World Liberty Financial, the DeFi venture co-founded by the Trump family, is facing the most serious scrutiny of its existence after on-chain data revealed a borrowing structure that has drawn immediate comparisons to the circular collateral arrangements that contributed to the collapse of FTX in 2022. The project pledged approximately 5 billion of its own WLFI governance tokens on Dolomite, a DeFi lending protocol whose co-founder is a World Liberty Financial adviser, to borrow roughly $75 million in stablecoins including the project’s own USD1. More than $40 million of those proceeds moved directly to Coinbase Prime within hours of the transactions. The WLFI token fell 15% to an all-time low of $0.08 as the story broke. It has now lost over 75% of its value from its September 2025 launch peak of $0.32 without a single sustained recovery.
What the On-Chain Data Shows
World Liberty Financial’s treasury wallet routed roughly five billion WLFI tokens to the Dolomite lending platform and borrowed $75 million in stablecoins, draining the protocol’s USD1 pool and sending more than $40 million to Coinbase Prime. The oversized collateral position, nominally valued at approximately $440 million, left Dolomite exposed to potential bad debt because any forced liquidation would likely crash the thinly traded token’s price.
The on-chain sequence, reconstructed from Etherscan, Arkham, and publicly accessible wallet data, began in February. On February 20, the treasury deposited 890 million WLFI into Dolomite and borrowed 20 million USD1 against it. On March 24, another 1.1 billion WLFI followed. In total, 1.99 billion WLFI tokens sit as collateral inside Dolomite. In April, the WLFI treasury sent 2 billion WLFI to an intermediary wallet and five days later sent another 1 billion before routing the full position into the protocol.
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, which is typically used for institutional OTC conversion or fiat off-ramping. The activity pushed Dolomite’s USD1 pool utilization to around 93%, making withdrawals difficult for other depositors.
The Insider Conflict at the Centre
The choice of protocol is not coincidental. Dolomite co-founder Corey Caplan also serves as an adviser to World Liberty Financial. The arrangement effectively means WLFI built its flagship DeFi product on infrastructure created by one of its own executives, and then used its treasury to become the dominant borrower on that same platform. WLFI collateral now accounts for more than half of Dolomite’s deposits.
Nicolas Vaiman, CEO at crypto analytics firm Bubblemaps, told Fortune that roughly 5% of WLFI’s total supply is now collateral on Dolomite, so if WLFI declines significantly in value, the collateral could be liquidated, which would likely force World Liberty to sell WLFI tokens to repay the loan, exerting additional downward pressure on the token’s price.
DeFi researchers warned that an oversized collateral position on Dolomite creates a high risk of bad debt for other lenders on the protocol, especially if WLFI’s price drops below liquidation thresholds. X user EthanDeFi wrote: “If that WLFI collateral position ever gets close to liquidation, it’s basically unliquidatable without major losses for lenders,” pointing to WLFI’s relatively low liquidity relative to its fully diluted valuation.
Why Critics Are Comparing This to FTX
The structure has provoked immediate comparisons to the most notorious circular collateral arrangement in crypto history. The situation mirrors how 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. The FTX arrangement was concealed from the public until a leaked balance sheet triggered a run. The WLFI situation is playing out transparently on the blockchain, meaning anyone can track the positions in real time. That transparency does not eliminate the risk, but it does change the nature of it.
The dynamic has also drawn comparisons to Curve Finance founder Michael Egorov, who was forced into roughly $80 million in CRV liquidations after borrowing nearly $100 million in stablecoins across multiple lending protocols using CRV as collateral in June 2024. The thin market depth compounds the risk: if an actor were to aggressively short WLFI, the resulting price drop could trigger a liquidation cascade that Dolomite cannot absorb, since there is no clean path to liquidating billions of illiquid governance tokens.
World Liberty’s Defence
World Liberty Financial pushed back hard, dismissing criticism as FUD and defending the borrowing strategy as a feature of its ecosystem rather than a vulnerability. “We are one of the largest suppliers and borrowers on WLFI Markets. Yes, we supplied WLFI as collateral and borrowed stablecoins. No, we are nowhere near liquidation. Even if markets moved dramatically against us, we’d simply supply more collateral. That’s not a risk. That’s how this works,” the project posted on X.
The team framed its position as that of an anchor borrower generating yield for other users. WLFI confirmed repurchasing 435.3 million WLFI tokens at an average price of $0.1507 over six months, totalling $65.58 million in open-market buybacks. USD1, the project’s stablecoin, now has an annualised revenue run rate of $159.5 million.
However, critics say the plan deepens a circular risk loop, as falling WLFI prices erode borrowing power, concentrate collateral in a sliding token, and worsen withdrawal constraints for existing Dolomite depositors, while WLFI’s treasury buybacks are now significantly underwater. The statement that the project would simply supply more WLFI as collateral if prices fell, rather than reassuring critics, highlighted precisely the circularity they were worried about: more of a declining token being used to back a position denominated in that same token on a protocol advised by the same team.
The Depositor Problem
The most immediate harm from the structure falls not on WLFI holders but on Dolomite users who have nothing to do with World Liberty Financial. The structural concern sits in Dolomite’s USD1 pool. USD1 ranks second on the protocol with $180 million supplied against $167.5 million borrowed, a utilisation ratio of about 93%. Users who previously deposited USD1 on Dolomite may have trouble withdrawing until World Liberty Financial closes its position.
World Liberty Financial borrowed so much USD1 from Dolomite that there is little left to borrow, meaning users who previously deposited the stablecoin may have trouble withdrawing. For ordinary depositors who chose Dolomite as a yield venue with no knowledge of or involvement in WLFI’s strategy, the near-inability to exit their positions represents real financial harm that World Liberty’s FUD dismissal does not address.
What Comes Next
WLFI is trading at approximately $0.088 as of April 12, down over 75% from its peak and well below the average buyback price of $0.1507 at which the project spent $65.58 million repurchasing its own tokens. The token unlock governance proposal that the team promised for next week will be closely watched. If early token holders receive the ability to sell, a large wave of supply hitting an already thin market could push WLFI lower still, further eroding the collateral buffer on Dolomite.
USD1 is backed by US Treasuries and cash equivalents, limiting the risk of a full depeg. But with USD1’s circulating supply now exceeding $4 billion, the fallout from a Dolomite crisis could extend well beyond the WLFI token itself. DeFi has seen these structures before. They resolve in one of two ways: the protocol grows organically until the concentrated position becomes proportionally smaller, or the token price falls enough to trigger liquidation and the cascading consequences that follow. Which path WLFI takes will define the coming weeks for both the project and for Dolomite’s depositors who are currently waiting to find out.
