The Trump family’s crypto project World Liberty Financial is under fire after it used billions of its WLFI management tokens to borrow stablecoins on its treasury-linked DeFi lending platform. The structure has drawn comparisons with cyclical borrowing, which has contributed The collapse of the cryptocurrency exchange FTX in 2022.
according to CoinDeskWorld Liberty Financial’s treasury wallet has transferred nearly five billion WLFI tokens to cryptocurrency lending protocol Dolomite. The project took about $75 million in stablecoins, including $65.4 million in $1 USD and $10.3 million in USDC. More than $40 million of the proceeds were then transferred to Coinbase Prime. The move brought Dolomite’s USD1 pool utilization to around 93%, making it difficult for other depositors to withdraw. Dolomite co-founder Corey Caplan also serves as the chief technology officer of World Liberty Financial.
World Liberty Financial’s treasury lien currently represents approximately 55% of the total value of Dolomite locked up. according to CryptoSlatethis concentration means that a drop in the price of WLFI can lead to large liquidations that create bad debt and harm other depositors on the platform. The WLFI token also has limited market depth on exchanges and decentralized markets, so any forced selling without liquidation could lead to a sharp price crash, exacerbating the lack of collateral.
Although not on the same scale, the situation mirrors that of FTX-affiliated trading firm Alameda Research, which borrowed billions against FTT tokens on FTX itself in the months before the exchange failed. FTT was a proprietary token associated with the FTX exchange. This self-referential pledge created massive hidden leverage. Of course, the organization of FTX was hidden from the public until the leaked balance sheet caused a run on the stock market. In addition, WLFI plays its position transparently on the blockchain, meaning that anyone can track positions in real time. This transparency does not eliminate risk, but changes its nature. While FTX depositors have no idea what Alameda is doing with their funds, anyone can see what World Liberty Financial is doing.
World Liberty Financial has responded to criticism of its recent actions at X dismissing concerns”FUD.” The team described itself as an “anchor borrower” that generated higher yields for lenders in its markets and said it was “not close to liquidation.” Officials added that they will offer more WLFI tokens as collateral if prices move against them. Despite the response, the WLFI token is down nearly 20% since Wednesday.
Separately, World Liberty Financial and its associated USD1 stablecoin were at the center of corruption allegations surrounding the Trump administration. last week, The SEC settled a case against Justin Sun et al $10 million in claims including unregistered securities sales, wash trading and undisclosed celebrity endorsements. Sun has large positions in both WLFI and TRUMP memecoin.
There are Democrats on the House Financial Services Committee it is claimed the pay-to-play effect in managing this business and others. In addition, a UAE-related firm headed by Sheikh Tahnoon bin Zayed Al Nahyan previously signed a $500 million deal for a 49% stake in World Liberty Financial.$187 million was paid in advance to Trump family entities. The contract was signed by Eric Trump. Critics, including Senator Chris Murphy, called the arrangement corrupt, especially after the Trump administration lifted previous national security blocks on access to the UAE’s Nvidia AI chips.
The White House also pardoned Binance founder Changpeng Zhao following his conviction for violating the Bank Secrecy Act, a move by former DOJ pardon chief Elizabeth Oyer. labeled “Unprecedented corruption” over Binance’s subsequent $2 billion position in $1. No similar relief came for the developers of Samourai Wallet, who received a longer prison sentence somewhat similar charges related to the operation of a non-prison Bitcoin mixer.
Democrats have repeatedly highlighted these inconsistencies and called for stronger ethics safeguards in the interim. CLARITY ActIt is designed to provide regulatory clarity to the US cryptocurrency industry, preventing administration officials or family members from profiting from cryptocurrencies while shaping regulation. Due to the fact that the legislative situation is currently up in the air differences in priorities and preferences regarding the bill from the crypto and banking lobbies.
