envisioned "win-win" has gradually turned into a one-sided harvesting game.

High valuations, long lock-up periods, and low returns have gradually become the three standard configurations of KOL rounds, with many project parties no longer aiming for long-term construction but rather for short-term cashing out.

In a chaotic situation, KOLs are also gradually losing their way in this game, even being harvested in reverse.

Why are KOL rounds losing money across the board? Let's hear what the KOLs themselves have to say:

• Lack of enduring narrative support

@realChainDoctor stated: "This round lacks any particularly enduring narrative (hotspot)."

Projects without long-term hotspots to support them essentially become "paid promotional rounds." Once market enthusiasm wanes, it becomes difficult for projects to maintain their valuations, leading to a significant shrinkage in investment returns.

• High valuations + long lock-up periods create "fixed-point pits"

@blockphd7 remarked: "KOL rounds are basically fixed-point pits, with high valuations and long lock-up periods."

The valuations in KOL round financing are generally inflated, and the long lock-up periods limit liquidity. Project parties often promise to "bring friends on board," but in reality, it is a precise harvesting strategy. Some project parties even use linear release mechanisms to gradually dump tokens, forcing KOL round investors to ultimately "break even" or even exit at a loss.

• Severe compression of primary market space

@0xcryptowizard noted: "The pre-trading of tokens has compressed the space for primary and KOL rounds directly to 2-3 times the expected, with an additional year of lock-up and cliff."

This design greatly compresses the profit space for investors, resulting in returns that are inferior to those in the secondary market during a bull market.

• Deteriorating market environment, increasing fundraising behaviors by project parties

@yuyue_chris indicated: "The market environment has worsened, and in November and December, many project parties tried every means to raise funds, especially by finding people around them and selling through OTC while letting retail investors become exit liquidity. There are also scams, raising funds under the guise of investment rug……"

Many project parties lack long-term planning, selling off as soon as they launch, adhering to the strategy of "doing more projects, small cuts are safe." This short-term thinking makes KOL round investment returns extremely unstable, making it difficult to even recover the principal. Coupled with the deteriorating market environment, project parties resort to unscrupulous means to raise funds.

• Limited KOL capabilities, information asymmetry

@yuyue_chris stated: "Although KOLs need to discern project quality themselves, most KOLs are just large retail investors without the ability to fully discern the authenticity of information, so they are often deceived and trapped based on false news and misinformation."

Can KOL rounds still be played?

According to @YeruiZhang, KOL rounds can be roughly divided into three categories:

• Slave rounds: Generally earn a maximum of 2 times the principal or return the principal.
• Investment rounds: Risks and rewards coexist, accompanied by significant losses and gains.
• OTC shout rounds: Buy tokens at a discount after TGE.

Slave round terms are harsh, suitable for small investors looking to build connections and secure quotas. Returns are limited, but the requirements for insight are lower, with the core strategy being to establish relationships with project parties to secure more quotas.

Investment rounds require a "no regrets" mindset, with a deep understanding of the project's underlying logic, team background, and market prospects. KOLs need to have pricing capabilities to avoid falling into traps due to high valuations. This is also the category most likely to "go wrong."

The key to OTC shout rounds lies in hedging strategies, where KOLs need to have a deep understanding of liquidity.

Each of these three categories has its unique risk and return patterns. Overall, KOL rounds for primary projects test investors' insight, while KOL OTC rounds for secondary projects test understanding of liquidity. However, the most important factor is the KOL's ability to negotiate prices. If the pricing negotiation fails, everything is just talk.

Nowadays, the threshold for KOL ecosystems is getting lower; fans can be bought, and barriers can be broken. The easier it is, the more likely it is to be targeted. Currently, many KOLs choose to stay away from KOL round financing, and some retail investors have clearly stated, "I will never invest in KOL round projects."

Of course, KOL round financing is not without quality projects. The future of KOL rounds may not completely disappear, but it must return to rationality. When speculators exit, only those who truly possess the ability to capture value will survive in this game.