Reputational Risk in Crypto Infrastructure Projects: The Dual Impact of Celebrity Endorsements and Co-Founder Behavior on Investor Trust and Token Value

Reputational risk has emerged as a critical factor shaping the success or failure of crypto infrastructure projects. In an industry where trust is both a currency and a commodity, the influence of celebrity endorsements and co-founder behavior can profoundly impact investor sentiment and token value. This analysis explores how these dynamics play out, drawing on recent case studies and enforcement actions to highlight the risks and lessons for investors.

The Double-Edged Sword of Celebrity Endorsements

Celebrity endorsements in crypto projects often generate immediate visibility and short-term price surges. A Harvard Business School study by Joseph Pacelli found that investors following crypto influencers typically see positive returns in the first two days of a promotion, but these gains erode rapidly, leading to significant losses over time according to research. For example, Kim Kardashian's 2020 promotion of EMAX tokens, which led to a $1.26 million SEC settlement for undisclosed compensation, illustrates how celebrity hype can mask weak fundamentals.

However, the risks extend beyond financial volatility. Celebrity endorsements can create a false sense of credibility, encouraging emotional decision-making driven by FOMO rather than due diligence. A 2025 Western Australian case highlighted this vulnerability: scammers used deepfake videos of celebrities to promote a fake crypto project, defrauding victims of $10 million. Such incidents underscore how celebrity influence can amplify exposure to scams and pump-and-dump schemes.

Regulatory scrutiny is intensifying. The SEC's crackdown on undisclosed payments to influencers signals a broader trend of holding celebrities accountable for their role in crypto marketing. Meanwhile, projects like Arbitrum have demonstrated an alternative path: prioritizing community-driven strategies such as on-chain metrics and anti-Sybil measures, to foster sustainable growth without relying on celebrity hype.

Co-Founder Behavior: A Catalyst for Reputational Collapse

The collapse of FTX in late 2022, driven by mismanagement and questionable financial decisions by its co-founders, serves as a cautionary tale. The project's native token, FTT, lost over 90% of its value following revelations of governance failures and liquidity crises. Similarly, the Tezos ICO of 2017 saw a 75% drop in token value after internal conflicts and legal disputes among co-founders eroded trust.

In 2025, enforcement actions against co-founders have further highlighted the risks of poor leadership. Do Hyung Kwon, founder of Terraform Labs, received a 15-year prison sentence for orchestrating a $40 billion fraud scheme, while Ramil Ventura Palafox of Praetorian Group International pleaded guilty to defrauding 90,000 investors. These cases demonstrate how misconduct by project leaders directly undermines token value and investor confidence.

The reputational damage from co-founder fraud is compounded by regulatory responses. The DOJ's prosecution of Celsius Network executives for operating a Ponzi-like scheme and the SEC's focus on unregistered securities reflect a growing emphasis on accountability. Projects lacking transparent governance or with anonymous teams face heightened scrutiny, as investors increasingly demand verifiable track records and clear tokenomics according to research.

Investor Trust and Token Value: A Fragile Balance

The interplay between reputational risk and token value is evident in 2025's crypto landscape. Projects tied to celebrity endorsements or co-founder misconduct often experience sharp price corrections when the hype fades or scandals emerge. For instance, the Bitcoin crash in late 2025 disproportionately affected celebrity-backed assets, which collapsed more severely than the broader market.

Investor trust metrics also reveal shifting dynamics. FINRA research indicates that 65% of crypto investors would consider hypothetical high-return schemes, a red flag for fraud susceptibility. Meanwhile, regulatory advancements-such as the EU's MiCAR framework and U.S. BSA compliance requirements-are reshaping investor expectations, prioritizing transparency over speculative hype.

Conclusion: Navigating Risk in a High-Stakes Ecosystem

For investors, the lessons are clear: due diligence must extend beyond tokenomics to include scrutiny of project leadership and marketing strategies. While celebrity endorsements can generate short-term traction, they introduce reputational risks that often outweigh their benefits. Similarly, co-founder behavior remains a critical determinant of long-term success, with governance transparency and accountability serving as non-negotiable safeguards.

As the crypto industry matures, projects that prioritize community engagement, regulatory compliance, and ethical leadership are likely to outperform those reliant on hype-driven tactics. For infrastructure projects, the path to sustainable value lies not in celebrity allure or founder bravado, but in building trust through verifiable action.