Lie Down WIth Dogs, Get Up WIth Fleas

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It is generally quite difficult to upset the denizens of a wretched hive of scum and villainy by further besmirching their reputation, but recently the Trump family has succeeded.

Below the fold I explain how they did it, and why the denizens of the wretched hive are not happy.

Matt Levine identified the fundamental mechanism at play here:

But you don’t have to just take your counterparties as you find them; you can work to encourage and develop bad ones. This is often a matter of product development: If you build a product that does nothing for sophisticated professionals but that is really good for noisy addicted gamblers, you will attract exactly the right sort of counterparty. This arguably explains much of crypto.

The additional point he omitted is that, in order to "attract exactly the right sort of counterparty" you have to advertise the product. This will bring it to the attention of others seeking the same kind of counterparty. They will seek to leverage your product design for their own ends.

Trump has perfected the art of attracting "the right sort of counterparty". From Trump University to the banks he stiffed in his multiple bankruptcies, to the stockholders of Truth Social his counterparties have always been the "sucker at the poker table". Key to this success has always been moving on to the next scam as the previous one implodes.

By the side of the road to Damascus the White House the former crypto-skeptic President encountered a small crowd of large cryptocurrency companies, including Coinbase, Ripple, Andreessen Horowitz and Jump Capital. They were waving immense sums of money. Trump underwent an instant conversion to the cryptocurrency faith, announcing he would make the US the "Bitcoin capital of the world".

Apart from the general idea that "more is better", why would these immense sums of money be attractive to this alleged billionaire? Apart from the costs of running a Presidential campaign, some of which ends up in his own pocket, there is the need to pay his legions of lawyers, and the looming judgements that these lawyers failed to avert, including $88.3M before interest to E. Jean Carroll and $454M before interest in his New York fraud case.

With Truth Social's Q2 financials reporting a loss of 1,911% of revenue, which was down 30% year-on-year, and with the stock down 80% from its peak, it was clearly time to move on.

On 31^st August Jasper Goodman posted Crypto is the new Trump family business. Ethics watchdogs have concerns. rating a well-deserved "Well Duh!":

Trump’s eldest sons are gearing up to launch a new cryptocurrency venture called World Liberty Financial, which is already receiving a big social media boost from their father. Government ethics watchdogs say the project could create a conflict of interest if Trump returns to the White House next year.

Trump has vowed to enact an array of pro-crypto policies in a bid to win votes — and campaign cash — from digital asset enthusiasts in recent months. Now, he’s weaving the overtures into his pitch for his sons’ forthcoming startup.

While the details of Eric Trump and Donald Trump Jr.'s crypto endeavor haven’t yet been announced, it could stand to benefit from a second Trump administration’s approach to support the industry.
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CREW identified more than 3,700 conflicts of interest during Trump’s first term.

But critics said the crypto project differs because it could align his family’s financial interest with policy changes that he would be poised to enact.

“The prior conflicts and illegalities took advantage of preexisting loopholes,” said Norman Eisen, an ethics lawyer who served in the Obama White House and later helped build the first impeachment case against Trump. “Here, Trump appears to be promising to create the loopholes while his family is simultaneously designing a business venture to exploit them.”

The headline on World Financial's "coming soon" web page is "World Liberty Financial - The Only Crypto DeFi Platform supported by Donald J. Trump". There are dozens of "DeFi Platforms", but the unique selling point of World Liberty is that it is "supported by Donald J. Trump". So the counterparties it is intended to attract are the gullible members of the Trump cult, the ones who have allegedly made him a billionaire.

With this unique selling point the actual product doesn't need to be very good to compete with the market leader, Uniswap, for its chosen counterparties. As Molly White reported, it wasn't:

CoinDesk has gotten hold of a white paper for this supposed World Liberty Financial, which they note appears to be a clone of Dough Finance, a crypto lending platform that was hacked for around $2 million just a month and a half ago. The hack was not a sophisticated one, and instead exploited sloppiness on behalf of the development team.

Of course, many people interested in gullible counterparties noticed all the hype, and they didn't have to wait to hack the actual product launch to get in on the action:

The project hasn’t even launched yet, and it’s off to a bumpy start. First, Donald Trump Jr. had to issue a statement to try to stop people from buying up all the fake tokens purporting to be associated with their murky project. Then, Twitter accounts for Lara and Tiffany Trump were both compromised and used to send tweets announcing a supposed token launch. “This is a scam!!!” tweeted Eric, himself retweeting the tweet from his wife’s account containing the scam token address.

Nic Carter tweeted:

can't secure twitter accounts but i'm sure they'll be able to protect an (already hacked) defi protocol from hacks

— nic carter (@nic__carter) September 4, 2024

The reason for this fiasco was that, as usual, the Trumps hired "only the best people". Sam Kessler, Danny Nelson & Cheyenne Ligon dug into the project's white paper in Inside the Trump Crypto Project Linked to a $2M DeFi Hack and Former Pick-Up Artist:

The document and other reporting describe a borrowing and lending service strikingly similar to Dough Finance, a recently hacked blockchain app built by four people listed as World Liberty Financial team members. Other participants include all three of Trump's sons (including 18-year-old Barron, who is identified as the project's "DeFi visionary"), financiers and e-commerce influencers.

The leader of the Dough Finance team was Chase Herro. When it came time to move on, he obviously found in the Trumps the ignorant and greedy counterparty he needed. Zeke Faux and Muyao Shen also piled on with Behind the Trump Crypto Project Is a Self-Described ‘Dirtbag of the Internet’:

Herro, a fast-talking 39-year-old who shows off his fancy cars and private-jet rides on social media, is an unknown in the crypto world. More than a dozen prominent digital-asset investors said in interviews they had never heard of him. The only crypto project with which he was publicly affiliated attracted only a few million dollars and suffered a devastating hack. A token he promoted on influencer Logan Paul’s podcast dropped 96% afterward. In one speech in 2018, he called himself “the dirtbag of the internet” and said that regulators should “kick s---heads like me out.”

“You can literally sell s--- in a can, wrapped in piss, covered in human skin, for a billion dollars if the story's right, because people will buy it,” Herro said about crypto in a 2018 YouTube video recorded as he drove in a Rolls-Royce. “I'm not going to question the right and wrong of all that.”

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Jasper Goodman reported on the cryptosphere's reaction to this incompetent blatant grift in ‘A huge mistake’: Trump’s crypto allies cringe over family’s startup:

“This is a huge mistake,” said Nic Carter, a Trump supporter who is a founding partner at the crypto-focused venture capital firm Castle Island Ventures. “It looks like Trump’s inner circle is just cashing in on his recent embrace of crypto in a kind of naive way, and frankly it looks like they’re burning a lot of the good will that’s been built with the industry so far.”
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“It’s a very typical playbook of smaller operators or more amateur operations in the crypto space to try to generate a lot of hype before revealing the details,” said Austin Campbell, an adjunct professor at NYU’s Stern School of Business who previously led the risk and portfolio management operation at the crypto firm Paxos. “That makes them susceptible to all sorts of nonsense.”
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One crypto industry representative in Washington, granted anonymity because of sensitivities around criticizing Trump, described having “a laundry list of concerns.” A big worry is that that it could reflect poorly on the industry as it pushes for policy changes that would help legitimize the sector.

“Maybe it doesn’t move the needle for most people, but if this thing is hacked or regular folks lose money on it or it opens up the door for the SEC to investigate the team, it only looks like it has downside risk,” Carter said. “It looks to have very little upside risk.”

As with Trump University and Truth Social, the whole point is for "regular folks" to lose money. But, if you're a candidate positioning yourself as pro-crypto in the hope of getting large checks from the cryptosphere, making this obvious to everyone but the cult members is a bad idea.

PS: Wikipedia explains the title of this post here.