SEC Cracks Down on Rari Capital as Trump Family Launches World Liberty Financial in Landmark Day for DeFi

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September 18, 2024 marks one of the most consequential days for decentralized finance in recent memory. On the same day the U.S. Securities and Exchange Commission announced settled charges against DeFi lending platform Rari Capital and its co-founders, the Trump family officially debuted its own crypto venture, World Liberty Financial, in a sprawling two-hour livestream on X. The twin developments underscore a central tension in the DeFi sector: regulators are tightening their grip even as political figures embrace the technology for their own ambitions.

TL;DR

• The SEC announced settled charges against Rari Capital and its three co-founders for misleading investors and operating as unregistered brokers on DeFi platforms that once held over $1 billion in crypto assets.
• Donald Trump and his sons officially launched World Liberty Financial, a DeFi lending and borrowing platform, during a two-hour X Spaces event.
• The Federal Reserve’s first rate cut since 2020 is fueling a broad crypto rally, with DeFi total value locked rising nearly 10% in September.
• BitGo announced plans to launch USDS, a new institutional-grade stablecoin, at Token2049 in Singapore.
• The stablecoin market cap reached a new all-time high of $171 billion by the end of September.

SEC Takes Aim at Rari Capital

The Securities and Exchange Commission delivered a clear message to the DeFi industry on September 18: labels like “decentralized” and “autonomous” will not shield platforms from enforcement. The regulator announced settled charges against Rari Capital, Inc., a DeFi lending protocol, and its co-founders Jai Bhavnani, Jack Lipstone, and David Lucid, for misleading investors and engaging in unregistered broker activity.

According to the SEC’s complaint filed in the U.S. District Court for the Central District of California, Rari Capital offered two investment products known as Earn pools and Fuse pools. Earn pools were managed by Rari and allowed investors to deposit crypto assets into lending pools to earn returns, while Fuse pools were user-created. At their peak, these platforms collectively held crypto assets worth more than $1 billion.

The SEC’s case centers on several key allegations. First, the regulator claims Rari Capital falsely told investors that Earn pools would automatically and autonomously rebalance crypto assets into the highest yield-generating opportunities available. In reality, the rebalancing mechanism frequently required manual intervention, which Rari Capital sometimes failed to initiate. Second, the platform misleadingly promoted high annual percentage yields without adequately disclosing various fees, and a significant percentage of Earn pool investors ultimately lost money on their investments.

“We will not be deterred by someone labeling a product as ‘decentralized’ and ‘autonomous,’ but instead will look beyond the labels to the economic realities,” said Monique C. Winkler, Director of the SEC’s San Francisco Regional Office, in a statement accompanying the announcement.

To settle the charges, Rari Capital and its three co-founders consented to final judgments that include permanent injunctions, conduct-based injunctions, civil penalties, disgorgement with prejudgment interest, and five-year officer-and-director bars against the co-founders. In a separate order, Rari Capital Infrastructure LLC, which took over operations from Rari Capital in 2022, also settled charges related to unregistered securities offerings and broker activity.

Trump Family Enters the DeFi Arena

On the very same day regulators were tightening the screws on one DeFi operation, the Trump family was launching another. Former President Donald Trump, alongside sons Donald Trump Jr. and Eric Trump, officially unveiled World Liberty Financial during a marathon X Spaces livestream on September 16, with the platform’s full details and token launch plan crystallizing by September 18.

World Liberty Financial is a DeFi platform designed to enable users to lend and borrow cryptocurrency directly with one another, bypassing traditional financial intermediaries. The project is led by Chase Herro and Zachary Folkman, who were introduced to the Trump family through real estate investor Steve Witkoff. Notably, Herro and Folkman were previously involved with Dough Finance, another DeFi platform that had suffered a $2 million hack earlier in 2024.

During the livestream, Trump framed the venture as part of a broader geopolitical competition. “If we don’t do it, China’s going to do it,” Trump said. “China’s doing it anyways and if we don’t do it we’re not going to be the biggest and we have to be the biggest and the best.”

The platform plans to issue a non-transferable governance token that allows holders to vote on matters related to the protocol, similar in concept to voting shares in a publicly traded company. The Trumps themselves do not own or operate any part of World Liberty Financial, according to Bloomberg reporting, though the family’s association has generated enormous attention for the project.

Donald Trump Jr. spoke about the family’s personal experience with being debanked, drawing a direct connection to the appeal of decentralized finance. “There was a time period where the Trumps could have picked up the phone and called any CEO, of any bank, and got a loan from anyone in the world,” he said during the stream, adding that entering politics changed all of that.

Broader DeFi Market Momentum

These regulatory and political developments unfolded against a backdrop of growing momentum in the broader DeFi sector. September 2024 saw the Federal Reserve deliver its first interest rate cut since 2020, a move that catalyzed a significant rally across crypto markets. The DeFi total value locked rose approximately 9.6% during the month, according to Binance Research, with gains distributed across multiple blockchains.

The stablecoin market, a critical backbone of DeFi activity, also reached new heights. The total stablecoin market capitalization climbed to an all-time high of $171 billion by the end of September, surpassing the previous record set in March 2022. USDT maintained its dominant position at just under 70% market share, while USDC continued to see inflows.

Also on September 18, digital asset custodian BitGo announced at Token2049 in Singapore that it plans to launch USDS, a new institutional-grade stablecoin, in early 2025. Backed by short-duration Treasury bills, overnight repos, and cash, USDS aims to differentiate itself by distributing a portion of reserve revenue to institutional participants on a pro-rata basis. “The main reason for launching USDS is that, while existing stablecoins serve a good function, we see an opportunity to create a more open and fair system that promotes innovation and, importantly, rewards those who build the network,” said BitGo CEO Mike Belshe.

Regulatory Tightrope

The juxtaposition of the SEC’s enforcement action against Rari Capital and the Trump family’s DeFi launch highlights the increasingly complex regulatory landscape facing decentralized finance. On one hand, the SEC under Chair Gary Gensler is continuing its aggressive enforcement posture, making clear that DeFi protocols are not exempt from securities laws regardless of how they label themselves. The Rari Capital settlement follows a pattern of similar actions against DeFi platforms, including earlier cases against BitConnect, BlockFi, and others.

On the other hand, the political winds may be shifting. Trump has positioned himself as a pro-crypto candidate, promising to make the United States the “crypto capital of the planet” if re-elected. His family’s direct involvement in a DeFi venture represents an unprecedented intersection of American politics and decentralized finance, one that could influence regulatory attitudes depending on the outcome of the November election.

For DeFi builders and investors, the message of September 18 is twofold: regulatory compliance remains non-negotiable under current enforcement priorities, but the political appetite for a more accommodative framework appears to be growing. Platforms that can navigate both realities — maintaining transparency and fair dealing while pushing the boundaries of permissionless finance — are likely to define the next chapter of decentralized finance.

Why This Matters

September 18, 2024 represents a pivotal inflection point for DeFi. The SEC’s action against Rari Capital establishes that regulators will examine the economic substance of DeFi products rather than accepting their labels at face value, setting a precedent that impacts every protocol with U.S.-based users or operators. Simultaneously, the launch of World Liberty Financial signals that DeFi has entered the mainstream political consciousness in the United States, with potentially far-reaching implications for future regulation and adoption. Combined with the Federal Reserve’s pivot to rate cuts and record stablecoin inflows, these developments suggest the DeFi sector is entering a new phase of maturation — one where institutional legitimacy, political influence, and regulatory oversight will all compete to shape the industry’s trajectory.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments carry significant risk, including the potential for total loss. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results.

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