World Liberty Financial Borrows $75M Using Its Own Token, Freezes Depositor Withdrawals

World Liberty Financial borrowed $75 million in stablecoins by pledging 5 billion WLFI tokens as collateral.

“Trump's World Liberty Financial borrowed millions from a protocol its own advisor co-founded Onchain data shows WLFI deposited 5 billion of its own tokens as collateral to borrow stablecoins it then sent to Coinbase Prime, pushing a lending pool to 100% utilization and leaving depositors unable to withdraw”

@coindesk

The borrowing was secured with WLFI's own governance token to borrow its own USD1 stablecoin from a protocol advised by a World Liberty Financial insider.

@coindesk

The WLFI token dropped nearly 10% to a record low, with the oversized collateral position exposing Dolomite to potential bad debt risk.

Onchain data show the sequence began on February 8, when WLFI's treasury deposited 14 million USD1 and borrowed 11.4 million USDC, which was then transferred to Coinbase Prime.

Two days later, 12.5 million USD1 was sent directly from WLFI's treasury to Coinbase Prime, meaning the venture sent its own stablecoin straight to a fiat off-ramp.

The borrowing pushed Dolomite's USD1 pool to about 93% utilization, preventing ordinary depositors from withdrawing their funds.

The USD1 supply rate sits at 16.24% and the borrow rate at 9.18%, reflecting concentrated borrowing activity.

Coin Academy

Dolomite users who lent USD1 can no longer withdraw their funds freely.

WLFI trades with limited market depth relative to the size of the position.

If the token falls sharply, forced sale would crash the price before the collateral can be unwound.

Corey Caplan, co-founder of Dolomite, also serves as an advisor to World Liberty Financial.

“Trump's World Liberty Financial borrowed millions from a protocol co-founded by its own adviser”

CoinDesk

WLFI now accounts for 55% of Dolomite’s total liquidity.

The situation illustrates the counterparty risks in supposedly automated DeFi systems.

The event serves as a case study in concentrated collateral risk.

The ultimate resolution will be closely watched by the cryptocurrency community.