Meltem Demirors and the Problem of “Skin in the Game”

A crypto-kerfuffle unfolded last week on Twitter, when a respected journalist blasted prominent blockchain investor and commentator Meltem Demirors with claims of unethical behavior. Beyond their implications for Demirors herself, the claims raise important unresolved questions about conflict-of-interest and disclosure practices in digital assets—and more broadly, about who should be driving the conversation around blockchain tech.

Demirors is a former financial consultant to businesses like Exxon, who in 2015 joined Barry Silbert to launch the Digital Currency Group, a crypto-investment and services company. Demirors has also been a notable critic of what she calls “shitcoins”—that is, scammy crypto-tokens sold to fund highly speculative and underperforming projects. She’s behind the satirical “Potato Fund,” a group of crypto-tokens chosen for their logo design, and has offered detailed explanations of how big investors get an unethical edge over retail buyers in crypto.

But Larry Cermak, a former Diar analyst who now writes for The Block, believes the lady doth protest too much. Cermak pointed out that despite her yen for bashing shitcoins, Demirors personally holds or has held many of them, and is frequently hired as an adviser for crypto projects. In response to a recent speech in which Demirors was critical of investors who leave “pensioners in Korea . . . holding the bag,” Cermak argued that “it’s not OK at all to be against investors all of a sudden, after she already made a fortune on them.”

Cermak’s strong implication is that Demirors has directly profited from the very “shitcoin waterfall” she so often critiques. More broadly, Cermak doesn’t think Demirors should get “a free pass for being blatantly hypocritical”—that is, making her public image more skeptical and contrarian now that the crypto bubble has popped.

But there is a subtle, hidden tension within this critique. Demirors is, after all, a self-described investor— her job is to make money for herself, and for people she works with. As both an insider and an early investor, she has certainly been in a position to sell her assets off to latecomers. If she held assets that were gaining value at a completely unsustainable rate, as many clearly were during the winter 2017 runup, she would have been irresponsible not to sell them and realize gains. The greater scandal, arguably, might be if Demirors has actually held on to all of her shitcoins.

A similar defense applies to her pivot toward skepticism. Her current official job title is chief strategy officer at CoinShares, a company that aims to “help crypto firms manage assets and risk.” That includes treasury management services, presumably for many of the projects that issued big ICOs, then parlayed their Ethereum holdings into cold, hard cash (yes, I mean dollars, fight me) right before the bottom fell out. Demirors’ recent shitcoin skepticism probably sounds like a welcome refrain to prospective CoinShares clients who’d like to play it safe with their capital in a bear market.

If these aren’t sounding like very compelling defenses, it’s because they’re not, if what you expect from Meltem Demirors are insights that purely serve the public interest or abstract crypto-ideals. Because her actual commitment, explicitly and openly, is to make money for herself and her customers.

There’s nothing wrong with that—but all statements made by her, or any other professional investor, should be interpreted in that skeptical light. As David Golumbia pointed out recently, this understanding has threatened to fade into the background for crypto insiders. Many have adopted the mantra of “skin in the game” from Nassim Nicholas Taleb—the proposition that onlookers should only listen to people with serious financial investments in an asset or sector.

That’s a reductive reading of Taleb’s sprawling thought, and it has a glaring flaw—those with skin in the game are directly and clearly motivated to predict a specific outcome, regardless of facts. At the most general level, crypto-investors have money riding on the prediction that blockchain technology will eventually be profitable. Representatives for companies like Coinbase will tend to promote the same premise because it will generate more investment commissions.

If you’re looking for a truly neutral assessment of blockchain technology’s potential, spokespeople for the investment sector, by definition, can’t provide it. If you’re curious about blockchain’s long-term social implications or potential downside risks, it would be impossible to take anything you heard from these players entirely seriously, because their financial interest would conflict with any negative conclusions, and constantly, subtly draw them toward positive ones. As the historian Howard Zinn famously put it, you can’t be neutral on a moving train—least of all if you own stock in the railroad.

Of course, that doesn’t mean figures like Demirors don’t have a place in the conversation. If you look at Wall Street, investors are constantly tapped to provide commentary and insight, mostly on short-term asset-price moves and operational details (while, yes, providing very forthright disclosures about their own holdings). But you don’t get to be both a sage commentator and a profiteer. Truly independent thinkers, including fact-driven journalists, insightful writers, and rigorous academics, have played an important role in the long-term, equitable growth of every sector of the American economy.  A robust, healthy conversation about blockchain won’t be any different.