World Liberty Financial sits at the center of President Trump’s growing cryptocurrency empire. Founded in 2024 by Zachary Folkman, Chase Herro, and the families of Donald J. Trump and White House adviser Steven Witkoff, World Liberty’s website at one point listed President Trump as “Co-Founder Emeritus” and his three sons as co-founders. World Liberty is structured so that DT Marks DeFi LLC – an entity affiliated with Donald Trump and certain family members – held a substantial equity stake in the project’s parent company and retained a service agreement entitling Trump-affiliated entities to a large share of net protocol revenues from token sales and operations.
World Liberty’s first product, the $WLFI governance token, launched in October 2024. Like countless crypto projects before it, World Liberty released a white paper ahead of the token launch to explain how the token and related protocol would work. Because of President Trump’s affinity for gold, World Liberty called it the “Gold Paper.” The Gold Paper, which refers to President Trump as the project’s “Chief Crypto Advocate,” describes World Liberty’s plans for the World Liberty Financial Protocol, or WLF Protocol, as “a US-based decentralized platform, that is intended to offer users with information about and access to certain third-party DeFi applications, based on American ideals of liberty, privacy, and freedom to transact.” It also states that World Liberty will own and operate the WLF Protocol and maintain the World Liberty Financial Governance Platform, the voting system for certain matters relating to the protocol. The $WLFI token, in turn, will allow holders to vote on certain matters related to the WLF Protocol.
The Gold Paper takes great pains to argue that $WLFI is not a security subject to SEC registration requirements. It states that “$WLFI is not equity or a share in any entity,” does not confer “any financial interest in any entity,” and does not provide a right to “any return, dividend, airdrop or other distribution.” Instead, the Gold Paper says, “$WLFI tokens represent a right to vote on certain WLF Protocol matters” through a “voting module”, which is “a plug-in to the WLF Governance Platform and governing document.” According to the Gold Paper, “WLF is required in its governing documents to defer to certain token holder votes, provided that the voting result does not constitute or create an unreasonable risk of violating a legal requirement (including existing contractual obligations) or create a security risk.”
In that respect, $WLFI resembles the standard DeFi “governance token.” Unlike crypto assets such as Bitcoin, which were designed primarily as a means of payment, governance tokens are marketed as a way to incentivize community participation by giving holders voting power over the future direction of a crypto project. In theory, governance tokens help create a decentralized system, encourage participation, and align users around the protocol’s growth. In practice, governance tokens also trade on third-party crypto exchanges, and their value typically depends on whether the associated project succeeds, or is expected to succeed. The more people use a protocol, the greater the demand for the governance token, and the higher the token’s price may climb. That dynamic may not be identical to stock ownership, but it is economically similar: purchasers are committing capital to a project with the expectation that the project’s growth will increase the value of what they bought.
But, as with many DeFi projects before it, there was a gulf between how $WLFI was supposed to work, as described in the Gold Paper, and how it allegedly works in practice. That discrepancy came into stark relief when Justin Sun, $WLFI’s largest investor, filed a lawsuit accusing World Liberty of freezing his tokens, blocking him from exercising governance rights, and reserving the power to seize or burn his tokens despite having sold $WLFI as a governance token tied to a supposedly decentralized project. Sun’s allegations, if true, reveal that World Liberty retained sweeping unilateral control over $WLFI. They also raise an obvious question: is $WLFI an unregistered security?
The SEC’s New Token Taxonomy
In March 2026, the SEC issued an interpretation clarifying how the federal securities laws apply to certain crypto assets and transactions involving crypto assets. The interpretation acknowledges that the Commission and federal courts have typically evaluated crypto assets and crypto asset transactions under an investment-contract analysis. That requires applying the Howey test, which the Supreme Court uses to determine whether a contract, transaction, or scheme is an investment contract and therefore a security. Under Howey, an investment contract exists when a person invests money in a common enterprise with a reasonable expectation of profits derived from the efforts of others.
The interpretation applies Howey to multiple categories of crypto assets, but it does so in a way that leaves only a narrow subset of crypto assets squarely within the SEC’s registration and disclosure regime. Under the interpretation, crypto assets fall into five categories based on their characteristics, uses, and functions: digital commodities, digital collectibles, digital tools, stablecoins, and digital securities. Only the last category is treated as a security in and of itself.
The interpretation also embraces what I have called the “separation theory”: the idea that a non-security crypto asset sold as part of an investment contract is not itself a security. I continue to believe that view is wrong as a matter of law, inconsistent with the economic reality of most crypto offerings, and contrary to decades of investor-protection precedent. As I told the SEC’s Crypto Task Force last year, courts have repeatedly applied Howey to crypto offerings by looking past labels and focusing on whether purchasers invested money in a common enterprise with an expectation of profit derived from the efforts of others. The Commission did not need to invent a new crypto-specific gloss on Howey; the courts have already provided the clarity the market needed.
For purposes of this post, however, the point is narrower. Even accepting the SEC’s new interpretation on its own terms, $WLFI looks like a token offered and sold as part of an investment contract. The SEC does not need to agree with my critique of the separation theory to investigate World Liberty. It only needs to apply its own interpretation consistently.
Where $WLFI Fits Within the SEC’s New Taxonomy
At first blush, it is not entirely clear which of the SEC’s five categories $WLFI fits into. It is plainly not a digital collectible or stablecoin. It is also unlikely to be a digital tool, which the interpretation defines as “a crypto asset that performs a practical function such as a membership, ticket, credential, title instrument, or identity badge.”
The closest possible category is “digital commodity.” The interpretation defines a digital commodity as a crypto asset that is intrinsically linked to, and derives its value from, the programmatic operation of a functional crypto system, as well as supply-and-demand dynamics, rather than from the expectation of profits from the essential managerial efforts of others. The interpretation’s examples overwhelmingly consist of native tokens of Layer 1 blockchains; that is, base blockchain networks like Bitcoin or Ethereum that directly process and settle transactions through their own consensus mechanisms and native tokens.
$WLFI is fundamentally different. It represents a right to vote on certain WLF Protocol matters, but the WLF Protocol itself is not a Layer 1 blockchain or even an independently functioning DeFi protocol. According to the Gold Paper, the WLF Protocol is intended primarily to provide users with information about and access to third-party DeFi applications. In practice, however, the protocol appears to offer little meaningful functionality beyond access to the DeFi lending platform Dolomite (more below). That does not obviously resemble the type of functional crypto system the SEC appears to have had in mind when describing digital commodities.
Still, the interpretation says a digital commodity may convey governance rights with respect to an associated functional crypto system, including the ability to vote on technical or governance matters such as software upgrades and treasury expenditures. World Liberty would surely argue that $WLFI fits within this category. But even if the SEC accepted that framing and treated $WLFI as a non-security crypto asset, that would not end the analysis. The next question would be whether $WLFI was offered and sold as part of an investment contract.
The interpretation says a non-security crypto asset becomes subject to an investment contract when an issuer offers it by inducing an investment of money in a common enterprise with representations or promises to undertake essential managerial efforts from which purchasers would reasonably expect to derive profits. If $WLFI was, and continues to be, offered as part of an investment contract, then offers and sales of $WLFI must be registered under the Securities Act or qualify for an exemption. The interpretation further says that a crypto asset remains subject to the investment contract unless and until purchasers could no longer reasonably expect the issuer’s essential managerial efforts to remain connected to the asset.
$WLFI Is the Subject of an Investment Contract
The SEC’s interpretation specifically emphasizes that issuer marketing matters; that white papers and official communications matter; and that promises to develop a crypto system, achieve functionality, build network effects, or support a project can create a reasonable expectation of profit. That is a problem for World Liberty because the Gold Paper reads like a roadmap for issuer-driven value creation. It says World Liberty “owns, is developing and will operate” the WLF Protocol and maintains the governance platform through which $WLFI holders vote on certain matters. It says the WLF Protocol is intended to provide access to third-party DeFi applications, including stablecoins, wallets, borrowing, and liquidity pools. It says World Liberty intends to leverage “the global reach and recognition of the Trump brand” to bring Web2 users into Web3. It identifies World Liberty’s team, including members of the Trump family, as the people supporting the project. And it describes $WLFI as the governance token “at the heart” of the platform.
The Gold Paper tries to avoid securities-law consequences by describing $WLFI as a pure governance token. But World Liberty was not selling a token attached to a functioning, autonomous network. It was selling access to a hoped-for ecosystem whose value depended on World Liberty’s ability to build the protocol, attract users, integrate DeFi applications, secure partners, manage legal risk, and leverage the Trump brand. That is exactly the kind of issuer-driven entrepreneurial and managerial effort that the SEC’s new interpretation says can create an investment contract.
Sun’s complaint makes the point even clearer. Sun alleges that World Liberty initially sought to raise $300 million through $WLFI token sales, but sold only $12 million worth in the first 24 hours and about $22 million in the first month. According to the complaint, Sun then purchased $30 million of $WLFI in November 2024, purchased another $15 million in January 2025, and received an additional one billion tokens as compensation for serving as an adviser. After Sun’s investment and public association with the project, World Liberty allegedly raised approximately $550 million through $WLFI token sales. If those allegations are true, Sun’s investment and endorsement were designed to create a market narrative that helped transform $WLFI into a major crypto fundraising vehicle.
World Liberty’s own legal posture also undercuts its claim that $WLFI was not sold as an investment. According to the complaint, World Liberty purported to sell $WLFI pursuant to Regulation D for accredited U.S. investors and Regulation S for qualified foreign investors, an implicit recognition that its capital-raising token sales posed securities-law risk. The complaint further alleges that, despite disclaimers saying the tokens were not investments and were initially nontransferable, the transaction documents acknowledged that transferability could be unlocked in the future through governance procedures and warned of “market liquidity” and “extreme volatility.” Those are not risks associated with the abstract pleasure of voting. They are risks associated with an asset that purchasers expected could eventually trade, fluctuate in price, and appreciate.
The economic reality is that people were not paying millions of dollars for the privilege of participating in a pseudo-governance module controlled by World Liberty. They were buying into a Trump-branded crypto project because they expected the token to become tradable and valuable if World Liberty succeeded. That expectation did not depend on receiving dividends, revenue shares, or formal equity rights. It depended on price appreciation. In crypto markets, that is often the entire bargain: buy the token early, wait for the issuer to build the ecosystem, and profit if the token trades higher.
This point should be stated plainly because it is central to the securities analysis: $WLFI purchasers reasonably expected profit. They expected profit because World Liberty sold $WLFI to raise capital for a project it had not yet fully built; because the Gold Paper linked the token to the future growth of the WLF Protocol; because World Liberty emphasized the Trump brand as a tool for mass adoption; because the token documents contemplated future transferability, liquidity, and volatility; because World Liberty and its insiders retained large token allocations and economic upside from the project’s success; and because $WLFI ultimately became tradable on secondary markets, where its value rose or fell based on the market’s assessment of World Liberty’s prospects and conduct. Disclaimers saying “this is not an investment” cannot overcome those facts.
The expectation-of-profit analysis also extends to secondary-market purchasers. Retail investors who buy $WLFI on crypto exchanges are still buying exposure to World Liberty’s efforts. They are not buying a consumptive tool that operates independently of the issuer. They are buying a token whose value and functionality remain tied to World Liberty’s ability to build, promote, govern, unlock, restrict, and protect the ecosystem. As the SEC’s interpretation notes, if secondary-market purchasers would reasonably expect the issuer’s representations or promises to remain connected to the non-security crypto asset, the asset continues to be subject to the associated investment contract in secondary-market transactions.
The Gold Paper’s governance disclaimers do not solve the problem because the governance rights were limited, conditional, and subject to World Liberty’s unilateral control. The Gold Paper says WLF is not a decentralized autonomous organization (DAO), but a Delaware nonstock corporation with a board of directors and a sole member. It says $WLFI holders are not members of WLF and have no financial interest in any entity. It says World Liberty is required to defer to certain token-holder votes only if the result does not create legal, contractual, or security risks. It says protocol upgrades approved by token holders are completed manually by a WLF multisignature crypto wallet (multisig). It says the multisig signers are determined by WLF “in its sole discretion,” and that future token-holder votes may change the multisig composition only with WLF’s approval. It says WLF screens proposals before voting and reserves the right to disallow proposals in its discretion. In sum, the WLF Protocol is not decentralized governance. Rather, it is issuer-controlled governance with a voting feature.
The Sun complaint alleges that World Liberty’s actual conduct was even more centralized than the Gold Paper suggested. According to the complaint, shortly before $WLFI became tradable, World Liberty changed the token smart contract to give itself a “blacklisting” power that allowed it to freeze tokens held at any blockchain address. The complaint alleges this was done without any governance proposal, without any token-holder vote, and without meaningful disclosure to holders. The complaint further alleges that World Liberty used this power to freeze Sun’s tokens, preventing him from transferring, selling, voting, or staking them even after other investors’ tokens became tradable.
Those allegations go to the heart of the securities analysis. The SEC’s interpretation says a digital commodity is not a security when it is tied to a functional crypto system; derives value from programmatic operation and market forces rather than essential managerial efforts; and lacks a central party with operational, economic, or voting control. $WLFI does not fit that description. If World Liberty can blacklist wallets, freeze tokens, restrict transferability, decide which proposals can be voted on, manually implement upgrades through its own multisig, and determine when governance is honored or overridden, then the token’s value and functionality remain dependent on World Liberty’s essential managerial efforts. Furthermore, after Sun filed his lawsuit, World Liberty Financial countersued Sun for defamation without first seeking approval from $WLFI holders, underscoring that ultimate authority over the project rests with the company itself rather than any genuinely decentralized governance process.
Sun’s initial complaint also alleges that World Liberty later upgraded the smart contract again, without a governance vote or notice, to allow itself to reallocate $WLFI tokens from any user address to any other address. The complaint alleges that this power could be used to send Sun’s tokens to a burn address, permanently destroying them. If true, this is not merely evidence of centralization. It is evidence that $WLFI holders’ core property rights depend on the discretion of World Liberty insiders.
This is precisely why the “governance token” label is so misleading. A token does not escape the securities laws merely because it comes with voting rights. The relevant question is whether investors are relying on the efforts of others. Here, the answer appears obvious. $WLFI purchasers relied on World Liberty to develop the protocol, manage the treasury and token supply, secure integrations, navigate regulatory constraints, deploy the Trump brand, decide which votes count, implement technical upgrades, and refrain from freezing or burning their tokens.
World Liberty’s economics reinforce the point. As detailed in a recent report I co-authored with Democracy Defenders Fund, World Liberty is structured so that DT Marks DeFi LLC – an entity affiliated with Donald Trump and certain family members – owned a substantial equity interest in WLF Holdco LLC, while Trump-affiliated entities also held a large allocation of $WLFI tokens and were entitled to receive a substantial share of $WLFI token sale proceeds after agreed deductions. In other words, the project’s insiders stood to benefit directly from token sales and the broader success of the World Liberty ecosystem. This is simply a private business venture wrapped in DeFi language.
World Liberty is Using $WLFI in Related-Party Transactions
Recent reporting about World Liberty’s use of the Dolomite lending protocol reinforces the same point. World Liberty pledged five billion $WLFI tokens on Dolomite to borrow roughly $75 million in stablecoins, draining the protocol’s USD1 – World Liberty’s own stablecoin – pool and sending more than $40 million to Coinbase Prime. The transaction was striking not only because of its size, but because of its circularity: World Liberty used its own governance token as collateral to borrow its own USD1 stablecoin from a DeFi protocol co-founded by Corey Caplan, a World Liberty adviser.
That is not the behavior of a decentralized protocol whose token value is determined by autonomous software and diffuse market forces. It is the behavior of a centrally managed business using a self-issued token as balance-sheet collateral to obtain liquidity. The risk is obvious. The pledged $WLFI collateral was nominally valued in the hundreds of millions of dollars, but $WLFI is thinly traded. If the token price falls and a liquidation is triggered, the forced sale of such a large position could itself crash the token’s market price, leaving Dolomite and its stablecoin depositors exposed to bad debt. In other words, user-funded liquidity pools were used to finance a single insider-linked borrower whose collateral consisted of the borrower’s own governance token.
The market understood the problem. The $WLFI token reportedly fell nearly 10 percent to a record low after the transaction drew scrutiny. That price reaction is itself useful evidence of the economic reality. Purchasers were not treating $WLFI as a mere ballot stub. They were treating it as a speculative asset whose price depends on World Liberty’s financing decisions, treasury management, insider conduct, exchange access, collateral practices, and ability to maintain confidence in the broader WLFI/USD1 ecosystem.
The Dolomite episode also sharpens the conflict between World Liberty’s governance rhetoric and operational reality. A token holder can vote on selected matters only to the extent World Liberty permits the vote, implements the result, and refrains from using its own technical and treasury powers to override ordinary market expectations. Meanwhile, World Liberty can move billions of tokens, pledge them as collateral, borrow against them, alter the token’s risk profile, and route proceeds to Coinbase Prime.
Additional reporting that World Liberty privately sold billions of additional $WLFI tokens while early investors remained locked out of most of their holdings points in the same direction. The relevant economic question is whether purchasers reasonably expected the token to become liquid, tradeable, and valuable if World Liberty succeeded, and whether they remained dependent on World Liberty to control supply, transferability, liquidity, exchange relationships, and the development of the surrounding ecosystem. The answer is yes.
Where Is the SEC?
The SEC has spent the past year retreating from crypto enforcement. As detailed in the Democracy Defenders Fund report, the Commission has paused or dismissed major crypto enforcement actions, issued crypto-friendly staff statements, and narrowed its view of its own jurisdiction. This retreat has coincided with, and in several cases benefited, firms and executives with financial or political ties to President Trump and his family. This is not an abstract concern. World Liberty is the president’s own crypto venture. The president and his family have direct financial interests in the project. And the SEC is now led by officials who have made “Project Crypto” and the administration’s goal of making America the “crypto capital of the world” central to the agency’s agenda.
The Justin Sun settlement underscores the incoherence of this posture. In March 2026, the SEC announced a proposed settlement of its long-running case against Sun for $10 million, while dismissing the outstanding charges against him. The case, originally brought in 2023, alleged that Sun and his companies offered and sold unregistered securities in the form of TRX and BTT and manipulated the secondary market for TRX through wash trading. The proposed settlement did not require Sun to admit wrongdoing. But to impose the penalty, the SEC still had to assert jurisdiction, meaning the Commission effectively maintained that, at least at the relevant time, TRX had been offered and sold as part of an investment contract.
That creates an awkward problem for the Trump SEC. The agency has spent the past year arguing, explicitly and implicitly, that most crypto tokens fall outside the securities laws and that the prior administration’s crypto enforcement program was overbroad. Yet when it came time to settle with Sun, who has business ties to World Liberty and is now suing the company, the SEC still relied on the very securities-law logic it has otherwise tried to minimize.
This matters for $WLFI because the Sun settlement shows that the SEC still knows how to apply Howey when it chooses to. It can still recognize that a token may be offered and sold as part of an investment contract, even if the token is not itself a stock or bond. It can still impose penalties for unregistered crypto securities offerings. What it has not shown is a willingness to apply that same analysis to a token project financially tied to the president of the United States.
That creates a basic enforcement-integrity question: if this were any other crypto issuer, would the SEC be investigating?
Imagine a non-Trump-affiliated crypto project that sold hundreds of millions of dollars of governance tokens to fund a not-yet-complete DeFi ecosystem; told purchasers the token’s only utility was governance; reserved sweeping control over proposals and implementation; later made the token tradable; unilaterally added blacklist and reallocation powers; froze its largest investor’s tokens; allegedly blocked that investor from voting; and allegedly threatened to burn those tokens. It is difficult to believe the SEC would treat that as a routine commercial dispute. Under both traditional Howey analysis and the SEC’s own new interpretation, those facts scream securities-law relevance. Now add a related-party lending transaction in which the issuer pledges billions of its own governance tokens to borrow tens of millions of dollars in its own stablecoin from a protocol tied to one of its own advisers, draining a user-funded liquidity pool and liquidation risk for ordinary depositors. That would be impossible for a sane SEC to ignore.
How Would $WLFI Be Treated Under Current Drafts of a Crypto Market Structure Bill?
The Senate market structure legislation shows why this matters. Under the current text, $WLFI would likely be treated as an “network token” or “ancillary asset,” and therefore largely removed from securities-law protection. The draft defines a network token as a digital commodity intrinsically linked to a distributed ledger system and treated as a non-security for purposes of the federal securities laws. In turn, the draft defines an ancillary asset as a type of network token that essentially hasn’t matured yet because its value depends on the entrepreneurial or managerial efforts of an originator or related person. The ancillary asset framework is remarkable because it takes the very facts that makes $WLFI look like an investment contract –dependence on the entrepreneurial and managerial efforts of World Liberty – and uses them to move the token into a bespoke disclosure regime rather than full securities-law treatment.
Even worse, the Senate draft may allow $WLFI to avoid even the light-touch, bespoke disclosure regime in the bill. Specifically, the draft’s treatment of “disqualifying financial rights” may leave room for investment-contract-like tokens to be treated as network tokens so long as they avoid enumerated rights such as equity, debt, liquidation rights, or a formal entitlement to payments. That is exactly the path $WLFI appears designed to take: deny token holders any formal claim on revenues, call the token “governance,” and preserve insider control and upside elsewhere in the corporate structure. The result is a roadmap for evading the securities laws while preserving the economic substance of a speculative capital raise.
The Sun lawsuit reveals the stakes of the crypto market structure debate. If Congress adopts a framework that blesses tokens like $WLFI as “network tokens” or “ancillary assets,” it will invite issuers to strip away formal financial rights while leaving investors dependent on insiders for value, liquidity, transferability, and governance.
Conclusion
The SEC does not need to agree with my critique of its March interpretation to act. It can apply its own interpretation. It can ask whether $WLFI purchasers invested money. They did. It can ask whether they invested in a common enterprise. World Liberty pooled token sale proceeds to build and promote a common project. It can ask whether purchasers reasonably expected profit. The token’s eventual transferability, trading, volatility, market value, private resale dynamics, and reaction to the Dolomite borrowing transaction make that obvious. It can ask whether those profits depended on World Liberty’s essential managerial efforts. The Gold Paper, the token structure, the Trump branding, the protocol roadmap, the multisig, the unlock process, the alleged unilateral freeze-and-burn powers, the private token sales, and the use of $WLFI as collateral to borrow USD1 all point in the same direction.
$WLFI is not a decentralized commodity. It is a Trump-branded governance token sold to finance a centrally controlled crypto business. If the SEC’s interpretation means anything, it should apply here.
The SEC has the legal authority to investigate World Liberty. But do they have the integrity and independence to investigate a crypto venture in which the president and his family have a direct financial stake? Unfortunately, recent history suggests the answer is no.
Lee Reiners is a lecturing fellow at Duke University
