Kim Kardashian’s $1.26 million regulatory fine this week for improperly touting a cryptocurrency raises many questions, but a big one is this: what the heck is ethereumMax (EMAX), the token she shilled?
Though the name begins with Ethereum, it’s not related to the second-largest cryptocurrency by market cap, but a token built on top of the blockchain. Like many cryptocurrencies, it promises to reshape the future of finance in hyperbolic terms. It screams that vision to the world with flashy ads and sidewalk spray paint stencils that implore readers to buy in.
Any investor who read the EthereumMax project’s grand plans for inking deals that “drive value” into EMAX or heard its promoters predicting price pumps would have the “reasonable expectation” of making money, the Securities and Exchange Commission (SEC) said Monday. In other words, EMAX is a security.
While the SEC doesn’t have a mandate for crypto, its top brass believes the vast majority of digital assets are securities they can regulate like stocks or bonds. Getting branded as one by the SEC dramatically escalates what’s required of a crypto project and its promoters, but relatively few have faced SEC action.
Kim Kardashian pumps EMAX
“The SEC can have their pick of the litter in terms of tokens that they deem securities, but only one is associated with Kim Kardashian,” said attorney Nelson Rosario, who runs a crypto-focused practice. “You can make an example of her. You reach a lot of people – it's kind of a 'bang for your buck' situation.”
The SEC on Monday fined Kardashian for shilling EMAX to her 225 million Instagram followers in June 2021 without disclosing she was paid $250,000 to do so. It was one of the biggest financial promotions in history, opined one British finance regulator at the time. But it was also for a security, and therefore an illegal act.
EMAX’s promoters have given no official hint they view their token as a security; they’ve never registered with the SEC. Representatives of EthereumMax did not respond to a request for comment from CoinDesk.
EthereumMax wants to create a “robust and scalable ecosystem that fully maximizes the power of” decentralized finance (DeFi), its white paper promises. The project’s self-reported history traces to the depths of COVID-19 lockdowns; then, its progenitors – hardcore crypto believers – began to “deeply focus” on making a token that could soar.
The result: EMAX, a token that purports to deliver cultural upside. EMAX owners get “special access” to “the hottest restaurants and clubs,” the white paper said. The “culture token” is the official coin of EthereumMax’s growing realm. Its creators preach of EthereumMax-linked exchanges, non-fungible token (NFT) marketplaces and other outposts that deliver value to holders. Those have not yet launched.
A CoinDesk reporter searched the EMAX website for information about how to unlock those purported cultural perks with 1 billion EMAX tokens purchased Monday for $5, but was unsuccessful.
One thing EMAX holders can do with 1 billion tokens is get access to a series of chance-based casino games on the EthereumMax website. The games pay out in more game credits, not crypto tokens. The highest performing users could win trillions of EMAX tokens; third place gets a T-shirt.
The website’s merch store touted an “EthereumMax dad hat” available for $25.95. Paying in EMAX was not an option.
In the meantime, EthereumMax’s burn-baby-burn tokenomics/circulating EMAX supply “to increase scarcity” of a token whose supply started at 2 quadrillion. Kardashian’s ad touted how the EMAX founders’ burning of 400 trillion tokens was “giving back to the entire EMAX community.”
Crypto projects commonly use deflationary tokenomics to pump up the price of their assets, said Serhii Zhdanov, CEO of London-based crypto exchange EXMO. The logic is straightforward: By removing assets from circulation, they can increase the value of those remaining.
“It's like a stock buyback in the traditional financial market,” said Zhdanov. But instead of buying the tokens from the open market, they burn them. As long as demand for the token remains stable, he said, the price will rise.
But things haven’t exactly worked out great since Kardashian’s post: EMAX has plunged 97% since then.
One notable change to the token is its February shift from Ethereum to the fast and cheap scaling system Arbitrum, which EthereumMax backers say is better suited for the ecosystem. Some 31% of circulating tokens have moved over to Arbitrum, according to data from Nansen. Their owners aren’t able to do much with the tokens just yet.
The community behind EMAX
Nearly every cryptocurrency project touts its “community” of investors who believe this token or that NFT will somehow change the world. EthereumMax, whose website promises to “disrupt history,” is no different. It feeds its most accessible community (some 30,000 Twitter followers) streams of educational and partnership content to keep them engaged.
If EthereumMax’s Twitter is meant to broadcast to the world, then its Discord server is where the projects’ true believers (or at least its most committed) roam. There, some 2,300 members can talk about EthereumMax’s crypto partnerships, its forays into gaming, its price action – pretty much anything – with fellow investors.
Well, not quite anything. On Feb. 27, a user questioned the “credibility” of EMAX, a token he’d bought well before the Kardashian ad and held onto “through ups and downs.”
Read more: Kim Kardashian and EthereumMax. Why?
“I didn’t buy this coin because Kim Kardashian said it was cool,” a user known as Donwonfosho said after grumbling that he would have to pay yet more money to move his tokens to Arbitrum from Ethereum, where holding EMAX had brought him only headaches.
“Always something with them. Oh latest and greatest. Invest more invest more,” Donwonfosho said in the chat, prompting the Discord’s moderator to mute the account.
“If any concerns are ever raised you get that response,” Donwonfosho told CoinDesk.
A prominent crypto Discord community manager who has worked with multiple high profile Ethereum non-fungible token (NFT) groups told CoinDesk that the philosophy of “crypto communities” is to unite a group of individuals around a common cause.
“There are a large number of people in the space who use the term ‘community’ as a method of rallying support around pump-and-dump schemes when in reality there is nothing deeper there than speculation,” said the manager, who spoke candidly on condition of anonymity.
The manager said it's not uncommon for crypto Discord members to deploy “hyperbolic” accusations when there’s bad news afoot, like cratering prices. However, silencing those voices for simply their airing of grievances is seen as a non-starter, the manager said.
EthereumMax’s community was bullish in the wake of the SEC’s action against Kardashian, which one Discord user pointed out only alleged that EMAX was a security, not a scam. (The SEC has said Kardashian is cooperating with its "ongoing investigation" of EMAX).
The consensus in EMAX’s Telegram appeared to be that heightened media attention would only be good for the cryptocurrency. Even so, user Deebo said “it was a bummer” many articles called EMAX a “‘scam token’ when in reality the coin is waiting to release stuff for when the market is better.”
Regardless, EMAX rallied over 40% following the SEC action. More than $63,000 of the tokens traded, the highest single-day volume since March.
“Yes, we have had a good pump today thanks to the SEC and the free advertising from them,” moderator Tony Stark said in response to a question. “Lots of big buys and lots of new investors sticking 2 fingers up at the SEC.”
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