Duke Lecturer: World Liberty's WLFI May Be Unregistered Security

Lee Reiners, a lecturing fellow at Duke University and former Federal Reserve Bank of New York examiner, published analysis on Friday arguing that World Liberty Financial’s WLFI token may constitute an unregistered security, despite the project’s claims that WLFI is a pure governance token. According to Reiners, the token does not meet the definition of a “digital commodity” under the SEC’s recent token taxonomy and should be subject to SEC scrutiny.

Legal Argument: The Howey Test

Reiners cited the SEC’s recent token taxonomy in his analysis, noting that WLFI is “not a decentralized commodity. It is a Trump-branded governance token sold to finance a centrally controlled crypto business.” He argued that 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 qualify as securities.

Reiners emphasized that “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.”

WLFI Tokenomics and Presale Structure

Launched in October 2024, WLFI was marketed through the project’s “Gold Paper” as a pure voting token for the World Liberty lending protocol. The project explicitly stated 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.

Decentralization Concerns

Reiners challenged the decentralization of World Liberty and WLFI, citing specific transactions and governance issues. He noted that the token has been used for apparent self-dealing, referencing an arrangement with the Dolomite lending protocol to borrow $75 million worth of stablecoins using 5 billion WLFI as collateral. Dolomite’s co-founder Corey Caplan is a World Liberty adviser, and some of the borrowed tokens were USD1, the stablecoin issued by World Liberty.

Reiners also pointed to a lawsuit filed by Justin Sun, who alleges 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. They also raise an obvious question: Is $WLFI an unregistered security?” Reiners wrote.

Governance and Supply Questions

Late last month, World Liberty opened a governance process that would controversially unlock billions of presale tokens in about four years. While the team pitched the proposal as a way to clarify questions about the supply, many presale investors took umbrage with the process and noted that they had little sway in the governance process.

Ownership Structure and Related Transactions

A Trump-affiliated entity, DT Marks DEFI LLC, is thought to own about 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 bought 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.

Additionally, 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 Investigation Questions

The SEC is now led by Chairman Paul Atkins, who was nominated by President Donald Trump. Regarding the agency’s potential investigation of World Liberty, Reiners wrote: “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.”

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