Author: Sander Lutz, Decrypt; Translated by: 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, cryptocurrencies 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.
Meanwhile, the team is simultaneously developing major project components of World Liberty Financial, including the stablecoin, to ensure those features can be launched at the right time, another source said.
World Liberty’s recent moves signal its potential foray into the stablecoin space. 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 partners issuing their own stablecoins could present both greater risk and the opportunity for greater reward.
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 the name, stablecoins must have significant collateral. Circle, the largest U.S. stablecoin issuer, said it currently holds $34.59 billion worth of U.S. dollar-denominated assets at regulated U.S. financial institutions to back the $34.37 billion worth of stablecoin USDC currently in circulation.
Other stablecoin projects have also attempted to circumvent such fiat-collateralized approaches, 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 internal 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 U.S. Securities and Exchange Commission (SEC) has previously sued Binance and other companies for issuing stablecoins, claiming that these tokens constitute illegal, unregistered securities offerings. However, earlier this summer, a federal judge dismissed these stablecoin-related charges against Binance.
Several prominent federal lawmakers have signaled their intention to vote on stablecoin legislation next year — potentially creating 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 these potential legal and regulatory conflicts, stablecoins can be hugely profitable for the World Liberty team. Similar to banks, stablecoin issuers earn cash by reinvesting customer deposits in yield 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.
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 like 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 and Circle jointly issue the second-largest stablecoin, USDC.
However, if Trump is re-elected, he would be in a uniquely powerful position in negotiations with these exchanges: Binance and Coinbase are both 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 hold “substantial” amounts of its reserve assets, according to Cantor CEO Howard Lutnick, who is currently serving 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 governance token sale earlier this month and has only managed to sell $14.24 million worth of tokens so far, according to Dune data. That’s just 4.7% of the $300 million worth of tokens the project has reserved for public sales.
Nonetheless, 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 “making cryptocurrencies and America great again by driving mass adoption of stablecoins and decentralized finance.”
While Trump and his cryptocurrency 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 several 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 don’t even know it’s gone.”
