The details behind Donald Trump’s family DeFi venture

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Welcome to the On the Margin Newsletter, brought to you by Ben Strack and Casey Wagner. Here’s what you’ll find in today’s edition:

Casey breaks down the latest on Donald Trump’s family DeFi venture.
Another market check-in after this morning’s retail sales data and before the Fed’s looming rate decision.
Why a club set to open in downtown Manhattan must pay the SEC $750,000.

Trump family debuts new crypto business

After weeks of ominous teasing and vague promises, we finally have a few details about World Liberty Financial, Donald Trump’s family DeFi venture.

If you didn’t spend two and a half hours on the livestream from Mar-a-Lago last night, here are the highlights:

The team behind the project includes some of Trump’s children (Donald Jr., Eric and Barron), plus two serial-founders: Chase Herro and Zachary Folkman. You may know Herro by his self-proclaimed alter ego: the “dirtbag of the internet.” The duo has sold everything from weed to courses on how to get rich quick and pick up women.
There’s going to be a token. Of course, we could have surmised as much, and there have been reports confirming these rumors. But for the first time last night the team behind World Liberty Financial acknowledged that WLFI will be coming to market. (When, exactly, remains a mystery).
WLFI’s distribution will be 20% to the founding team/Trump family, 17% toward “user rewards,” and 63% for public purchase. (A leaked draft of World Liberty’s plans previously stated that 70% of tokens would be reserved for project leaders).

Around 90 minutes in, the host (Farokh Sarmad of Rug Radio) addressed Barron, or tried to, at least. The NYU freshman had apparently left the room.

“He talks about his wallet; he’s got four wallets or something,” Trump said of his youngest son. “It’s almost like younger people know it a lot better than older people.”

No one said anything about how a sitting president’s involvement with a crypto venture would be perceived by the public and regulators, should Trump win in November. The leaked white paper (originally reported by CoinDesk) includes a disclaimer that Trump and his family do not own or manage World Liberty Financial, but could receive compensation.

Trump did mention the SEC “has been very hostile and really going after people” in the crypto space. He also claimed the agency has recently backed off the industry, which Trump credits to his candidacy for president.

“People that were under serious investigation for having done nothing wrong are all of a sudden allowed to go free,” he said.

“If for some reason bad things happen and we don’t win the election, those people that were under investigation and that are free as a bird right now, and people that weren’t being looked at in the crypto world, they will be living in hell,” Trump added. “Because it’ll start the day after the election if they win.”

He did not mention any specific projects or individuals who have been able to “walk free” from SEC scrutiny. (I will add that the livestream did occur hours after the SEC dropped its latest enforcement action on Flyfish Club for an alleged unregistered securities offering. More on that later).

Speaking of an unregistered securities offering…

Even though we don’t have all the details about WLFI yet, I’d imagine the SEC’s interest is significantly piqued. Commissioners are going to be looking for evidence that project leaders gave buyers a reasonable expectation of profit (which I wouldn’t say we got last night) and signs the token was promoted (which I’d say we certainly got last night), among other things.

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Let’s hope the World Liberty team is reading up on Howey.

— Casey Wagner

63%

The probability (as of 2 pm ET Tuesday) of the Federal Reserve cutting rates by 50 basis points tomorrow, according to CME Group’s FedWatch tool.

This chance of a 50bps cut has fluctuated in recent days after jumping higher late last week. Before that, the markets viewed a 25bps cut as more likely.

Fed Chair Jerome Powell’s press conference starts at 2:30 pm ET tomorrow. To read Blockworks’ FOMC rate decision preview, click here.

Is a 25bps rate cut more likely now?

We wrote yesterday about the Fed’s highly anticipated rate reduction from its current 5.25%-5.50% range. We’re now a day out from the decision.

As noted above, the question remains whether we will see a cut amounting to 25bps or 50bps. One of the remaining data points to take a look at before the Fed’s decision was US retail sales for August.

The Census Bureau’s report this morning showed these sales slightly rose (unexpectedly) last month — amounting to a month-over-month increase of 0.1%. Economists polled by Reuters had estimated a 0.2% decline.

21Shares research analyst Leena ElDeeb noted the retail sales “beating expectations” were well-received by the market, “alleviating recession fears for now.”

Bitcoin’s price was nearly $61,000 at 2 pm ET Tuesday — about 4.7% higher than 24 hours prior.

Off The Chain Capital CEO Brian Dixon told Blockworks the better-than-expected retail sales numbers could pressure the Fed to cut rates by only 25bps tomorrow, “as the economy is still somewhat strong but clearly showing signs of slowing.”

He added: “I think the overall data picture shows that the Fed is probably thinking that it might be better to gradually taper down rates rather than initiate cuts in a big way.”

As mentioned yesterday, such a gradual drop would go against the wishes of three Democratic senators who urged the Fed (in a Monday letter to Powell) to cut rates by 0.75% at the September meeting.

Front-loading rate cuts could help the US economy “avoid sliding towards a potential crisis,” Sens. Elizabeth Warren, Sheldon Whitehouse and John Hickenlooper wrote.

A number of analysts have said the market is pricing in 100bps of rate reductions by the end of the year.

“Obviously, even as inflation has eased, there’s certainly concern that it could return if overall monetary loosening takes place in a fashion that is too big and too fast,” Dixon said.

— Ben Strack

Flyfish Club LLC, the company behind the members-only social club slated to open in downtown Manhattan this month, was hit with a $750,000 fine from the SEC yesterday afternoon.

In 2021 and 2022, Flyfish sold memberships to its yet-to-be-built private club through NFTs priced between 2.5 ETH and 4.25 ETH. Roughly 1,600 NFTs were sold, generating around $14.8 million in gross proceeds. The funds were used to finance the construction of the “Flyfish Club,” a private restaurant in downtown Manhattan, according to the SEC.

It’s the latest action that securities regulators have taken against an NFT issuer for allegedly offering unregistered securities. This time, though, we got a rather clever dissenting opinion from Commissioners Hester Peirce and Mark Uyeda.

“For curmudgeonly commissioners like us, crypto enforcement feels a bit like a trip to a restaurant for a meal, Omakase style,” Peirce and Uyeda wrote, referencing the Japanese dining experience Flyfish Club plans to offer.

“Omakase translates to, ‘I’ll leave it up to you,’” they added. “This directive is wonderful in the hands of a renowned chef, but disastrous in the hands of a crypto-obsessed commission.”

The club is still advertising a Sept. 20 opening date, which isn’t terribly surprising. They’ve already signed a 10-year lease, and the team obviously knew the enforcement action was coming before the SEC announced the settlement yesterday. They’ve had time to get their ducks in a row. Plus, no press is bad press, as they say.

Those with FOMO can still purchase a membership NFT on OpenSea (the SEC didn’t block secondary sales, but they did give Flyfish 10 days to stop earning royalties) for as low as 1.425 ETH. At time of writing, that is less than the cost of a standard membership bought directly from Flyfish.

If any of our NYC readers have a membership, let us know. I’m curious to hear about your experience with the club, and if the omakase is any good.

— Casey Wagner

Bulletin Board

There’s been a lot of talk about the anticipated Fed rate cut. You’ll be able to check out the FOMC’s statement at 2 pm ET on this page before watching Powell’s press conference via the central bank’s YouTube channel at 2:30 pm. And, of course, check back for more coverage on the Fed decision in tomorrow’s On the Margin newsletter.
Bitcoin miner CleanSpark has acquired two more sites in Mississippi for nearly $5.8 million. The facilities are expected to boost the company’s operating hash rate by about 1 exahash per second. The deal comes after the Las Vegas-based company agreed last week to buy seven more facilities in Tennessee for cash payments totaling $27.5 million.
Figure Markets has launched its Cayman Islands-licensed crypto exchange, the company said Tuesday. Figure had secured $60 million earlier this year (in a round led by Jump Crypto, Pantera Capital and Lightspeed Faction) to build a decentralized competitor to the largest centralized crypto exchanges. Figure CEO Mike Cagney told Blockworks at the time that the exchange sought to use the Provenance blockchain to be a marketplace for equities, fixed income, alternatives and crypto assets.

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