The Trump family’s World Liberty Financial crypto project is drawing sharp criticism after its treasury used billions of its own WLFI governance tokens as collateral to borrow stablecoins on an affiliated DeFi lending platform. The structure has prompted comparisons to the circular borrowing that contributed to the collapse of crypto exchange FTX in 2022.
According to CoinDesk, World Liberty Financial’s treasury wallet has routed roughly five billion WLFI tokens to a crypto lending protocol, Dolomite. The project borrowed about $75 million in stablecoins, including $65.4 million of its own USD1 and $10.3 million in USDC. More than $40 million of the proceeds later moved to Coinbase Prime. The activity pushed Dolomite’s USD1 pool utilization to around 93%, making withdrawals difficult for other depositors. Notably, Dolomite co-founder Corey Caplan also serves as chief technology officer for World Liberty Financial.
World Liberty Financial’s treasury collateral now accounts for roughly 55% of Dolomite’s total value locked. According to CryptoSlate, this concentration means a drop in WLFI’s price could trigger 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 from liquidations could cause a sharp price crash that worsens the collateral shortfall.
While not at the same scale, the situation mirrors how the FTX-connected trading firm Alameda Research borrowed billions against FTT tokens on FTX itself in the months before the exchange failed. FTT was the proprietary token related to the FTX exchange. That self-referential collateral created massive hidden leverage. Of course, FTX’s arrangement was concealed from the public until a leaked balance sheet triggered a run on the exchange. Additionally, the WLFI situation is playing out transparently on the blockchain, meaning anyone can track the positions in real time. That transparency doesn’t eliminate the risk, but it does change the nature of it. While FTX depositors had no idea what Alameda was doing with their funds, everyone can see what World Liberty Financial is doing.
World Liberty Financial has responded to criticism related to their recent activities on X by dismissing the concerns as “FUD.” The team described itself as an “anchor borrower” that generates higher yields for lenders in its markets and said it remains “nowhere near liquidation.” Officials added that they would simply supply more WLFI tokens as collateral if prices moved against them. Despite the response, the WLFI token is down nearly 20% since Wednesday.
Separately, World Liberty Financial and its associated USD1 stablecoin have been at the heart of corruption allegations around the Trump administration. Just last week, the SEC settled a case against Justin Sun and his companies for $10 million over allegations including selling unregistered securities, wash trading, and undisclosed celebrity endorsements. Sun holds large positions in both WLFI and the TRUMP memecoin.
Democrats on the House Financial Services Committee have alleged pay-to-play influence in the handling of that case and others. Additionally, a UAE-linked firm led by Sheikh Tahnoon bin Zayed Al Nahyan previously signed a $500 million deal for a 49% stake in World Liberty Financial, with $187 million paid upfront to Trump family entities. Eric Trump signed the agreement. Critics, including Senator Chris Murphy, have called the arrangement corruption, especially after the Trump administration reversed prior national-security blocks on UAE access to Nvidia AI chips.
The White House also previously pardoned Binance founder Changpeng Zhao after his conviction for Bank Secrecy Act violations, a move former DOJ pardon chief Elizabeth Oyer labeled “unprecedented corruption” due to Binance’s subsequent $2 billion position in USD1. No similar relief has come for the developers of Samourai Wallet, who received longer prison sentences for somewhat similar charges involving the operation of a non-custodial Bitcoin mixer.
Democrats have repeatedly highlighted these inconsistencies and called for stronger ethics safeguards in the pending CLARITY Act, which is intended to provide regulatory clarity to the U.S. crypto industry, to prevent administration officials or family members from profiting from crypto ventures while shaping regulation. The status of the legislation remains up in the air at this time due to differences in priorities and preferences associated with the bill from the crypto and banking lobbies.
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