The Trump family’s cryptocurrency initiative, World Liberty Financial, is facing significant backlash after the Treasury Department utilized a substantial amount of its WLFI governance tokens as collateral for borrowing stablecoins through connected DeFi lending platforms. This has led to concerns about circular borrowing, a practice historically linked with detrimental outcomes.
World Liberty Financial’s treasury wallet has funneled around 5 billion WLFI tokens to Dolomite, a cryptocurrency lending service. The project has taken out about $75 million in stablecoins, with $65.4 million being its own USD1 and $10.3 million in USDC. Moreover, over $40 million of that amount has been sent to Coinbase Prime. This situation has elevated Dolomite’s $1 pool to about 93% utilization, complicating withdrawal processes for other users. It’s worth noting that Corey Caplan, Dolomite’s co-founder, also holds the position of chief technology officer at World Liberty Financial.
Currently, the treasury collateral of World Liberty Financial makes up roughly 55% of Dolomite’s total lock. This level of concentration raises the alarm that a drop in WLFI’s price could lead to non-performing loans and significant liquidations, adversely affecting other users on the platform. Additionally, WLFI tokens lack substantial market activity on exchanges, which means that forced liquidation sales could result in sharp price declines, worsening collateral shortages.
While not exactly the same, this scenario resembles how Alameda Research, linked to FTX, borrowed heavily against FTX’s own FTT token prior to the exchange’s failure. The self-referential borrowing created substantial hidden leverage, and it wasn’t until a leaked balance sheet that the public learned of Alameda’s dealings. In contrast, the activities of World Liberty Financial are openly accessible on the blockchain, allowing for real-time tracking. While transparency doesn’t eradicate risk, it does alter its nature; FTX depositors had no insight into Alameda’s actions, but World Liberty Financial operates under scrutiny.
In response to the criticism surrounding its activities, the World Liberty Financial team characterized the concerns as “FUD” and positioned themselves as an “anchor borrower” that provides attractive yields to lenders. They asserted that they are “far from liquidation” and mentioned they would simply offer more WLFI tokens as collateral if conditions change. Regardless, the value of the WLFI token has dropped nearly 20% since Wednesday.
On a different front, World Liberty Financial and its associated USD1 stablecoin are facing corruption allegations tied to the Trump administration. Recently, an SEC lawsuit against Justin Sun resulted in a $10 million settlement over issues relating to unregistered securities and undisclosed endorsements. Sun has extensive holdings in WLFI and TRUMP meme coins.
Democrats on the House Financial Services Committee are wary of “pay-to-play” influences affecting the handling of this case and others. Additionally, companies based in the UAE, led by Sheikh Tahnoun bin Zayed Al Nahyan, secured a $500 million deal for a 49% stake in World Liberty Financial Inc. This deal involved an advance of $187 million to the Trump family organization, with Eric Trump signing the agreement. Critics, including Senator Chris Murphy, have labeled the arrangement as corrupt, particularly following the Trump administration’s removal of a prior security block on UAE access to NVIDIA AI chips.
Notably, the White House had previously pardoned Binance founder Chao Changpeng—convicted of breaching the Bank Secrecy Act—and former Justice Department pardon director Elizabeth Oyer. Binance’s subsequent $2 billion stake in USD1 has also been labeled as “unprecedented corruption.” In contrast, developers of Samurai Wallet, facing similar charges regarding a non-custodial Bitcoin mixer, received harsher sentences.
Democrats have continuously pointed out these inconsistencies and are advocating for stronger ethical safeguards in ongoing policy discussions. The aim is to achieve regulatory clarity for the U.S. cryptocurrency landscape and to prevent government officials and their families from benefiting from crypto ventures during regulatory formulation. At this time, the legal status regarding these issues remains uncertain, with divergent priorities surfacing among cryptocurrency and banking advocates.
