Trump can’t buy political support for his DeFi project

Donald Trump may be the first former U.S. president to buy fast food with digital assets, but his new ‘crypto’ project could complicate passage of pro-crypto legislation.

But first, September 18 saw the U.S. House of Representatives hold not one but two crypto-focused hearings. The first, hosted by the Financial Services Committee, was titled Dazed and Confused: Breaking Down the [Securities and Exchange Commission’s] Politicized Approach to Digital Assets.

This loaded title and the fact that only one of the five invited guests held a skeptical attitude toward all things crypto tells you all you need to know about how it went. Basically, SEC Chairman Gary Gensler is a giant doody head who should be having a hard time not overseeing capital markets.

The highlight of the hearing may have come just a few minutes in, during the prepared testimony of that lone crypto skeptic, Duke University lecturing fellow Lee Reiners. Reiners said there was nothing so revolutionary about trading digital assets that it should be exempt from existing securities laws.

To illustrate how the SEC is “simply doing the job Congress tasked it with: enforcing federal securities laws,” Reiners used the hearing’s title to paraphrase Matthew McConaughey’s Dazed and Confused movie character Wooderson talking about his affection for high school girls. “That’s what I love about these federal securities laws. I get older, they stay the same age.”

Reiners also noted the huge campaign finance contributions the crypto sector is throwing around in this election cycle, which probably explains why this hearing was held at all (the same committee is holding an SEC oversight hearing next week). It’s another chance for certain Reps to performatively demonstrate their fealty in the hopes of scoring as much of that campaign funding as possible ahead of November’s vote.

Wait, don’t politicians love pork?

The second hearing, held by the Financial Services Committee’s National Security, Illicit Finance and International Financial Institutions Subcommittee, was labeled Protecting Americans’ Savings: Examining the Economics of the Multi-Billion Dollar Romance Confidence Scam Industry (aka ‘pig butchering‘).

Curiously (or not), no crypto operators bothered to show and offer their view on how the butcherers typically pitch their marks on a “cryptocurrency investment opportunity, resulting in the victim investing thousands of dollars in fraudulent cryptocurrencies.” (There were also far fewer pols on the dais, presumably due to the lack of Gensler-insulting opportunities.)

Despite multiple mentions of digital assets in the hearing’s memorandum, there wasn’t much deep discussion of their role in these scams. But Reps Dan Meuser (R-PA) and Zach Nunn (R-IA)—both of whom hold ‘A’ ratings with the Stand With Crypto astroturf group—managed to get in some favorable mentions of the traceability of tokens, particularly stablecoins.

For the record, Nunn has received nearly $1 million from the crypto-focused Fairshake political action committee in the current election cycle.

Make Donald Money Again

During the anti-SEC hearing, Rep. Sean Casten (D-IL) brought up the imminent launch of the Trump family’s new ‘crypto’ grift, World Liberty Financial (WLF). Referencing the bonkers Bloomberg revelations of the scammy non-Trump individuals behind the suspect code underpinning Trump’s project, Casten segued into this mic drop moment:

“I understand why people who have a history of fraud, who have a history of laundering money, would find [crypto] very attractive. I find it troubling that it is partisan for us to try to shut down ventures that make fraud easier, that make it easier to launder money and that make it harder to protect investors.”

It’s worth noting that one of WLF’s advisors recently admitted to not having looked at the code underpinning the project, despite the same code recently resulting in a $2 million hack of a similar project (Dough Finance) promoted by the team now behind WLF. Bullish.

Trump and his two oldest sons (Don Jr. and Eric) participated in a shambolic X/Twitter Spaces event on September 16 that had been promoted as explaining what this much-hyped WLF decentralized finance (DeFi) project was all about. Instead, listeners learned very little, only that WLF would be ‘yuuuge’ and change everything we know about money. Or something.

Despite being the project’s ‘Chief Crypto Advocate,’ Trump said absolutely nothing about WLF. Instead, he offered some vague praise of crypto, waxing a little more lyrical regarding the millions he made via his four non-fungible tokens (NFT) collections.

Trump also claimed that America had to double down on crypto before China did while warning that crypto operators “will be living in hell”—’hell’ being more SEC investigations— if he wasn’t elected in November.

And in an indictment of the sector’s inflated claims of how many Americans are crypto-focused single-issue voters, Trump had promoted the Spaces event to his over 90 million X followers. Yet, only 170,000 individuals tuned in, many of whom would be skeptics, journalists, and/or political operatives. More than three-quarters of those listeners tuned out before the event and actually got around to discussing WLF in detail.

Even Trump’s youngest son Barron—WLF’s ‘DeFi Visionary’—apparently bailed on his promoted appearance on the Space without telling anyone because they took too long to ask him anything.

So WTF is WLF?

The Space confirmed that WLF will be some kind of digital asset borrowing/lending platform, although there seems to be a major hitch in their messaging.

For instance, Don Jr. claimed that WLF would ‘depoliticize’ banking by serving individuals who have trouble getting traditional banks to lend them money. But he failed to explain why WLF would lend money to these unbanked masses, given their apparent lack of collateral.

We also learned that WLF will issue a “pure governance” token (WLFI), which won’t be “transferrable” and will generate no yield. Roughly 63% of the WLFI supply will be sold to the public, but U.S. residents must be “accredited investors” (a net worth over $1 million or annual income over $200,000). These characteristics will allow WLF to offer its tokens as unregistered securities under the exemptions of Rule 506(c) of the SEC’s Regulation D.

Another 17% of WLFI will be devoted to incentivizing the growth of the WLF platform, while the remaining 20% will go to insiders, including the four Trump family members—Trump and his three sons—as compensation for all their, uh, hard work.

The insiders’ share is well below 70%, as detailed in a previous version of the WLF white paper that leaked earlier this month. But as Rep. Casten pointed out in the SEC-focused House hearing, WLF’s 20% insider allocation “sounds suspiciously similar to the language in the FIT21 bill [Sec. 101 (25)(B)] that says if you have less than 20% ownership, you are ‘decentralized’ and therefore not subject to regulation.”

With Trump standing to gain from WLF financially and the very real possibility of his returning to the Oval Office in January, the question of the Constitution’s Emoluments Clause once again raises its ugly head. As foreign governments curried Trump’s favor by booking stays at his (since sold) Washington, D.C. hotel, those same governments could snap up bags of WLFI and indirectly feed Trump’s bottom line.

Some Democrats have already indicated their plan to cast a critical eye on Trump’s DeFi plans. After all, Trump is pledging to loosen oversight of crypto operators while his family is launching a crypto project that seems almost comically determined to keep its operations a secret.

As Rep. Jamie Raskin (D-MD) put it, “The presidency is not a money-making venture, or it should not be, and Trump, from the beginning, has regarded it as an extension of his business enterprises.” Rep. Brad Sherman (D-CA) put it in even starker terms: “This makes Clarence Thomas look like Mother Teresa.”

Congress: gridlock or fast lane?

A TD Cowen analyst recently observed that Trump’s DeFi project could make it harder for any pro-crypto legislation to gain traction in Congress. The theory is that Dems will be “loath for political reasons to support any bill that is viewed as enriching the Trump family.”

Case in point: Senate Majority Leader Chuck Schumer (D-NY) participated in last month’s ‘Crypto4Harris’ digital town hall, intending to counter the prevailing wisdom that the Dems view crypto as toxic. Schumer told participants that “we all believe in the future of crypto” and claimed that passing a crypto bill before the end of the post-election lame-duck session “is absolutely possible, even in these divided times.”

However, on September 8, Schumer issued a letter to Senate colleagues outlining his priorities for the remainder of the legislative calendar. Not listed among those priorities? Crypto. It’s unclear whether Schumer’s letter addressed the lame-duck session, a period in which controversial legislation is often rammed through by legislators, many of whom may not be returning in January.

Rep. Patrick McHenry (R-NC), a noted crypto booster, is one of those politicians who is not running for re-election. Speaking at Georgetown University this week, McHenry said, “I think there’s an opportunity for [passing a bill] to happen in lame duck.” McHenry suggested that FIT21, which was approved by the House this summer, could end up being attached to a must-pass spending bill.

The Senate has its own crypto bills kicking about, including a revised version of Sen. Debbie Stabenow’s update of her 2022 digital asset legislation, which she pulled earlier this year due to a lack of bipartisan support. There’s also the ‘payment stablecoin’ bill authored by Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY). Lummis voiced similar confidence that a deal would get done in the lame duck.

Now, how much would you pay?

Trump may be ‘advocating’ for his proprietary WLFI token, but Fox News aired a video of him on September 18 using BTC to pay for hamburgers—or ‘crypto burgers,’ as Trump rechristened them—at PubKey, a BTC-friendly bar in New York.

In reality, bar staff conducted the entire transaction, merely handing Trump phone when it was ready to scan a QR code and asking him to hold the phone over the code. Trump somehow managed to accomplish this heroic feat without getting sidetracked into a ramshackle discourse on windmills.

Despite Trump’s involvement being limited to observing mutely, the bar’s patrons cheered wildly, possibly because the transaction actually worked. Even the people holding Trump’s hand during this blockchain brain surgery expressed mild surprise, one remarking, “Oh, it DID go through!” (Which suggests the transaction may have been conducted on the Lightning Network, BTC’s buggy AF layer-2′ scaling solution.’)

Fortunately, Trump’s a teetotaler because one online observer—referencing the high fees on the BTC network—suggested the total cost for buying one beer with BTC would be $55. And as another wag put it, there are advantages to paying with BTC because “the transaction will be complete by the time you finish eating,” which could have given Trump a chance to skip out on the tab.

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