Is World Liberty Financial an Unregistered Security? Duke Expert Weighs In
The Trump-linked DeFi project, World Liberty Financial (WLFI), is facing intense scrutiny. Lee Reiners, a Duke University law lecturer and former Federal Reserve examiner, argues that the project’s native token, WLFI, should be classified as an unregistered security.
Despite the team’s claims that WLFI is a “pure governance token,” Reiners suggests it falls under the SEC’s jurisdiction. He notes that the token does not meet the criteria for a “digital commodity.” Instead, it appears to be a fundraising tool for a centrally managed business.
The Howey Test and Investor Expectations
A central part of the argument involves the Howey Test. This legal standard determines if an asset is a security based on whether investors expect profits from the efforts of others. Reiners points out that World Liberty sold 25 billion tokens before the protocol was even fully functional.
The project relied heavily on the Trump brand for marketing. According to Reiners, the SEC’s own guidelines state that promises to build a network or achieve functionality can create a “reasonable expectation of profit” for buyers.
Challenges to Decentralization Claims
World Liberty markets itself as a decentralized platform, but recent events suggest otherwise. A lawsuit filed by Justin Sun alleges that the project froze his tokens and blocked his voting rights. Reiners argues that if a project can unilaterally freeze assets, it is not truly decentralized.
Furthermore, Reiners highlighted potential self-dealing. He cited an arrangement where World Liberty borrowed $75 million in stablecoins using WLFI as collateral. This deal involved close advisors, raising questions about the project’s internal transparency.
Political Influence and SEC Independence
The situation is complicated by politics. The SEC is currently led by Paul Atkins, a Trump nominee. Reiners expressed doubt about whether the SEC would investigate a venture where the President’s family holds a direct financial stake.
DT Marks DEFI LLC, an entity tied to the Trump family, is entitled to 75% of the net proceeds from token sales. Additionally, major international deals involving the USD1 stablecoin have further blurred the lines between private business and political influence.
Token Unlocks and Investor Backlash
Recently, World Liberty proposed a governance plan to unlock billions of tokens over the next four years. This move sparked a backlash from presale investors. Many felt they had no real power in the governance process, despite owning the “governance” tokens.
As the project evolves, the legal status of WLFI remains a major point of contention. Whether the SEC will take action against a project with such high-level political ties remains the industry’s biggest question.
