WLFI, the cryptocurrency associated with World Liberty Financial, which is backed by Donald Trump, has dropped to a record low on Friday. This decline comes as investors reacted to reports suggesting that the company has been lending tokens on a platform linked to one of its executives. By midday, WLFI was trading at $0.08, marking an 82% decrease from its peak of $0.46 last September.
This downturn coincided with news that World Liberty Financial’s chief technology officer, Corey Caplan, would be forming a new team in 2024. Several members of the Trump family tapped into the WLFI token reserves to secure loans on various crypto platforms he co-founded.
Blockchain analytics reveal that World Liberty Financial’s wallets have funneled hundreds of millions of dollars in tokens to a decentralized platform called Dolomite, exchanging them for a mix of stablecoins. Dolomite ranks as the 13th largest lending platform in the crypto space, per DeFiLlama data, which seems like an unusual choice for World Liberty Financial to lend its tokens.
After CoinDesk first reported on the financing with Dolomite, WLFI’s price dropped nearly 15%. The extent of the loan raises concerns about its potential impact on the token’s value, according to Nicolas Weimann, CEO of Bubblemaps. He noted that about 5% of WLFI’s supply is linked to this loan; if WLFI’s value plunges, it risks liquidation, forcing World Liberty to sell tokens to repay the loan and potentially causing a further decline in price.
World Liberty Financial did address the lending activities on its X account, attempting to ease investor fears by stating that the loan position is “far from liquidated.” They characterized themselves as WLFI’s “anchor borrower,” claiming to generate yields that enhance the market appeal of WLFI to others.
Hedge Funds and Exposure to WLFI
Various crypto organizations may have acquired WLFI tokens through a token swap that World Liberty Financial facilitated. Nasdaq-listed Alt5 Sigma attracted significant investment, raising $1.5 billion last summer to purchase WLFI tokens. Institutional investors like Point72 and Exodus Point also joined in.
Investor apprehensions are further fueled by the substantial amount of USD1 stablecoin borrowed from WLFI. According to Weimann, World Liberty Financial has taken out so much $1 from Dolomite that there’s minimal left for borrowing, which could complicate withdrawals for users who had previously deposited stablecoins.
Nonetheless, World Liberty Financial remained upbeat on social media, asserting, “Even if the market moves dramatically against us, we will simply provide more collateral. That’s not a risk. That’s how this works.”
