Detailed Interpretation of WLFI's Lawsuit Against Sun Yucheng (hereinafter referred to as Sun) Background and Consequences

Everyone knows about the lawsuit, but I believe many friends have not detailedly understood the reasons for the lawsuit, so I will discuss the background of this lawsuit and predict its consequences.

Background (all content comes from WLFI's lawsuit documents, I do not judge the authenticity of the lawsuit content):

1. On November 25, 2024, Sun purchased 2 billion non-transferrable WLFI Tokens for $30 million through wholly-owned subsidiary Blue Anthem. On the same day, World Liberty Financial, Inc. granted Blue Anthem an additional 1 billion non-transferrable WLFI Tokens as consideration for Blue Anthem's agreement to join the World Liberty Advisory Committee.

PS1: At this stage, Sun held 3 billion $WLFI, with an average purchase price of $0.01, currently priced at $0.06.

1.5 Around January 2025, Blue Anthem purchased another approximately 1 billion non-transferrable WLFI Tokens. Therefore, Sun held approximately 4 billion non-transferrable WLFI Tokens through Blue Anthem.

PS2: The purchase amount at this stage was not disclosed. However, Blue Anthem agreed not to transfer all 4 billion WLFI Tokens held.

2. The new governance proposal from WLFI will keep the 80% Tokens still locked for early investors locked for an additional two years, followed by two years of linear unlocking. Secondary market purchasers will not be affected by this unlocking proposal, but if users wish to participate in governance voting, they need to agree to lock their Tokens for six months.

Sun, on behalf of his entity Blue Anthem, agreed that WLFI could independently decide to refuse unlocking, restrict access, or freeze any wallets when it deemed necessary to comply with applicable laws, enforce its policies, or protect the integrity of the WLF agreement.

Furthermore, when agreeing to the Token unlocking agreement, Blue Anthem declared that it had not engaged in several transfer activities, including short-selling of $WLFI.

PS3: WLFI company can block and freeze wallet addresses identified as related to illegal activities or violations of terms and the related Tokens.

3. Sun transferred approximately $9 million worth of $WLFI to Binance at the time and transferred about $300 million to #Binance three times through publicly held HTX 48 wallets. After this transfer, the market established large short positions against $WLFI.

PS4: WLFI believes that Sun's exchange wallet transferred $300 million to Binance the day before $WLFI opened for public trading. The next morning, WLFI's price plummeted, while the unclosed short interest increased, indicating that traders were accumulating new short positions on a large scale.

In plain language, WLFI believes that Sun transferred $300 million to Binance the day before WLFI opened for trading in order to pre-deploy shorting funds. However, solely based on on-chain transfers and the subsequent rise in short OI does not directly prove that this $300 million was used by Sun himself to short WLFI. The crucial proof lies in Binance's trading data.

4. WLFI believes that Sun violated the agreement and froze all WLFI Tokens held by Sun, which he was aware of when he purchased WLFI Tokens, while Sun believes WLFI secretly embedded a blacklist function in the smart contract, freezing its Tokens twice, stripping its governance voting rights, threatening to permanently destroy its holdings, and attempting to force him to mint $200 million USD1.

PS5: This part is the core of both parties' litigation. WLFI must not only prove that the early Tokens had lock-up restrictions but also demonstrate that the locking permissions, triggering conditions, execution methods, and governance impacts were sufficiently disclosed and did not exceed the authority granted by the agreement. On Sun's side, the focus will be on whether there is an undisclosed blacklist control structure, whether there was selective freezing, whether governance rights were stripped, whether there was a threat to destroy Tokens.

The ensuing war of words is not worth going into detail, overall, WLFI accuses Sun of not only selling $WLFI that should not have been sold but also of allegedly shorting $WLFI for profit, violating the contract signed with WLFI.

As for Sun selling and shorting WLFI, in practical terms, unless there is evidence from Binance proving that Sun sold the WLFI Tokens transferred to Binance, it would not be easy for a judge to believe it, while Sun's stance is that he acknowledges the transfer but does not admit to selling, which is currently the main point of contention between the parties.

In simple terms, it can be said that if the WLFI transferred to Binance is confirmed as sold, then Sun transferring USDT to Binance is to short WLFI, but without evidence, it would be difficult for a judge to believe this; the only breakthrough would be whether Binance will provide evidence.

Whether Binance will provide evidence depends on whether it receives valid court orders, subpoenas, requests for judicial assistance, etc., and whether the relevant Binance entities are within the jurisdiction that US courts can enforce. Binance can defend against, apply for limited disclosure, or request confidentiality protection.

As for the defamation-related lawsuits, they are all based on the game between WLFI and Sun in the freezing and frozen process. On the surface, the core cause of action in this Florida lawsuit is defamation and implied defamation, but what truly determines whether defamation can be established is whether WLFI has sufficiently disclosed its freezing authority, whether Sun has violated transfer restrictions, whether he actually sold or shorted, and whether Sun knew his statements were inaccurate when posting.

In my personal estimation, the final outcome is highly likely to result in both parties settling out of court under the pressure of the evidence chain.

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