A new digital assets company promoted by Donald Trump is being shunned by much of the crypto industry as executives fear the project could undermine efforts to restore consumer confidence after years of collapses and high-profile fraud cases.
The former US president and his three sons have promoted World Liberty Financial, a crypto company started by his longtime business partners and others. The company began selling its token to qualified investors on Tuesday, aiming to raise $300 million. As of Wednesday, it had raised $12 million, selling 4 percent of the 20 billion tokens available.
However, the Trump family’s embrace of crypto has drawn widespread criticism from prominent industry executives and analysts, who are concerned about World Liberty’s ties to a candidate running for US president, of its unclear protections for investors and the records of two of the executives who run it. One of them had previously given classes teaching men how to pick up women and the other was accused of fraud and illegal drug sales.
These criticisms come despite Trump positioning himself as a pro-crypto candidate ahead of the US elections in November.
“He’s said nice things about crypto but he immediately wants to extract value from it,” said Nic Carter, general partner at Castle Island Ventures. “None of this liberalizes or democratizes access to financing. »
World Liberty Financial will “leverage Trump’s global reach and brand recognition” to promote crypto, it said on its website.
Its token gives its holders voting rights on “certain matters of the WLF protocol,” but it confers “no economic rights” in the company and cannot be exchanged or resold to the company. On Tuesday, the company’s website crashed at the start of the token sale, raising questions about its reliability.
Donald Trump’s involvement as a “leading crypto advocate” has largely consisted of promoting the company on social media, although he “will be entitled to a significant fee,” the company’s website says. ‘business. World Liberty Financial did not respond to requests for comment.
“The emphasis seems to be on. . . more about the headlines and Liberty’s naming rather than the substance,” said Rich Rosenblum, co-founder of crypto market maker GSR, adding that there were “some concerns about (Trump’s) intentions “.
For many executives, the Trump family’s plan risks destroying their hard-fought efforts to rebuild crypto’s battered reputation after the 2022 stock market crash. Some executives have been sued by U.S. authorities or sent to prison for their failure to to protect investors. Many of those remaining have lobbied for regulation and acceptance by traditional financial players.
“When you see a project like this that doesn’t provide clear protection for investors and you see ordinary citizens getting excited about who is supporting it, it’s really difficult for us,” the official said. from a crypto hedge fund.
“This is scary for us in the industry who have worked very hard to keep regulation and compliance at the forefront,” they added.
Trump’s endorsement, while in the final stages of the presidential campaign, also raises conflict of interest concerns, analysts say.
He has ramped up his involvement in crypto this year, just as the industry has become one of the biggest political donors of the election cycle.
After calling bitcoin a “scam” while president, the Republican candidate promised to end the “persecution” of the industry – a stance that won him public and financial support from major investors in the industry. Silicon Valley.
“It definitely gives a sense of what the regulations will look like, what will or will not be subject to enforcement,” said Yesha Yadav, associate dean at Vanderbilt University Law School.
World Liberty Financial said it was a “nascent” decentralized finance platform that would allow customers to borrow and lend against select digital tokens, including Ethereum and stablecoins Tether and USDC. Widely considered the Wild West of crypto, decentralized finance is an unregulated corner of the market.
This “undermines the impression that crypto is seeking meaningful, serious and systematic regulation,” Yadav said, adding that support from the Trump family “creates an additional layer of difficulty and a perception of conflict (of interest).”
Crypto executives also point to the business backgrounds of two of World Liberty Financial’s co-founders as a potential problem for an industry trying to revive its reputation.
The two men, Chase Herro and Zachary Folkman, have been the subject of several lawsuits in the United States over the years.
“These guys are total losers with very questionable business histories and not at all equipped to build a foolproof (decentralized financial) business,” Carter added. “No one knows them about crypto. . . they don’t look like seasoned crypto entrepreneurs at all.
Herro and Folkman did not respond to requests for comment.
Herro and Folkman previously ran Dough Finance, a small crypto lending project that was hacked for around $2 million in July. They were introduced to Trump through his friend Steve Witkoff, a real estate developer and Trump donor who is listed as a co-founder of World Liberty Financial, according to a person familiar with the matter.
Herro, who often spells his name “Hero” online, was imprisoned at age 18 for selling drugs in his home state of Wisconsin and later admitted to cutting off his ankle monitor . “I ran to the state of California from Wisconsin, I literally fled,” he said in a 2019 podcast.
In 2010, he was sued by an investor for alleged fraud for using a $170,000 investment in a medical marijuana company “for his own personal benefit” and because the company “failed to maintain books, minutes or formalities of the company”. Herro, who “completely” denied using investments for personal gain and said he “maintained a separation” between his personal funds and those of his business, was ordered to pay $207,366 in damages, interest and other costs. .
In 2021, Folkman was sued by American Express for $12,562.21 in credit card debt. American Express has requested that the case be dismissed in 2022. The company did not respond to a request for comment.
In 2017, Herro, Folkman and others were sued by a real estate company for allegedly causing more than $75,000 in damage to a property they were renting and refusing to pay 11 months’ rent. The parties settled in 2019. Both men have denied the allegations.
YouTube videos posted by them also depict a lavish lifestyle of fast cars, private jets and pranks, including one in 2020 where they dressed up as women in order to find dates. Folkman ran a business advising men on dating, saying the goal was to “get girls home and have sex.”
Despite the industry’s many reservations, executives still expect the company to see some success, at least initially.
“It’s a joke,” a senior U.S. cryptocurrency exchange executive said of Trump’s platform and its executives. “The sad thing is that” many ordinary investors would likely flock to this project because of its support, he added.
