tl;dr
The murkiness behind WLFI, and how Warren is weaponising the grift.
Market Snap
Market Wrap
More strikes against Iran this morning and inflation data due Tuesday and Wednesday make for a nervous start to the week.
Curious Cryptos’ Commentary – AI Financial and Trump
AI Financial, formerly known as Alt5 Sigma, is a crypto payments and digital asset treasury company. Listed on Nasdaq, it reported a quarterly net loss of about $271mm alongside an SEC “going concern” warning flagging risks to its survival.
That loss was mostly due to a write-down of the company’s holdings of WLFI, the World Liberty Financial governance token. World Liberty Financial is the Trump family’s crypto vehicle, a DeFi platform that acts as a gateway to third-party DeFi apps and issues its own fiat‑backed stablecoin, USD1. WLFI is purely a governance token – it carries voting rights, but no claim to dividends, rewards, airdrops, distributions, or any financial interest in WLF LLC or its affiliates, nor on the interest earned by the collateral held to support USD1. That at least partially explains the collapse from its ATH of around 46c to about 6c today, an 87% decrease.
I know that freedom deniers such as Schiff, Warren, the WSJ, the FT, and the ECB claim that the value of BTC and all other coins is zero, a claim which is almost entirely wrong. However, in the case of WLFI, I am inclined to agree with them, which I admit makes me feel a little uneasy.
World Liberty Financial became the controlling shareholder in AI Financial via WLFI, contributing tokens valued at the time at around $750mm. AI Financial then raised a further $750mm in a registered offering and concurrent private placement to buy more WLFI directly from World Liberty Financial, bringing total WLFI‑linked funding to $1.5bn.
One can question the wisdom of investing $1.5bn in a governance token that appears to have no intrinsic value, but that is a matter for the board and the shareholders to ponder in retrospect and would normally be of no concern to us. However, there is an unprecedented agreement between World Liberty Financial (majority shareholder of AI Financial) and another Trump-controlled entity, DT Marks DEFI LLC, to transfer to the latter 75% of all proceeds raised from selling WLFI.
Let’s just think about this for a minute.
World Liberty Financial issued a governance token that allowed it to take a controlling stake in a listed company, which then raised $750mm in cash from new investors to double down on its WLFI investment. Of that $750mm, over $560mm was immediately siphoned off and paid to an ostensibly unrelated entity that happens to be owned by the same people who own World Liberty Financial.
It’s an extraordinary situation. It must be legal, for it has not been hidden, but I don’t think any reasonable person would look at that and think of it as anything other than grift.
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Senator Elizabeth Warren is using this to prevent any realistic prospect of passing the CLARITY Act.
Claiming the moral high ground, she is insisting that the murkiness of WLFI means the bill must include an ethics provision added to CLARITY and congressional hearings into Trump’s crypto holdings. The latter is mere theatre for they won’t happen and, in any case, all financial interests of every President are put at arm’s length during their Presidency. You may argue about the length of that arm in the case of Trump and the rest of his family, but it does exist.
The ethics provision has enough support in the Senate that, without it, the CLARITY Act cannot pass, and with it, the CLARITY Act is unlikely to get Presidential approval. This is the real reason for Warren’s objections raised in respect of WLFI. She has weaponised the grift inherent in World Liberty Financial to slow the crypto revolution, to the detriment of all of us.