In June 2021, Kim Kardashian shared a post with her 225 million Instagram followers promoting a crypto asset called EthereumMax (EMAX). She wrote, “This is not financial advice, but sharing what my friends told me about EthereumMax,” and encouraged followers to “swipe up” to join the Ethereum community. Although she tagged the post with “#Ad,” Kardashian did not disclose that she had been paid $250,000 for the promotion (SEC Charges Kim Kardashian). What seemed like a harmless endorsement quickly turned into a regulatory controversy, highlighting the importance of transparency in influencer marketing and cryptocurrency promotions. This paper examines how the Kardashian case reveals gaps in transparency, especially in influencer marketing tied to crypto products. Additionally, it discusses how blockchain technology and smart contracts can enhance transparency and accountability in future marketing. Finally, it explores how regulators are catching up with this evolving space to protect consumers while ensuring fair practices for influencers and businesses.

EthereumMax (EMAX) is not connected to Ethereum, the second-largest cryptocurrency by market capitalization, despite the name. Instead, it is a token built on top of the Ethereum blockchain (Nelson). Like many cryptocurrencies, EMAX promises to reshape the financial landscape, promoting itself with exaggerated claims. The project’s white paper ambitiously described its vision of a “robust and scalable ecosystem” powered by decentralized finance (DeFi). The origins of EMAX trace back to the depths of the COVID-19 pandemic, where its founders—dedicated crypto enthusiasts—developed the token with high hopes of success (EthereumMax Whitepaper). EMAX was marketed not only as a financial asset but as a “culture token” that offered exclusive benefits. Holders of EMAX tokens were promised “special access” to elite restaurants and clubs, while the white paper described future plans for EMAX-linked exchanges, NFT marketplaces, and other platforms to deliver value to holders. 

In January 2022, a class action lawsuit was filed against Kardashian and other celebrities, including boxer Floyd Mayweather and basketball player Paul Pierce, along with the founders of EthereumMax (Picciotto). The lawsuit claimed these individuals misled followers by promoting EMAX tokens in a way that inflated its value, only to leave investors with significant losses. This strategy is known as a "pump and dump" scheme.  Pump-and-dump schemes are especially common in new markets, such as cryptocurrency, where projects or tokens are promoted more on narrative appeal than actual value (Garnett). EMAX is an example of a token launched early in the crypto boom, targeting investors unfamiliar with its risks. These types of schemes can cause significant financial damage, leaving many investors with substantial losses once the price crashes. The lawsuit further alleged that the promotional posts violated federal securities laws, specifically the Securities Act of 1933. This act mandates full disclosure when individuals are paid to promote investment products. Under Section 17(b) of the Act, it is illegal to promote or advertise securities without clearly stating any financial compensation received (Securities Act of 1933, sec. 17(b)). Kardashian’s failure to disclose the $250,000 payment in detail was seen as a violation of this law. The EthereumMax case is a critical example of how the lack of transparency in influencer marketing can mislead consumers and create regulatory risks for influencers. 

Blockchain is a decentralized digital ledger that records transactions in a way that is secure, transparent, and permanent. Every transaction on a blockchain is publicly accessible and cannot be altered, which can help promote honesty in marketing campaigns (IBM). Using blockchain in influencer marketing offers several key advantages. Payments made in cryptocurrency are recorded on the blockchain, providing a transparent trail that shows whether an influencer was paid for a promotion. This eliminates the risk of hidden payments and ensures consumers know when influencers are financially incentivized. Smart contracts are self-executing agreements that enforce specific conditions. For instance, a brand could use a smart contract to ensure payment to an influencer only if they include full disclosure in their posts. This would automate transparency, reducing the risk of non-compliance. Blockchain’s permanent transaction history makes it easier for regulators and consumers to track financial relationships between influencers and brands. This could serve as a safeguard against misleading promotions, as all payment data would be available for public scrutiny.

While blockchain can improve transparency, its adoption faces several challenges. For starters, many influencers and brands may not fully understand how blockchain works, making it difficult to implement at scale. Additionally, most consumers are not yet familiar with tracking transactions on a blockchain, which could limit the immediate impact of such transparency measures. Regulations around crypto promotions are also still evolving. Governments are working to develop clearer rules to protect consumers from fraudulent promotions while allowing legitimate marketing practices to continue. As seen in the Kardashian case, the Federal Trade Commission (FTC) and the Securities and Exchange Commission (SEC) are beginning to crack down on influencers who fail to properly disclose paid partnerships involving financial products. Moving forward, regulations may require stricter disclosures, potentially integrating blockchain-based systems to verify compliance.

The EthereumMax case with Kim Kardashian shows how important transparency is in cryptocurrency promotions, especially when influencers are involved. Blockchain technology could help by making payments and partnerships more open and easy to track. Tools like smart contracts and public records could prevent misleading endorsements and build trust with consumers. However, using blockchain in influencer marketing comes with challenges, like technical difficulties and a lack of public understanding. As new rules are developed, it will be important to protect consumers without stopping innovation. In the end, combining blockchain with fair regulations can create a marketing space where brands, influencers, and consumers all benefit from greater honesty and accountability

Works Cited 

Garnett, Allie Grace. Encyclopædia Britannica. Encyclopædia Britannica, Inc., www.britannica.com/money/pump-and-dump-schemes. Accessed 14 Oct. 2024.

IBM. “What Is Blockchain?” IBM, 28 Aug. 2024, www.ibm.com/topics/blockchain. Accessed 23 Oct. 2024.

Nelson, Danny. “What Is EthereumMax? Inside the Crypto Kim Kardashian Lost $1.2m Promoting.” CoinDesk, 9 May 2023, www.coindesk.com/business/2022/10/03/what-is-ethereummax-inside-the-crypto-kim-kardashian-lost-12m-promoting/. Accessed 14 Oct. 2024.

Picciotto, Rebecca. “Federal Judge Dismisses Crypto Scam Lawsuit against Kim Kardashian, Floyd Mayweather Jr..” CNBC, 8 Dec. 2022, www.cnbc.com/2022/12/07/kim-kardashian-floyd-mayweather-crypto-scam-lawsuit-dismissed.html#:~:text=A%20federal%20judge%20on%20Wednesday,the%20cryptocurrency%20on%20social%20media. Accessed 13 Oct. 2024. 

Securities Act of 1933. U.S. Government Publishing Office, 1933, https://www.govinfo.gov/content/pkg/COMPS-1884/pdf/COMPS-1884.pdf.

“SEC Charges Kim Kardashian for Unlawfully Touting Crypto Security.” U.S. Securities and Exchange Commission, 3 Oct. 2022, www.sec.gov/newsroom/press-releases/2022-183. Accessed 12 Oct. 2024.

EthereumMax Whitepaper. EthereumMax, 2021, www.ethereummax.org/whitepaper.