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The Death of InfoFi: How X's API Crackdown Obliterated a $367 Million Crypto Sector

January 19, 2026 ,
A single policy change has effectively killed the Information Finance movement, triggering double-digit token crashes and forcing major projects to shut down operations

In a matter of hours on January 15, 2026, an entire cryptocurrency sector ceased to exist as a viable business model. Information Finance—better known as InfoFi—a nascent industry that had grown to a market capitalization of approximately $367 million, collapsed following a decisive policy announcement from X (formerly Twitter). The platform's Head of Product, Nikita Bier, delivered what many are calling the death sentence for InfoFi projects: X would no longer permit applications that financially reward users for posting content.

The market response was immediate and brutal. Leading InfoFi tokens plummeted by 15-24% within hours, with the KAITO token experiencing one of the most severe crashes, falling from approximately $0.67 to $0.54—a decline of roughly 20%. The Cookie DAO token (COOKIE) similarly dropped 15-18% to $0.03662. According to data from CoinGecko, the entire InfoFi sector lost over 11% of its market capitalization in a single day, shedding tens of millions of dollars in value.

"We are revising our developer API policies: We will no longer allow apps that reward users for posting on X (aka 'infofi'). This has led to a tremendous amount of AI slop & reply spam on the platform," Bier announced on X. "We have revoked API access from these apps, so your X experience should improve as the bots stop posting once incentives are removed."

The announcement marked the culmination of X's growing frustration with what platform leadership characterized as an epidemic of low-quality, AI-generated content flooding user timelines. For InfoFi projects that had built their entire business models around X's infrastructure, the policy change represented an existential threat with no warning period—API access was revoked immediately.



Understanding InfoFi: The Model That Promised to Revolutionize Social Media

Information Finance emerged in 2025 as an experimental Web3 framework attempting to fundamentally reimagine the economics of social media. The core premise was simple yet revolutionary: if social media platforms derive immense value from user-generated content, why shouldn't users directly capture a share of that value through cryptocurrency rewards?

InfoFi platforms operated by integrating with X's API to track user engagement—posts, replies, likes, retweets, and overall social activity. Users who participated in campaigns, discussed specific tokens or projects, or generated high levels of engagement would earn points, tokens, or airdrops. The model transformed social media activity into a monetizable asset, creating what proponents called an "attention economy" where information curation and content creation could be directly compensated.

The tokenized engagement mechanism worked through several key components:

Reward Distribution Systems: Platforms like Kaito's "Yaps" and Cookie DAO's "Snaps" created leaderboards where users competed for token rewards based on their social media activity. Users earned points for posting about specific crypto projects, brands, or narratives, which could later be converted into native platform tokens.

Data Monetization: InfoFi protocols aggregated social media data to identify trending narratives, influential accounts, and emerging market sentiment. This data was then packaged and sold to crypto projects, brands, and traders seeking market intelligence.

Gamified Engagement: By introducing competitive elements and visible leaderboards, InfoFi platforms encouraged users to increase their posting frequency and engagement levels, theoretically creating viral marketing effects for participating projects.

At its peak, Kaito's Yapper community grew to approximately 157,000 members, primarily concentrated in South Korea and other Asian markets. The platform's analytics tools and reward systems attracted hundreds of thousands of users globally who saw an opportunity to monetize their social media presence. Cookie DAO similarly built a substantial user base through its Snaps creator campaigns, which distributed airdrops to content creators and stakers.

The AI Spam Problem: When Incentives Go Wrong

However, the very mechanics that drove InfoFi's growth also contained the seeds of its destruction. By financially rewarding posting volume and engagement metrics, InfoFi platforms inadvertently created powerful incentives for automation, spam, and AI-generated content.

As more users joined InfoFi ecosystems, competition for rewards intensified. Users quickly realized that manual content creation couldn't compete with automated systems. AI language models became tools for generating hundreds or thousands of posts, replies, and comments designed to maximize reward points while requiring minimal human effort. Bot networks emerged specifically to farm InfoFi rewards, flooding X timelines with repetitive, low-quality content.

The problem reached critical mass in late 2024 and early 2025. Crypto-focused areas of X—often referred to as "Crypto Twitter" or "CT"—became nearly unusable for many participants. Threads would accumulate dozens of AI-generated replies within minutes, pushing down authentic conversation. Generic responses like "Great project!" or "Bullish on this!" repeated across multiple accounts became ubiquitous. The very engagement metrics that InfoFi platforms rewarded became increasingly divorced from genuine interest or quality content.

Critics within the cryptocurrency community had been sounding alarms for months. Blockchain investigator ZachXBT, who has significant influence in crypto security circles, was among those who expressed frustration with the deteriorating quality of discourse on X. Following the ban announcement, ZachXBT commented on the situation, highlighting how AI-generated spam campaigns through InfoFi platforms had made X "borderline unusable for everyone else."

Even Kaito founder Yu Hu acknowledged these fundamental problems in the company's pivot announcement. In discussions with X leadership, both parties agreed that the fully permissionless incentive distribution system had become unmanageable and misaligned with the needs of quality content creators, brands, and the platform itself.

The Immediate Casualties: Projects Forced to Shut Down

The API ban triggered immediate operational crises across multiple InfoFi projects. Without access to X's API, these platforms could no longer track user activity, verify engagement, or distribute rewards—eliminating their core functionality.

Kaito: From Market Leader to Emergency Pivot

Kaito, which operated the largest InfoFi ecosystem through its Yaps product, announced within hours that it would sunset both Yaps and its incentivized leaderboards. The announcement came from founder Yu Hu, who framed the decision as necessary compliance with X's new policies.

"After discussions with X, it's agreed that a fully permissionless distribution system is no longer viable, nor aligned with the needs of high-quality brands, serious content creators, or X as a platform," Hu stated in the company's announcement.

The KAITO token experienced severe market turmoil. In the first hour after the announcement, the token fell approximately 21%, eventually settling around $0.54—representing a decline of approximately 24% from pre-announcement levels. Trading volume surged to approximately $161.33 million in 24 hours, up roughly 238%, as panic selling swept through the market. The token's market capitalization contracted from approximately $180 million to around $130-140 million.

The collapse extended beyond the token itself. The Yapybaras NFT collection, linked to Kaito's ecosystem, saw its floor price plummet by over 50%, falling to 0.21 ETH on OpenSea. The entire Kaito Yapper community on X—numbering approximately 157,000 members—was banned from the platform after API access was revoked.

In response to the crisis, Kaito announced a strategic pivot to "Kaito Studio," described as a more selective, tier-based marketing platform that would operate across multiple social channels, including X, YouTube, and TikTok. However, this new model represents a fundamental departure from InfoFi's permissionless ethos, moving toward traditional influencer marketing rather than tokenized engagement rewards.

Cookie DAO: Shutting Down the Core Product

Cookie DAO faced a similarly urgent situation. After communications with X regarding API usage policies, the project announced it would shut down its Snaps platform and terminate all ongoing creator incentive campaigns. The decision was described by the team as "difficult and sudden" but necessary to maintain compliance and protect the integrity of their data products.

"InfoFi is changing, and it's time to sunset Snaps. This is our official announcement," Cookie DAO stated, signaling not just a temporary pause but the permanent end of their reward-based posting system.

The COOKIE token declined 15-18% following the announcement, falling to approximately $0.03662. While Cookie DAO emphasized that it remains an Enterprise API customer of X, the company acknowledged that operating reward-based posting programs was no longer possible under the revised platform rules.

Cookie DAO's announcement included a notably simple message to their community: "Thanks for playing"—a phrase that many interpreted as an acknowledgment that the InfoFi experiment had reached its end.



Other Projects in Crisis Mode

The API ban rippled across the broader InfoFi ecosystem, affecting numerous smaller projects:

  • LOUD token dropped approximately 16%
  • ARBUS declined by about 9%
  • BubbledMaps experienced significant losses
  • Xeet paused all campaigns while evaluating next steps and processing outstanding payouts

According to market data from CoinGecko, the total InfoFi sector market capitalization fell from approximately $412 million to around $367 million—a loss of over $45 million in value within 24 hours. The sector experienced an 11-13% decline overall, marking one of the sharpest single-day corrections in the Web3 social media space.

Insider Trading Allegations: Did Teams Know in Advance?

The collapse of InfoFi tokens sparked immediate controversy beyond the policy change itself. Several cryptocurrency analysts and community members raised questions about whether project teams had advanced knowledge of X's ban and used that information to their advantage.

Unusually high staking withdrawals became a focal point of suspicion. Data showed that over 1 million KAITO tokens were scheduled to be unstaked on January 17, 2026—approximately 20 to 30 times higher than normal daily unstaking levels. Since KAITO's unstaking process requires a seven-day unbonding period, this meant that these withdrawal requests were initiated around January 10—five days before the public announcement.

Chinese crypto analyst Cryptobrave posted analysis suggesting that the Kaito team members had moved over $5 million worth of tokens in the seven days leading up to the announcement. The analyst argued that during the team's communications with X about API changes, they learned about the impending policy shift and positioned themselves accordingly.

These allegations gained traction because Yu Hu's own announcement explicitly mentioned "discussions with X" that led to the mutual agreement about shutting down permissionless reward systems. The acknowledgment that private conversations occurred between Kaito and X before the public announcement fueled speculation about the timing of token movements.

It's worth noting that communications between platform operators and major API customers before policy changes are not inherently improper—companies often engage with affected parties during policy development. However, if such information were used to make trading decisions before public disclosure, it could raise regulatory concerns about insider trading, particularly as cryptocurrency markets face increasing scrutiny from securities regulators.

Neither Kaito nor X has directly addressed these specific allegations. The unusual unstaking patterns remain a subject of investigation and debate within the cryptocurrency community.

Why X Pulled the Plug: Platform Quality vs. Innovation

X's decision to ban InfoFi applications reflects broader tensions between platform control, user experience, and decentralized innovation. The company's stated rationale centered on content quality and spam prevention—legitimate concerns that had been escalating for months.

From X's perspective, InfoFi applications had created a tragedy of the commons. While individual users rationally pursued rewards by maximizing their post volume, the collective effect degraded the platform's value for everyone. AI-generated replies cluttered threads, authentic discussions became buried under spam, and the signal-to-noise ratio deteriorated significantly.

The timing of the ban also aligns with X's broader strategic direction under Elon Musk's ownership. The platform has been working to combat bot activity, reduce automated manipulation, and improve content authenticity. Musk has frequently criticized bots and fake engagement across social media, making InfoFi's incentive structures a natural target.

Additionally, X has been developing its own monetization features for content creators, including revenue-sharing programs and premium subscriptions. InfoFi applications effectively competed with these native monetization tools while simultaneously degrading platform quality—creating a lose-lose situation from X's perspective.

Nikita Bier's statement emphasized that the decision was fundamentally about user experience: as AI-generated spam continued proliferating through InfoFi incentives, the platform determined that the costs outweighed any potential benefits. The API revocations were immediate and comprehensive, with X offering to assist affected developers in migrating to alternative platforms like Meta's Threads or Bluesky—essentially pushing InfoFi activities off X entirely.

The Platform Risk Problem: Building on Centralized Infrastructure

The rapid death of InfoFi has exposed a fundamental vulnerability in Web3 business models: platform risk. Despite rhetoric about decentralization and user ownership, most InfoFi projects built their entire infrastructure on top of centralized Web2 platforms—primarily X.

This dependency created a single point of failure. When X changed its policies, InfoFi projects had no recourse, no alternative infrastructure, and no time to adapt. The "decentralized" promise of Web3 proved hollow when the underlying distribution mechanism was controlled by a traditional tech company.

Industry analysts have pointed to this as a cautionary tale for the broader crypto ecosystem. Projects that claim to offer decentralized solutions while relying on centralized platforms for core functionality face existential risks that can materialize with little warning.

The InfoFi collapse parallels other historical examples of platform risk in the tech industry. Social media management tools, automation services, and third-party applications have repeatedly faced similar fates when platforms changed their API policies. Twitter's 2012 restrictions on third-party clients, Facebook's periodic API limitations, and Instagram's crackdowns on automation tools all followed similar patterns—initial openness followed by restrictions as platform priorities shifted.

What distinguishes the InfoFi case is the addition of financial assets (tokens) that traded on open markets. When traditional apps lose API access, users may be inconvenienced, but they don't lose monetary value. InfoFi token holders, by contrast, saw their investments decline by 15-24% in hours, with limited ability to exit positions before the crash.

Attempted Pivots: Can InfoFi Projects Survive?

Faced with the collapse of their original business models, surviving InfoFi projects have announced various pivot strategies, though the viability of these new directions remains highly uncertain.

Kaito's Move to Traditional Marketing

Kaito's transition to Kaito Studio represents the most ambitious pivot attempt. The new platform abandons permissionless token rewards in favor of a curated, tier-based system that more closely resembles traditional influencer marketing. Rather than allowing any user to earn rewards by posting, Kaito Studio will select creators based on quality criteria and work with brands to design targeted campaigns.

The model will expand beyond X to include YouTube, TikTok, and other social platforms—reducing dependency on any single platform. However, this approach fundamentally abandons what made InfoFi distinctive: the promise of democratized rewards and permissionless participation. Kaito Studio looks less like a Web3 innovation and more like a conventional marketing agency with cryptocurrency payment rails.

Questions remain about whether Kaito's existing user base will follow this transition. The 157,000 members of the Yapper community joined primarily for financial rewards, not to become professional influencers. The shift to selective, high-quality campaigns will likely exclude the majority of previous participants, potentially alienating the community that drove Kaito's initial growth.

Migration to Decentralized Platforms

Some projects have indicated they will attempt to rebuild on truly decentralized social media platforms like Farcaster and Bluesky. These platforms operate on decentralized protocols rather than company-controlled servers, theoretically eliminating platform risk.

However, this migration faces significant challenges. Decentralized social platforms currently have much smaller user bases than X—Farcaster and Bluesky combined have only a fraction of X's 500+ million users. InfoFi projects built on these platforms would reach far fewer potential participants and customers, likely generating much less engagement and value.

Additionally, decentralized platforms may not welcome InfoFi mechanics either. Even without centralized control, protocol communities can establish norms and standards that discourage spam and low-quality content. If InfoFi incentives again lead to AI-generated spam, decentralized platforms might implement their own restrictions—though enforcement would be more complex.

Cookie DAO's Unclear Future

Cookie DAO has announced plans to continue developing its data analytics products while sunsetting the Snaps reward system. The project emphasizes that it remains an X API enterprise customer, suggesting it will continue aggregating social data without the reward-based posting component.

Whether Cookie DAO can maintain value without its primary user-facing product remains unclear. The project's token economics were built around the Snaps system's utility—users needed COOKIE tokens to access certain features and rewards. Without Snaps, the token's utility proposition becomes murky.

Cookie DAO has hinted at potential new products and partnerships, but specific details remain limited. The project faces the challenge of retaining its community and token value while fundamentally restructuring its business model.

Broader Implications: The Regulatory Shadow

The InfoFi collapse occurs against a backdrop of increasing regulatory scrutiny of cryptocurrency markets. The sector's heavy reliance on X's infrastructure and the subsequent market crash when that access was revoked highlight several regulatory concerns that authorities have been examining.

Securities Law Questions

InfoFi tokens may face heightened regulatory risk following their collapse. The U.S. Securities and Exchange Commission (SEC) has been aggressive in pursuing cryptocurrency projects it deems to be unregistered securities. InfoFi tokens' value was explicitly tied to platform operations and reward distributions—characteristics that could strengthen arguments that they function as investment contracts rather than utility tokens.

The alleged insider trading before the API ban announcement could attract regulatory attention. If project teams had material non-public information about X's policy changes and traded on that information, it could constitute securities fraud even if the tokens themselves haven't been formally classified as securities.

The MiCA Regulation in Europe

The European Union's Markets in Crypto-Assets (MiCA) regulation, which came into full effect in 2025, establishes comprehensive rules for crypto asset governance, including transparency in tokenomics and anti-money laundering protocols. InfoFi projects that operated in European markets must now prove compliance with these standards—a challenge when their core business model has collapsed.

MiCA requires detailed disclosures about token utility, governance structures, and operational risks. The sudden shutdown of core products like Yaps and Snaps after users had purchased tokens raises questions about whether adequate risk disclosures were provided to European investors.

Platform Governance and API Access

The InfoFi collapse may also influence ongoing policy debates about platform power and API access. Some jurisdictions have considered regulations requiring large platforms to provide API access to third-party developers as a matter of competition policy. The InfoFi case demonstrates both why such access can be valuable (enabling innovation) and why platforms resist it (potential quality degradation).

Regulators may study this case when evaluating proposed "platform regulation" laws that would govern how large tech companies manage their ecosystems and relationships with third-party developers.

Market Reaction and Community Response

The cryptocurrency community's response to InfoFi's death has been notably mixed. While many users who participated in InfoFi programs expressed disappointment or anger at losing income streams, a significant portion of Crypto Twitter celebrated the ban as overdue.

Critics of InfoFi have been vocal about their relief. Many longtime cryptocurrency participants argued that InfoFi had degraded discourse quality to intolerable levels. They point out that genuine research, analysis, and community building became increasingly difficult as timelines filled with reward-farming posts. The ban, from this perspective, represents a necessary cleansing that will allow authentic conversation to resurface.

One prominent crypto community member commented, "Kaito & projects like it ruined the timeline. Good fucking riddance. This is exactly what we needed."

Supporters of InfoFi, particularly those who earn income through these programs, have expressed frustration at what they see as platform overreach. They argue that X's decision eliminates legitimate monetization opportunities for content creators, particularly those in developing economies where even modest cryptocurrency rewards represent meaningful income.

The debate reflects broader tensions in the cryptocurrency space about the proper balance between:

  • Decentralization ideals vs. practical platform dependencies
  • Financial innovation vs. content quality
  • Permissionless participation vs. curated experiences
  • Quick rewards vs. sustainable value creation

What Killed InfoFi: A Post-Mortem Analysis

Examining InfoFi's rapid rise and collapse reveals several critical failure points:

1. Misaligned Incentives

InfoFi's fundamental design flaw was rewarding quantity over quality. By optimizing for engagement metrics (posts, likes, replies) rather than value creation (insight, analysis, education), these platforms incentivized behaviors that degraded rather than enhanced social media platforms. Users rationally responded to incentives by maximizing output while minimizing effort—precisely the formula for AI-generated spam.

2. Platform Dependency

Building a "decentralized" economy entirely dependent on a centralized platform's API created a catastrophic single-point-of-failure risk. The InfoFi sector had no backup plan, no alternative infrastructure, and no negotiating power when X decided to change its policies.

3. Unsustainable Token Economics

Many InfoFi tokens launched with questionable tokenomics, including insider-heavy allocations and rapid unlock schedules. When Kaito's airdrop disappointed users with lower-than-expected token distributions, trust in the model eroded. The tokens' value propositions depended entirely on continued platform access—when that disappeared, the tokens had no remaining utility or value proposition.

4. Failure to Control Quality

Despite recognizing the spam problem, InfoFi projects never successfully implemented quality controls that could distinguish genuine engagement from farming behavior. Kaito acknowledged raising thresholds and introducing screening mechanisms, but these measures ultimately proved insufficient. The permissionless nature of the systems made quality control fundamentally difficult.

5. Regulatory Ambiguity

Operating in a regulatory gray zone meant InfoFi projects had no clear legal framework or protections. When X decided to ban them, they had no regulatory recourse or established rights to API access. This vulnerability stemmed partly from the project's failure to engage proactively with regulatory frameworks.

The Future of Tokenized Social Media

While InfoFi, as practiced in 2025, is effectively dead, the underlying question it attempted to address remains relevant: how should value created by social media users be distributed and compensated?

Several alternative models are emerging:

Creator-Centric Approaches

Rather than reward all users for generic posting, some projects are exploring models that specifically compensate high-quality creators. These approaches more closely resemble traditional influencer marketing, but with cryptocurrency payment rails. Kaito Studio represents one version of this model.

Decentralized Social Protocol

Projects building on truly decentralized protocols like Farcaster, Lens Protocol, and others continue to develop tokenized social mechanics. These platforms aim to avoid platform risk by eliminating centralized control points. However, they face challenges around user adoption, scalability, and quality control.

Hybrid Models

Some projects are exploring hybrid approaches that combine decentralized infrastructure with centralized moderation and quality controls. These models attempt to capture the benefits of both approaches while mitigating risks.

Data Ownership and Monetization

Rather than rewarding posting activity, some projects focus on compensating users for their data and attention. These models aim to give users control over their personal information and enable them to sell or license it directly, rather than having platforms capture all the value.

Lessons for Web3 Projects

The InfoFi collapse offers several critical lessons for cryptocurrency and Web3 projects:

Platform Risk Must Be Addressed: Projects cannot claim to be decentralized while depending fundamentally on centralized infrastructure. Either build truly decentralized alternatives or explicitly acknowledge and manage platform risk.

Incentive Design Is Critical: Token rewards must be structured to incentivize behaviors that create genuine value, not just metric optimization. If your reward system can be gamed by automation or low-quality content, it will be.

Regulatory Clarity Is Valuable: Operating in regulatory gray zones creates vulnerability. Projects that proactively engage with regulatory frameworks may have more durability than those that avoid or ignore regulation.

Community Trust Matters: Token launches with insider-heavy allocations, opaque governance, and disappointing distributions damage trust that may be impossible to rebuild. Fair launches and transparent tokenomics aren't just idealistic—they're practical necessities for long-term sustainability.

Sustainable Value Proposition: Projects need utility and value propositions that don't depend on continuous growth or external platform access. When growth stops, or access disappears, what remains?

InfoFi Is Dead: What Comes Next?

As of January 19, 2026, InfoFi, as conceived and practiced in 2025, has ceased to exist as a viable model. The sector's major projects have either shut down their core products (Cookie DAO's Snaps) or pivoted to fundamentally different approaches (Kaito Studio). Token holders have absorbed significant losses with limited prospects for recovery.

The speed and completeness of the collapse underscore how fragile crypto business models can be when built on unstable foundations. A single policy announcement from a centralized platform destroyed hundreds of millions of dollars in market value and forced thousands of users to abandon income streams they had come to depend on.

Whether InfoFi's core idea—tokenizing information and compensating users for content creation—can be revived in a more sustainable form remains to be seen. Projects attempting to rebuild on decentralized infrastructure or pivot to quality-focused models face significant challenges. The stigma of InfoFi's spam reputation may make it difficult to attract users, investors, or partners to anything branded as Information Finance.

For now, the InfoFi experiment has concluded with a clear verdict: reward-based social posting, when built on centralized platforms and optimized for quantity over quality, creates unsustainable dynamics that ultimately destroy value for all participants. The question is whether the Web3 community will learn from these mistakes or repeat them in different forms.

The death of InfoFi represents more than just the failure of a few projects—it's a case study in the challenges of building decentralized economies on centralized infrastructure, the importance of aligning incentives with value creation, and the persistent problem of platform risk in the Web3 era. As the cryptocurrency industry matures and faces increasing regulatory scrutiny, these lessons will only become more relevant.

InfoFi is officially dead. The tokens remain tradeable, but the model that gave them purpose is gone. What rises from these ashes—if anything—will need to be fundamentally different from what came before.







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