World Liberty Financial Pledges 5 Billion $WLFI To Borrow $75 Million

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Specifically, the borrowed amount breaks down to $65.4 million in USD1 and $10.3 million in USDC. USD1 is WLFI’s own stablecoin. On-chain data also shows that over $40 million then moved to Coinbase Prime addresses, suggesting treasury management or conversion activity.

How the WLFI Dolomite Borrowing Works

WLFI’s treasury deposited the tokens through a multisig wallet and intermediary addresses, including a Gnosis Safe proxy. The collateral buildup happened in stages over several months.

Earlier deposits in February and March totaled roughly 1.99 billion tokens. Then a larger batch of about 3 billion followed in early April. At that point, the nominal value sat around $440 million, though WLFI trades with very thin market depth.

To accommodate the deposit, Dolomite raised its WLFI supply cap. As a result, WLFI’s position now represents about 55% of the protocol’s $835 million TVL.

Critics Flag Circular Financing Risks

DeFi analysts like DefiIgnas quickly flagged the self-referential nature of the deal. In short, WLFI borrowed its own stablecoin by pledging its own governance token on a protocol with insider ties.

Dolomite co-founder Corey Caplan also serves as a WLFI advisor. Some analyses call him CTO. Either way, that connection creates perceived conflict-of-interest concerns, according to Forbes.

On top of that, critics pointed to concentration risk. One entity now dominates both the supply and borrow sides of Dolomite. If WLFI’s token price crashes, a forced liquidation could create bad debt and trap retail depositors.

On-chain watchers framed the situation bluntly. “Don’t be exit liquidity” became a common refrain on X.

USD1 Pool Hit 100% Utilization

The borrowing pushed Dolomite’s USD1 lending pool toward full utilization at peak. Consequently, depositors could not withdraw their funds freely during that period.

Lending rates spiked as well. Some partial repayments have since eased the pressure. WLFI repaid between $15 million and $25 million in USD1 recently, so pool liquidity improved somewhat.

Even so, the scale of WLFI’s position means depositors still face significant concentration risk on the protocol.

WLFI Calls Criticism “FUD” and Defends Strategy

WLFI responded publicly on X shortly after the CoinDesk report. The project called the concerns “FUD” and framed the borrowing as a deliberate strategy.

“Yes, we supplied WLFI as collateral and borrowed stablecoins,” the official account posted. “We are nowhere near liquidation. Even if markets moved against us, we’d simply supply more collateral.”

In addition, WLFI positioned itself as the “anchor borrower” generating yield for others. According to the project, everyday users earn outsized stablecoin yields because WLFI borrows heavily from their pools.

The project also shared supporting numbers. WLFI claimed USD1 generates $159.5 million in annual revenue. It cited $65.58 million in open-market buybacks over six months, covering 435 million tokens at about $0.1507 each.

Token Unlock Vote Coming Soon

Meanwhile, WLFI announced a governance proposal to unlock locked tokens. The proposal will go to the community forum next week, with a formal vote shortly after. About 75% of the WLFI supply remains locked under a six-month lockup.

The project highlighted recent USD1 upgrades too, including gasless transfers and compliance tools. Notably, WLFI did not address the Coinbase Prime transfers or the advisor conflict in its public response.

WLFI Token Drops to Record Lows After Dolomite Borrowing

Market reaction turned negative. WLFI’s token dropped between 8% and 16%, hitting all-time lows around $0.08 to $0.0885. The sell-off reflected broader concern about the project’s token economics.

With thin liquidity and one entity holding a dominant position, the situation around WLFI borrows Dolomite remains fragile. Depositors should therefore monitor pool utilization and the upcoming governance vote closely.

This article is for informational purposes only and does not constitute financial advice. Always do your own research before making investment decisions.