Frax Finance Seeks Approval for $5M Investment in Trump’s WLFI Crypto

Highlights:

• Frax Finance plans to invest $5 million in the Trump-backed WLFI.
• The stablecoin firm is seeking community members’ suggestions on the proposed investment.
• Frax Finance said that if the initial deposits turn out profitable, it could double the investment fund.

Decentralized stablecoins issuers Frax Finance has proposed a $5 million investment in Donald Trump-backed investment firm World Liberty Financial (WLFI). The investment bid appeared on the stablecoin issuer’s website, seeking community members’ verdicts and suggestions.

According to Frax Finance, it plans to pump in another $5 million in WLFI if its initial investment turns out successful. In the proposal, the stablecoin company highlighted how investing in Trump’s investment firm could benefit it.

Some of the purported gains include elevating Frax Finance’s status in the global sphere, expanding the distribution and adoption of its native frxUSD stablecoin, taking part in WLFI governance decisions, and earning investment yields when WLFI tokens appreciate.

🚀💰 Frax Finance proposes investing $10M in the Trump family's DeFi project WLFI! 🔥 A bold move for the future of decentralized finance—what could this partnership bring to the crypto space? 🤔🌐
#DeFi #Crypto #WLFI #FraxFinance @fraxfinance @realDonaldTrump @CoinDesk… pic.twitter.com/DrFcz1jEqA

— Mlion.ai (@MLion_AI) January 23, 2025

Frax Finance Shows Interest in Decentralization

Aside from listing the possible gains that it might get from investing in WLFI, the stablecoin issuer also spotlighted some factors driving its proposed investment decision. Per Frax Finance, Trump’s influence and position as the United States president could turn the country into a Decentralized Finance (DeFi) leadership-based hub.

Since the WLFI was a crypto initiative of the U.S. president, chances are high that it could play a significant role in helping Trump achieve the decentralization vision. Notably, the Trump-backed investment firm is already gearing towards becoming a leading DeFi-based platform. This is obvious in its investment decisions that favor mostly U.S.-based decentralized crypto projects.

For context, over the past few months, WLFI has invested over $70 million in a couple of DeFi-focused projects. They include Ethena (ENA) and Tron (TRX), Aave (AAVE), Chainlink (LINK), Ethereum (ETH) and Wrapped Bitcoin (WBTC).

For Ethena and Chainlink, WLFI did not only invest in the tokens. In addition to that, it collaborated with both platforms. Its partnership with Chainlink aims to provide price feeds. On the other hand, the integration with Ethena Labs will bring in yield-bearing tokens like sUSDe.

.@worldlibertyfi (WLFI) is adopting the Chainlink standard to accelerate the mass adoption of DeFi.

Inspired by President-Elect Donald J. Trump’s (@realDonaldTrump) vision, WLFI aims to democratize access to financial opportunities: https://t.co/8DTWF38ioo

Chainlink will help…

— Chainlink (@chainlink) November 14, 2024

Community Members Oppose the Proposal

While they wait for Frax Finance to put up its latest proposal for votes, most comments under the bid indicated a lack of interest in the investment. A community member who wrote extensively on why the deal does not seem ideal spotlighted five cogent reasons to back his claims.

According to the anonymous member, investing $5 million in a $5 billion fully diluted valuation seems like a high risk. In his words, he stated, “Such a high FDV relative to the current market capitalization suggests significant potential for future dilution, which could negatively impact token value. This valuation level is reminiscent of the exuberant and unsustainable valuations seen during the 2021-2022 crypto bull market.“

 Another argument he raised was that with $5 million, the stablecoin issuer would be afforded a significantly limited governance influence. Therefore, it would reduce Frax Finance’s ability to protect its investments or even guide WLFI’s expansion projects. He also spotlighted the concept of political neutrality, stressing that market participants who dislike Trump would likely avoid Frax Finance and its products.

Going further, the community member mentioned there are better ways of spending $5 million to $10 million for better outcomes. He said such capital could be invested in exploring partnerships with established firms, launching targeted market campaigns, and funding projects. In conclusion, he stated that if approved, the decision could result in enormous sell pressure, citing that the FXS already depleted by 10% following the proposal announcement.