World Liberty Financial Borrows $50M Against Its Own Token, Freezes Withdrawals

WLFI borrowed $50.44 million USD1 from its own pool using 3 billion WLFI tokens as collateral.

The pool's utilization rate exceeded 100%, creating negative liquidity.

@coindesk

WLFI framed itself as an anchor borrower that generates yield for others.

The borrowed stablecoins were transferred to Coinbase Prime.

WLFI's token price plunged 12% to record lows.

WLFI tokens represented more than half of Dolomite's total supplied capital.

@coindesk

Analysts warned of a circular risk loop and potential bad debt.

The situation tested the resilience of smart contract logic.

Dolomite co-founder Corey Caplan also serves as an advisor to WLFI.

“Entities linked to World Liberty Financial deposited $484 million worth of WLFI into the Dolomite Protocol and borrowed USDC against it”

Analytics Insight

Critics questioned whether risk parameters were appropriate for a single project-controlled token.

The episode drew comparisons to previous DeFi cautionary tales.

WLFI announced intentions to introduce a governance proposal.

The incident served as a critical stress test for DeFi protocols.

The collateral's health was entirely dependent on the market price of WLFI.

Blockonomi

USD1's circulating supply now exceeds $4 billion.

Regulators globally are increasing scrutiny of DeFi.