Behind Kicktoken's CoinMarketCap Ascent, Bags to Riches?

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Over the last week, Kicktoken seems to have appeared out of nowhere. A coin that opened the year with a market cap of $11M had risen to $590M by Monday, with the coin itself gaining over 900% since January.

Yet, vast numbers of Kicktoken holders are complaining that they can’t actually trade, having been the recipients of a “Frozen Drop.”

Now, some members of the Ethereum community are raising concerns that what first appeared to be a marketing gimmick could be turning into something more sinister. Crypto Briefing has been investigating these events as they’ve unfolded, and here’s a summary of what’s happened so far.

In November of last year, a post appeared on the Kick Ecosystem Official Medium account announcing an airdrop, but with a twist. The post confirmed that 167,375 Ethereum wallets would receive 888,888 KICK tokens each, distributed by an opaque “magic algorithm.”

The catch is that none of the recipients could sell or spend their tokens. Kick dubs this a “Frozen Drop,” and states in the blog post that it’s a mechanism to ensure there’s liquidity on its exchange for when it launches later this year. Only at that time will holders find out what they need to do to sell or dispose of the tokens.

Unexplained Pumping

Early in February, the price of Kick started to pump. Bearing in mind that the Frozen Drop started around the end of November, the token price continued to decline even after the project started dropping frozen tokens from around $0.00017 at the end of November to less than half of that by mid-January. By Tuesday, it was trading at $0.00077, more than ten times its value in January.

There are no discernible reasons for this sudden February pump. The project didn’t release any significant updates, at least according to its news channels. The Frozen Drop tokens are, by definition, frozen, so it seems unlikely they’re related to any price action, particularly given there was no prior inflation as a result of announcing the drop.

However, earlier this week, a Medium blogger called Nicolas Gans released a post pointing to discrepancies in the trading data for Kicktoken that he’d collated using Nakamoto Terminal.

In analyzing the data, he applied the same statistical modeling used by the Association of Certified Fraud Examiners. While this kind of analysis isn’t designed to provide concrete conclusions, it does indicate if there are red flags worthy of further investigation. The conclusion of Gans’ post is that his analysis raises more questions than it answers.

In the spirit of fairness, it’s worth mentioning that the founder and CEO of Kick, Anti Danilevski, responded to Gans’ post directly. His response admits that the Frozen Drop is a marketing tool and addresses the fact that distributing airdrop tokens could be construed as a dump. However, he fails to acknowledge the implication that the Kicktoken trading activity over recent weeks, with price inflation of over 900%, could be questionable.

To KYC or Not to KYC?

Trading data notwithstanding, the biggest concerns about the Kicktoken marketing initiatives have arisen around users logging onto the exchange’s beta. The Kick exchange isn’t yet live, but it is open for testing. Even though the beta doesn’t involve any live trading, users were being asked to undergo KYC checks to join in with testing, until they removed that requirement earlier today.

KYC checks involve users submitting a copy of their ID, either a passport or driver’s license, and a selfie for verification.

This makes very little sense. With no live trading, there is no legal or regulatory requirement to undergo a KYC check as no real money is changing hands. When Crypto Briefing queried with Kicktoken why the project was asking for a KYC check, a moderator said it was because the process was also being tested.

It’s worth pointing out here that users are being told that the only way they can unlock the value of their frozen Kicktokens is to trade on the exchange once it’s live. Although Kick doesn’t demand that users register for the beta to unlock their tokens, it’s evident from the Telegram chat that many users have completed KYC with the understanding that it’s a prerequisite of unfreezing.

The price pump means that the value of 888,888 Kicktokens exceeded $300 in value at some points this week. So, it’s easy to see why people would be eager to do whatever is necessary to unfreeze their tokens.

Outsourced KYC?

Kicktoken states that it’s partnering with established KYC provider Sum & Substance, a British company, for its KYC checks. Kicktoken claims that it doesn’t have access to any of the ID documents provided by its beta users, as Sum & Substance retains all of that data.

The question is, why does an established KYC provider need to participate in a months-long beta for a crypto exchange client that isn’t yet live?

Crypto Briefing reached out to Sum & Substance on Feb. 12, to ask if the company could confirm or deny its relationship with Kicktoken, and to query why KYC checks were even necessary on a test system.

At the time of publishing, nobody from Sum & Substance had yet replied.

British security researcher Harry Denley has some experience in KYC-related mishaps and misdemeanors. Last year, Denley published a blog post showing how he had been able to uncover 15,000 KYC documents, including passports, uniformed personnel IDs, and drivers licenses, from an unsecured website directory owned by a crypto project.

On Tuesday this week, Denley was among the first to notice that Kicktoken was asking for beta tester’s KYC data. He pointed out that people could be putting a price on their personal data unwittingly if there was any risk that the KYC checks weren’t being performed legitimately.

The Current Situation

As it stands on Feb. 12, developments seem to have taken a sudden and dramatic reversal.

From Wednesday morning, crypto wallets, including Coinbase Wallet, started showing Kicktoken Frozen Drop tokens with a zero value. Kicktoken started the day on Wednesday ranking around 33 on CoinMarketCap, with a capitalization of nearly $600M. At the time of writing, it’s under $1M.

Around lunchtime in central Europe, which is the timezone for Estonian-based Kicktoken, the beta suddenly lifted the requirement for users to undergo KYC, without any more explanation than “we’re making one database now,” said Borys Sorokin, a Telegram community moderator for Kick.

Later in the day, the company released a Q&A blog post with the CEO on its Medium channel. The blog post stated that the company was not forcing anyone to undergo KYC but failed to address why it had put KYC in place for a beta, then suddenly lifted the requirement.

Suffice to say, Crypto Briefing still has more questions than answers at this moment in time. In the spirit of transparency, Kicktoken and Sum & Substance should verify exactly who is holding users KYC details already submitted for the beta, particularly given users were asked to hand them over unnecessarily.

Furthermore, holders of non-frozen tokens will want to know what happened today to precipitate such an apparent dramatic drop in the value of the company. Either way, based on events of this week, it’s unlikely that we’ve heard the end of the Kicktoken saga.

Crypto Briefing will update this emerging story as and when it evolves further.

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