DeFi, Trump style: a family circus

With World Liberty Financial, Donald Trump and his sons are promising a new decentralized lending platform, but a closer look reveals recycled ideas and glaring red flags.

_{By Nina Bambysheva And Steven EhrlichForbes Staff}

DOnald Trump Trump is making another push into the cryptocurrency world, and this time he’s bringing his family along for the ride. On Monday, Trump introduced World Liberty Financial, a cryptocurrency company “run” by his sons, Donald Jr. and Eric, during a live broadcast on X in front of 155,000 viewers.

“We have to be on top, no matter what we do. Cryptocurrencies are one of those things that we have to do whether we like it or not,” Trump said, streaming from Mar-a-Lago, his country club in Palm Beach, Florida. “If we don’t do it, China will do it. China is doing it anyway,” he added, apparently unaware that cryptocurrencies have been illegal in China since 2021. The former president said it was his children who “opened my eyes more than anything else.” “Barron knows so much about this stuff. He’s a young guy, but he knows. He’s got four wallets or something, and I’m like, ‘What’s a wallet?’” Trump remarked.

Railing against what they see as the inherent injustice of the banking industry, Trump’s sons and the team at World Liberty Financial have been recycling old narratives about their new decentralized finance, or “DeFi,” project.

“I think DeFi would be what (our founding fathers) would have envisioned, not a broken, bureaucratized system where a bunch of middlemen get coins and wigs for doing nothing, for pushing paper, which not only creates a lot of waste and inefficiency, but has really become a politicized process, and we’re seeing that,” Donald Trump Jr. said.

Although few details were revealed during the two-and-a-half-hour stream, the project is reportedly built on DeFi lending platform Aave.
Aave
and will also involve stablecoins, tokens typically designed to track traditional currencies like the dollar. DeFi is a term used to define banking and exchange-like products that exist entirely on blockchains and claim to be autonomous and outside the control of any single actor or party. The promise is that DeFi could eventually become a cheaper, more private, more secure, and more accessible substitute for traditional financial institutions, including banks and exchanges. On lending protocols like Aave, users can borrow digital assets, such as ether, from other depositors looking to earn a yield on their holdings, typically paid in the form of more digital tokens, much like someone might take out a personal loan from a bank. But these aren’t FDIC-backed banks. They’re risky havens for speculators because they offer yields as high as 7%. In late 2021-early 2022, rampant speculation and leverage fueled a self-sustaining bubble on DeFi platforms and the total value locked reached $180 billion.

Today, more than $30 billion is deposited into these protocols to be lent, but most of the borrowing is used by traders to gain additional leverage in digital asset markets, rather than to finance tangible assets like real estate or businesses. WLFI is betting that if it can make these DeFi platforms more user-friendly, ordinary borrowers will be more likely to use them.

A leaked white paper first seen by CoinDesk reveals that Trump has named himself “Chief Crypto Advocate,” while his sons will take on the flashy titles of “Web3 Ambassadors.” Meanwhile, 18-year-old Barron Trump, a freshman at New York University, has been called a “DeFi visionary.” Other key executives include Chase Herro and Zachary Folkman, both known for their involvement in Dough Finance, a failed DeFi protocol hacked for $1.8 million in July. Folkman is listed as the head of operations at World Liberty Financial. A self-proclaimed “shitbag of the internet,” he once urged regulators to “fire heads like me.” His resume is similarly colorful, having co-founded Subify, a censorship-free alternative to Patreon and OnlyFans, and registered a company called Date Hotter Girls LLC. He has also posted YouTube seminars on how to pick up women.

Steve Witkoff, a longtime Trump ally and real estate developer who was on the golf course with the former president Sunday when a would-be assassin was foiled, also stepped in as head of “institutional investments,” and his son, Zach Witkoff, as head of “intelligence.”

A disclaimer clarifies that World Liberty is not actually “owned, managed, or operated” by the Trump family, though they will still profit from it. Folkman confirmed during last night’s livestream that WLFI will sell a “governance token,” crypto lingo for a digital asset that grants voting rights similar to a stock. About 63% will be sold to the public, 17% will be reserved for user rewards, while 20% will be allocated to “team compensation,” including advisors and future hires, and of course, the Trump family. In the United States, the tokens will be offered under the SEC’s Regulation D, which exempts certain companies from the requirements of registering a public offering, to accredited investors only, defined as those with a net worth of at least $1 million or annual income of more than $200,000. Additionally, these tokens will initially be non-transferable. Folkman said this is because they only want people interested in governing and operating the platform.

Blocking investors now could be a smart business move for the Trumps, given that most DeFi tokens have lost 88% of their value since the heights of the Covid pandemic.

DeFi tokens have not recovered from their post-Covid plunge

“DeFi is struggling because most of its previous liquidity, which was previously looking for 4-6% yield on major platforms, has been invested in new projects like liquid re-staking because they can offer higher yields with airdrops (free tokens),” says Kavita Gupta, founder of Delta Blockchain Fund, referring to a process in which users post tokens as collateral to mine networks like Ethereum for rewards. Typically, these assets are then locked up, but liquid staking providers issue an accompanying token that is liquid. “That’s why we’re not even seeing prime products (DeFi lending) like Aave and Compound handling the same volumes as before.”

These two leading DeFi platforms, Aave and Compound, have fallen 73% and 95%, respectively, from their all-time highs earlier this decade. And yet, they trade at outrageous premiums to the valuations of traditional financial firms like banks. Aave and Compound’s fully diluted price-to-sales ratios are 38.4 and 221, respectively. Invesco’s Regional Banking Index (KBWR) trades at a price-to-sales ratio of less than 12.

WLFI plans to provide some tokens to its users, but non-transferability could prove to be an issue, given the recent disappointing performance of Trump-related meme tokens and Trump Media & Technology Group Corp (DJT) stock.

DJT is down 75% since the start of its trading

Trump’s Famous Coins Are Crashing

So far, Trump has made over $7 million selling his NFT collections since he transitioned from crypto critic to crypto enthusiast. A pro-crypto PAC called Fairshake has also raised over $161 million from Coinbase, Andreessen Horowitz, Ripple, and other crypto luminaries. Keeping the money flowing could be his most important priority with less than two months to go until the election.

“World Liberty Financial is not a bunch of suits coming into the crypto world and trying to take over. It’s a bunch of suits coming into the crypto world and embracing people… and we’re doing it on a much larger scale, integrating DeFi, crypto, NFTs, live from Mar-a-Lago with the Trumps,” Folkman said. “No matter what you think of them, no matter what your political beliefs are, they are the biggest, most powerful brand in the world right now.”

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