[TEMP-CHECK] Invest $5M in WLFI to Begin a Strategic Partnership with Follow-on Investment for $10M Total

Governance Proposals
1

Authors

Oldpaul, Stablescarab

Summary:
This temp check seeks community feedback to authorize an initial investment of $5M in World Liberty Financial (WLFI) to position FRAX as part of WLFI’s ecosystem, with a follow-on investment of up to $10M contingent on the success of the partnership.

With the newly elected Trump administration’s commitment to US-based DeFi projects, it’s important for FRAX to position itself in its rightful place as a leader in this movement. As Trump’s only DeFi project, WLFI is the ideal partner to achieve this goal.

Background and Context:

1. Trump’s Crypto-Friendly Regime in the United States

The election of Donald Trump and a pro-crypto Congress is a turning point for US-based DeFi leadership. President Trump has a vision to make the United States the global leader in cryptocurrency, with WLFI a key part to achieving this goal (Source).

Built on Aave, WLFI has the potential to onboard millions of Americans to DeFi, offering them exposure to other high-quality US DeFi projects. By investing in WLFI, FRAX can establish its position as a leader in US crypto innovation.

2. World Liberty Financial (WLFI)

WLFI has the potential to quickly become a leading DeFi platform, due to its distribution, and focus on supporting US-based projects. Recent highlights include:

  • DeFi Investments: WLFI has invested over $70 million in primarily US-based DeFi tokens such as Aave (AAVE), Chainlink (LINK), Ethena (ENA) and Tron (TRX), alongside major assets like Ethereum (ETH) and Wrapped Bitcoin (WBTC). These investments show WLFI’s commitment to DeFi and have generated millions of impressions for this selective group. (Source).
  • Governance: WLFI’s governance structure allows token holders to make decisions. This was demonstrated recently by Ethena (ENA), which used WLFI’s forum to propose onboarding sUSDe as collateral in its Aave instance (Source). The same could be done for sfrxUSD.
  • Partnerships: WLFI collaborates with major players such as Chainlink for secure price feeds and Ethena Labs to integrate yield-bearing tokens like sUSDe (Source).

3. FRAX’s Unique Position

FRAX, co-founded by Stephen Moore, a former economic advisor to President Trump, is a uniquely positioned DeFi project with deep US roots (Source). By partnering with WLFI, FRAX would solidify its status as a premier US-origin stablecoin while benefiting from WLFI’s ecosystem and governance opportunities.

Rationale:
The proposed partnership aims to:

  1. Elevate Status and Visibility: We are at a turning point in crypto regulation. It is important that we capitalize on aligning FRAX with WLFI’s high-profile partners and investments, to strengthen our global reputation.
  2. Expand Distribution: Integrate frxUSD as a collateral option within WLFI’s ecosystem, potentially gaining access to millions of holders.
  3. Influence WLFI Governance: Allow FRAX to influence WLFI governance decisions.
  4. Realize Investment Upside: The valuation of WLFI has already increased from $1.5B to $5B. If they succeed in their mission to onboard millions to DeFi, this investment could appreciate.

Proposed Structure:

  1. Initial Investment: Authorize the Frax team to invest $5 million in WLFI tokens to initiate partnership discussions.
  2. Follow-on Investment: Authorize an additional $5 million (for a total of $10 million), contingent on the success of the initial phase. Metrics and timeline to be determined before a final vote.

Governance and Oversight:
The FRAX team will regularly update the community on progress, milestones, and measurable outcomes, ensuring transparency and alignment with community goals.

Conclusion:
This proposal seeks to position FRAX as a cornerstone of the “Made in USA” DeFi ecosystem by partnering with WLFI. This alignment leverages WLFI’s ecosystem, partnerships, and governance platform while capitalizing on FRAX’s unique strengths. Approving this investment empowers FRAX to expand adoption, increase visibility, and secure its role in the next phase of US DeFi growth.

Next Steps:

  1. Conduct a temperature check to gather community feedback.
  2. Refine the proposal based on insights from WLFI and the FRAX community.
  3. Proceed with an onchain vote to formalize the decision.
5 Likes
2

I strongly oppose this proposal for several key reasons:

Financial Risks

Investing $5 million at a $5 billion fully diluted valuation in a project without a proven track record is extremely risky and unreasonable. 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.

Limited Governance Influence

With only a $5 million investment at this valuation, Frax would have minimal governance power or influence over the project’s direction. This lack of meaningful control limits our ability to protect our investment or guide the project’s development.

Political Neutrality Concerns

Associating with a politically charged project could alienate a significant portion of the crypto community. Approximately 50% of potential users who oppose the political figure associated with this project may avoid Frax entirely as a result. Crypto protocols should strive to maintain political neutrality to ensure broad adoption and avoid unnecessary controversy.

Opportunity Cost

There are far more effective ways to allocate $5-10 million for marketing and ecosystem growth that don’t carry the same risks or political baggage. We could explore partnerships with established projects, fund development initiatives, or launch targeted marketing campaigns that align more closely with Frax’s core mission and values.

Cost to $FXS holders

This investment will be financed directly or indirectly by $FXS holders. $5-10m is A LOT of sell pressure and given the token reacted with a -10% just because of this proposal, I can’t imagine the impact on the token if/when the proposal would be implemented

In conclusion, while the proposal may offer some short-term attention, the potential risks and downsides far outweigh any perceived benefits. I urge the community to reject this proposal and instead focus on more strategic, less controversial initiatives that align with Frax’s long-term goals and values.

6 Likes
3

Frax Finance isn’t rich enough to invest 5m just to start a conversation. I recommend adding the following investment conditions:

  • Deployment WLFI on Fraxtal too
  • Token swap between FXS and WLFI
  • List sfrxETH as collateral asset on WLFI
10 Likes
4

I think $5m is a lot to potential start a conversation and agree with a lot of the points above. I think a partnership could be beneficial, but would like to get something in return like a token swap, launching on fraxtal, or have Frax assets (frxeth, frxUSD) on the platform (like mentioned above).

4 Likes
5

I am a hard no on this proposal.

On top of of @tony239525 great comments, $WLFI was $0.015 and currently $0.05 in the token sale. That is over $300% returns to earlier investors which likely will lead to a lot of dumping once token is live.

If there is actually any interest here, should see what happens when tokens unlock and maybe buy off the open market.

2 Likes
6

First of all, thank you for taking the time to thoroughly review the proposal and for sharing your thoughtful concerns. As @samkazemian mentioned in the Telegram chat, this temp check was always intended as a starting point for discussion. It’s not a final or fully polished proposal, and as it stands, it may not pass without significant revisions. The intent was to engage the community, initiate dialogue with WLFI, and explore ways to craft a more mutually beneficial proposal.

I also acknowledge and agree with many of the criticisms raised. As Sam noted, options like exploring a DAO-to-DAO price swap, securing WLFI investments in Frax, or structuring the deal around more positive-sum strategies could significantly enhance the proposal’s appeal. These are exactly the kinds of ideas that the temp check has brought to the forefront, and I’m excited to refine the direction based on this valuable feedback.

That said, I believe the broader opportunity to partner with WLFI is still compelling. A thoughtful and revised proposal could address the concerns raised and unlock substantial benefits for both projects. Let me now address your specific points in detail:

1. Financial Risks

  • Valuation Context: WLFI’s valuation reflects the strategic nature of its ecosystem and its alignment with favorable US regulatory trends. This is not merely speculative but a forward-looking alignment with an emerging DeFi leader.
  • Dilution Concerns: WLFI’s governance structure is designed to mitigate dilution risks. A significant portion of its token allocation is locked for long-term incentives, fostering stability and reducing short-term sell pressure. Also, WLFI tokens are frozen until a governance vote decides otherwise, ensuring that immediate dilution risks are mitigated.
  • Strategic ROI: The partnership offers FRAX more than financial ROI—it provides visibility, governance influence, and alignment with a pro-crypto administration, positioning FRAX as a key player in the US DeFi ecosystem.

2. Limited Governance Influence

  • Strategic Influence: Governance is not solely about token holdings. WLFI’s ecosystem allows strategic partners to actively propose initiatives, as seen with ENA’s governance activity. FRAX would have a seat at the table to shape meaningful decisions.
  • Partnership Benefits: Beyond governance, FRAX gains inclusion in WLFI’s “Made in USA” list, elevating its profile alongside top-tier DeFi projects. This is a powerful branding and adoption opportunity.

3. Political Neutrality Concerns

  • Broader Vision: WLFI’s focus is on DeFi and financial innovation, not partisan politics. While there is political affiliation, the core initiative aligns with fostering US-led innovation, which transcends party lines.
  • Neutral Messaging: FRAX’s messaging and positioning remain politically neutral. The partnership is about leveraging the pro-crypto momentum in the US to benefit FRAX’s adoption and utility, not endorsing political figures.
  • Strategic Appeal: WLFI’s ecosystem is designed to attract high-caliber DeFi projects and users, regardless of political affiliation. FRAX’s association would be with innovation and growth, not divisiveness.

4. Opportunity Cost

  • Unique Opportunity: WLFI provides a unique avenue to align with regulatory developments and gain access to high-value partnerships and visibility. Few opportunities offer such a comprehensive strategic advantage.
3 Likes
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Thank you for your comment and for building on the points raised. You’re absolutely correct that $WLFI has appreciated significantly during its token sale, from $0.015 to $0.05, representing over 300% returns for early investors. It’s also reasonable to anticipate some sell pressure once the token unlocks.

However, waiting to purchase on the open market carries its own risks. By delaying, we could end up paying a significantly higher price if the market responds favorably to WLFI’s growth trajectory, partnerships, and positioning within the pro-crypto US landscape. As we’ve seen with other successful projects, tokens often rally upon listing, particularly when there is a strong narrative and institutional backing.

Securing a strategic position now, through a direct investment and potential DAO-to-DAO arrangement, provides us with several advantages:

  1. Preferred Terms: A direct partnership often yields more favorable terms, reducing risks tied to market volatility.
  2. Governance Influence: Acquiring tokens now, rather than on the secondary market, allows FRAX to secure governance power early, enabling us to influence WLFI’s direction as the ecosystem evolves.
  3. Strengthening Relationships: Engaging with WLFI now positions FRAX as a key partner, fostering collaboration that extends beyond token price speculation.

While your suggestion to wait for the open market is valid, it’s important to balance this with the potential downside of missing a pivotal opportunity at the current valuation. Striking early can position us to maximize strategic and financial benefits while mitigating the risk of being priced out later.

Thank you again for your input—it’s helping shape a thoughtful and informed discussion!

2 Likes
8

Thank you for the feedback! I completely agree — a partnership should bring tangible benefits like a token swap, Frax assets on their platform, or collaboration through Fraxtal. These are exactly the kinds of ideas @samkazemian should explore further with WLFI.

1 Like
9

Agree with this wholeheartedly. Significantly reduce the allocation size, and a proper structure to ensure the FRAX ecosystem is well participated.

3 Likes