What does it mean that World Liberty Financial has a blacklist feature?

On Thursday, the World Liberty Financial team blacklisted Justin Sun, the largest investor in its token offering, freezing his holdings of 2.3 billion WLFI tokens, valued at nearly $750 million. Following a second round of know-your-customer (KYC) checks before the September 1st token launch, the WLF team blacklisted 269 wallets. Following the token launch, the team blacklisted three additional wallets, including Sun's. Given the scale of Sun's holdings, it's hard to imagine this action was accidental. Sun's wallet controls 3 billion WLFI, representing 3% of the fully diluted supply, and now accounts for over 99% of all blacklisted WLFI. This came as a shock to Sun, who faces charges of selling user tokens on Huobi but claims no wrongdoing and is protesting this unilateral move.

The lead-up to this blacklisting was particularly alarming. Justin Sun didn't just write a check; after he acquired WLFI for $30 million last year, WLFI co-founder Zak Folkman publicly praised him for reviving the project and later welcomed him as an advisor, with the two appearing on stage together to promote the work. These connections extend throughout the market infrastructure: Sun's exchange, HTX, became a key distribution channel for WLFI's USD1 stablecoin and related points programs. World Liberty promoted HTX's "WLFI Earning Carnival," offering 20% ​​returns to WLFI holders who participated in the earning event and even invested in Sun's TRX token, their third-largest non-stable asset after BTC and ETH. Given the mutual promotion and investment between World Liberty Financial and Justin Sun, blacklisting Sun's address feels more like a breakup of the alliance that helped launch WLFI than a principled compliance action. Galaxy's Take: The first question that comes to mind is: Why does WLFI even have a blacklist feature? This is surprising for three main reasons. First, the blacklist wasn't in the original contract, but rather was included in a proxy contract upgrade a week before the tokens became transferable. Second, blacklisting in cryptocurrency is almost exclusively a purview of stablecoins, asset-backed tokens, and security tokens. This is primarily due to regulatory requirements: compliance with OFAC blacklists, asset freezes pursuant to law enforcement seizures, and various miscellaneous TradFi security regulations. Blacklisting is unusual for a token like WLFI, a governance token designed to avoid investment status by having no connection or advocacy to WLF's economics or the efforts of the WLF team—a key element of the Howey Test. If there's no regulatory requirement to blacklist addresses or holders, what's the point of unilaterally freezing users' tokens? This isn't just about enforcing KYC, as they allowed Justin Sun to pass two rounds of KYC, unlock and vest his tokens, and make some transfers before blacklisting him. It's also not just about enforcing sanctions, as they don't even cover addresses on the OFAC list (such as 0x8576acc5c05d6ce88f4e49bf65bdf0c62f91353c)! This appears to be solely about enforcing WLF's rules, and in the terms and conditions, it's clear that the WLF team sets and interprets the rules, not token holders. Third and finally, the Trump family explicitly stated that their own experience with debanking was a primary motivation for launching World Liberty Financial. The obvious second question is what this means for other WLF transactions, particularly Aave. Both World Liberty Financial and Aave governance agreed to license an Aave v3 instance to World Liberty Financial in exchange for "approximately 7% of the total WLFI token supply." Aave has not yet received WLFI tokens, and the WLFI team has not yet deployed any code versions licensed from Aave. These concerns are further exacerbated by the explicit risk warnings in the WLFI Gold Paper, which describe the Aave integration as "potential" and "may not occur." If the WLFI team is willing to unilaterally freeze the wallets of flagship investors, the rational approach for counterparties like Aave is to strengthen the transaction structure. If token distributions or revenue sharing are part of any partnership, they must adhere to objective on-chain conditions and custodial arrangements to eliminate unilateral switching. For the WLFI community, this incident is a test of its narrative. The project touts freedom and community rules, but its bylaws centralize power and impose aggressive controls. WLFI is a brand-driven governance token, and its managers have substantial autonomy over who participates and when. This doesn't hinder its success, but it does narrow the pool of buyers who can withstand the discretionary counterparty risk stipulated in the contract and terms and conditions. The silent freezing of the largest public investor during launch week sets a high bar for future communication and governance processes to alleviate concerns. If the WLF team can meet this standard by explaining it, documenting it, and binding it on-chain, they can rebuild confidence.

But for now, World Liberty Financial has amended the terms of its deal with Justin Sun. Pray they don't make further changes to you, WLFI holders.