Duke Lecturer: World Liberty Financial's WLFI Token Likely Unregistered Security

Legal Challenge to World Liberty’s Token Classification

Lee Reiners, a lecturing fellow at Duke University and former Federal Reserve Bank of New York examiner, published a legal analysis on Friday arguing that World Liberty Financial’s WLFI token may constitute an unregistered security, despite the project’s claims that it is a pure governance token. According to Reiners’ blog post, the token’s structure and marketing fail to meet the criteria for a “digital commodity” under the SEC’s recent token taxonomy.

WLFI Token Structure and Marketing Claims

World Liberty Financial launched WLFI in October 2024, marketing it through the project’s “Gold Paper” as a pure voting token for the World Liberty lending protocol. The project explicitly stated that WLFI did not hold claim to any project equity, dividends, or profit rights, positioning it as a tool for decentralized governance.

However, World Liberty sold approximately 25 billion WLFI tokens out of a total 100 billion supply in several public presale rounds. Notably, the token was sold before the World Liberty protocol was built and leveraged the Trump family name in its marketing.

Howey Test Analysis

Reiners argues that WLFI buyers likely invested capital with the reasonable expectation of profits—an essential component of the Howey Test, which the SEC uses to determine which assets are securities. “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,” Reiners wrote.

Reiners emphasized that SEC interpretive guidance specifically highlights the importance of issuer marketing, white papers, and official communications. “Promises to develop a crypto system, achieve functionality, build network effects, or support a project can create a reasonable expectation of profit,” he argued.

Control and Self-Dealing Concerns

Reiners challenged the decentralization claims surrounding World Liberty and WLFI, citing an arrangement with the Dolomite lending protocol. World Liberty borrowed $75 million worth of stablecoins using 5 billion WLFI as collateral. Dolomite co-founder Corey Caplan holds an adviser role at World Liberty, and some of the borrowed tokens were USD1, the stablecoin issued by World Liberty itself.

Additionally, Reiners pointed to a lawsuit filed by Justin Sun, who alleges that World Liberty froze his tokens and blocked his governance rights despite his substantial early support for the project. “Sun’s allegations, if true, reveal that World Liberty retained sweeping unilateral control over $WLFI,” Reiners wrote.

Late last month, World Liberty opened a governance process that would unlock billions of presale tokens over approximately four years. Many presale investors objected to the process, noting they had little influence in the governance decision.

Ownership Structure and Financial Interests

A Trump-affiliated entity, DT Marks DEFI LLC, is thought to own approximately 38% of World Liberty following a $500 million deal in early 2026 to a UAE-linked entity tied to Sheikh Tahnoon bin Zayed Al Nahyan, which purchased 49% of the protocol. DT Marks DEFI LLC is entitled to 75% of net proceeds from WLFI token sales, according to World Liberty’s website.

Abu Dhabi-based state investment firm MGX used World Liberty’s USD1 stablecoin to close a $2 billion investment in crypto exchange Binance. This deal occurred before President Trump pardoned former Binance CEO Changpeng Zhao, who had pleaded guilty to federal financial violations.

SEC Authority and Independence Questions

The SEC is now led by Chairman Paul Atkins, who was nominated by President Donald Trump. Reiners concluded his analysis by questioning whether the SEC has both the legal authority and independence to investigate World Liberty given the president and his family’s direct financial stake in the venture. “The SEC has the legal authority to investigate World Liberty,” Reiners wrote. “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.”

Members of Congress have repeatedly raised ethics concerns regarding the Trump family’s involvement in the crypto industry, with particular focus on World Liberty’s operations.