Author: Sander Lutz, Decrypt; Compiler: Deng Tong, Golden Finance
Donald Trump's controversial crypto project World Liberty Financial recently raised $14 million in its initial token sale and plans to create and issue its own stablecoin.
Stablecoins, a cryptocurrency designed to maintain a stable value and usually pegged to the U.S. dollar, are still under development and may take some time to launch. One source said the World Liberty team is still determining how to ensure the security of financial products before bringing them to market.
At the same time, the team is simultaneously developing the main project components of World Liberty Financial, including stablecoins, to ensure that these features can be launched at the right time, another source said.
World Liberty's recent moves foreshadow its possible entry into the stablecoin field. Earlier this month, the project announced that Rich Teo, co-founder of stablecoin issuer Paxos, will serve as World Liberty's head of stablecoins and payments.
While World Liberty has already attracted attention and controversy for its plans to launch an Ethereum lending platform directly tied to a former (and potentially future) president, the prospect of Trump and his business associates issuing their own stablecoins could present greater risk and opportunities for greater rewards.
Stablecoins are an important part of the crypto ecosystem. They allow crypto traders to park their funds in digital assets whose prices remain constant even as crypto markets fluctuate. They also serve as a key bridge between crypto and traditional financial markets by acting as a dollar equivalent in markets where dollars are limited or unavailable.
To live up to their name, stablecoins must have significant collateral. Circle, the largest U.S. stablecoin issuer, says it currently holds $34.59 billion worth of dollar-denominated assets at regulated U.S. financial institutions to back the $34.37 billion worth of its stablecoin USDC currently in circulation.
Other stablecoin projects have also tried to circumvent such fiat-collateralization methods, often using cryptocurrencies as backing. Most notably, cryptocurrency company Terra attempted to peg its UST stablecoin to the U.S. dollar through an algorithm tied to another in-house cryptocurrency token. This strategy lasted for more than a year until the price of UST fell to zero in May 2022, wiping out about $60 billion in value and devastating the broader cryptocurrency market.
The legality of stablecoins remains controversial in the United States. The Securities and Exchange Commission (SEC) has previously sued companies such as Binance for issuing stablecoins, claiming that the tokens constituted illegal, unregistered securities offerings. However, earlier this summer, a federal judge dismissed these stablecoin-related charges against Binance.
Several prominent federal lawmakers have indicated their intention to vote on stablecoin legislation next year — which could create a dramatic scenario in which Trump, if re-elected, would control the White House as Congress decides the legality of the financial products his business partners intend to offer.
Despite all of these potential legal and regulatory conflicts, stablecoins could be hugely profitable for the World Liberty team. Similar to banks, stablecoin issuers earn cash by reinvesting customer deposits in yield-earning products such as U.S. Treasuries. Tether, the company behind the market-leading stablecoin USDT, reported a record $5.2 billion in profits in the first half of 2024 alone. The British Virgin Islands-based company currently holds nearly $81 billion in Treasuries.
The revenue generated by stablecoins could help fuel World Liberty’s future plans, but issuing a new stablecoin in an already crowded field is no easy feat. Such a venture would require deals with industry-leading cryptocurrency exchanges such as Coinbase and Binance to make the asset accessible to a wide range of users. Binance currently has a “strategic commercial partnership” with First Digital Labs, which issues FDUSD, the fifth-largest stablecoin by market cap. Coinbase co-issues the second-largest stablecoin, USDC, with Circle.
However, If Trump is re-elected, he will gain a uniquely powerful position in negotiations with these exchanges: Both Binance and Coinbase are currently the targets of protracted litigation by the U.S. Securities and Exchange Commission (SEC), threatening their ability to operate.
Trump also has ties to the world’s largest stablecoin issuer. Tether relies on Wall Street asset manager Cantor Fitzgerald to safekeep a “significant” amount of its reserve assets, according to Cantor CEO Howard Lutnick, who currently serves as co-chairman of Trump’s transition team.
Getting collateralized stablecoins off the ground will also require a lot of capital. World Liberty Financial launched its sale of governance tokens earlier this month and has so far managed to sell only $14.24 million worth of tokens, according to Dune. That’s just 4.7% of the $300 million worth of tokens the project has set aside for public sales.
Nevertheless, World Liberty Financial plans to leverage the Trump brand to become the go-to service for retail investors looking to enter the often opaque world of crypto trading and DeFi. The project previously set its mission as “Make crypto and America great again by driving mass adoption of stablecoins and decentralized finance.”
While Trump and his crypto allies have been eager to tout the benefits of stablecoins in recent months, they have also voiced disapproval of the dangers of a U.S. central bank digital currency (CBDC) — effectively, a stablecoin issued by the U.S. government. The former president has vowed multiple times that he would ban the creation of a CBDC if re-elected.
“This currency will give the federal government — our government — absolute control over your money,” Trump said at a campaign event in New Hampshire earlier this year.
“They can take your money,” he added. “You wouldn’t even know it was gone.”