Democratic Congresswoman Maxine Waters (D-CA) upheld World Liberty Financial, an upcoming crypto lending platform promoted by Donald Trump and his sons, as an example of heightened risks that consumers face when engaging in decentralized finance (DeFi) on Capitol Hill Tuesday.
Last week, Twitter (aka X) accounts belonging to Tiffany Trump (Donald's daughter) and Republican National Committee Chairwoman Lara Trump (Donald’s daughter-in-law) were hacked. Under the control of bad actors, their accounts touted a fake token linked to World Liberty Financial’s launch in an attempt to scam potential buyers.
“Because of the prominence of those behind the project, bad actors took advantage of the opportunity to scam potential users,” Waters said. “Lawmakers have a responsibility to consider strong protections to prevent such scams from moving forward.”
According to the former president’s son, Eric Trump, Twitter locked down the compromised social media accounts within a “matter of minutes.” Still, Waters said that people faced real harm as a result of the compromised accounts, purchasing around $1.8 million worth of phony tokens that aren’t actually related to the project.
On the campaign trail, Trump has championed digital assets, integrating overtures to crypto owners into his political platform. While his promotion of World Liberty Financial isn’t his first entrepreneurial endeavor in the crypto space, Trump’s promotion of a DeFi lending protocol could have greater consequences for crypto than his NFT trading cards in terms of the industry's reputation.
Waters' comments came as lawmakers put their heads together during a congressional hearing, trying to wrap their brains around the merits of DeFi. During her remarks, Waters highlighted “hacks, scams, unequal information, and conflicts of interest” as traits defining the space, in her view.
The hearing was hosted by the House Subcommittee on Digital Assets, Financial Technology and Inclusion. The first-of-its kind congressional group was established last year, with the stated goal of providing “rules for the road” for federal regulators overseeing the digital assets realm.
The hearing’s opening remarks highlighted a divide between Republican and Democratic lawmakers on the nature of regulatory enforcement actions, which have seen companies like Coinbase engaged in ongoing lawsuits with the U.S. Securities and Exchange Commission (SEC).
While the subcommittee’s chairman, Congressman French Hill (R-AR), described enforcement actions as an existential threat to DeFi, its ranking member Congressman Stephen Lynch (D-MA) said the industry “will only survive through proper legislation.”
The SEC is no stranger to the headache that World Liberty Financial’s promoters faced last week. In January, the agency’s Twitter account was compromised, falsely stating that the SEC had approved spot Bitcoin ETFs before the official go-ahead.
The conversation among lawmakers follows Vitalik Buterin’s industry-rattling remarks on DeFi last month. While the Ethereum co-founder said he values innovations like decentralized exchanges and stablecoins, he described most projects in the space as disappointing.
Witnesses called to testify Tuesday about DeFi reiterated several talking points: the regulatory landscape surrounding crypto is a significant issue; DeFi has the potential to streamline America’s existing financial system; and DeFi represents the pinnacle of financial inclusion.
At the same time, Mark Allen Hays, a Senior Policy Analyst at Americans for Financial Reform, encouraged lawmakers to take a cautious approach. He said the DeFi space must be subject to the same protections that investors in securities markets have come to expect.
Referencing the pitfalls of celebrity promotion, he described World Liberty Financial as a continuation of that trend. He said that “boosters,” including the comedian Larry David—who promoted the crypto exchange FTX prior to its 2022 collapse—have sometimes been compensated to promote assets with “little real-world tangible value.”
“The most recent example of this type of promotion is the launch of the crypto venture World Liberty Financial, which has insinuated the involvement of public figures such as the Trump family,” Hays said. “This doesn't work out well for consumers."
Edited by Andrew Hayward