Key Takeaways
- WLFI’s treasury borrowed about $75 million in stablecoins using its own WLFI tokens as collateral.
- Critics argue this resembles insider-driven value extraction, while some users faced liquidity constraints.
- The WLFI team says the strategy is designed to generate yield and poses no immediate liquidation risk.
World Liberty Financial (WLFI), the Trump-family-linked DeFi project behind the USD1 stablecoin, is facing renewed scrutiny following recent on-chain activity.
The team responded with a detailed thread on X, addressing concerns and framing its lending strategy as a yield-generating mechanism rather than a risk event.
Treasury Borrowing Sparks Debate
Blockchain data shows that WLFI’s treasury has borrowed tens of millions in stablecoins against its own WLFI tokens, triggering criticism from market observers.
Critics question whether this structure creates unfair advantages for insiders.
The activity traces back to early April 2026, when analysts identified transactions from WLFI’s treasury multisig.
Over several days, the wallet routed billions of WLFI tokens before depositing them as collateral on Dolomite, a DeFi lending protocol linked to WLFI Markets.
Against this collateral, valued at roughly $440–460 million at the time, the treasury borrowed approximately $65.4 million in USD1 and $10.3 million in USDC.
A portion of these funds, including over $40 million in USD1, was later transferred to Coinbase Prime.
Criticism Around Structure and Risk
Some observers described the strategy as circular financing.
They argued that using internally controlled tokens as collateral allows the project to access external liquidity.
Critics also pointed to high utilization levels in Dolomite’s USD1 pool, which limited withdrawals for other users and increased borrowing costs.
They raised concerns about concentration risk, noting WLFI now accounts for roughly 55% of the protocol’s total liquidity.
These concerns come alongside earlier scrutiny around token distribution and governance, though no formal findings have been established.
How the Strategy Works
At the center of the debate is how WLFI used its token holdings.
Rather than relying on external funding, the treasury has used its large WLFI reserves—much of which is controlled by the team—as collateral on a platform closely tied to the project.
Critics say this effectively allowed the project to unlock liquidity from its own tokens.
In simple terms, the process involves:
- Allocating WLFI as collateral.
- Borrowing stablecoins backed by user deposits.
- Moving those funds for further use.
They argue this structure introduces risks, particularly if WLFI’s relatively thin liquidity leads to sharp price moves.
In such a scenario, forced liquidations could strain the system and shift downside risk toward depositors and retail participants.
At the same time, many early presale investors still have their tokens locked, with no confirmed timeline for full access pending a governance decision.
This has added to the frustration among some holders.
Detractors call it a classic rug-adjacent tactic: extract value for insiders while the public holds the bag.
WLFI Price Takes a Hit
The accusations have taken a heavy toll on WLFI’s price.
Launched and made tradable in September 2025 amid massive hype tied to the Trump name, the token hit an all-time high of approximately $0.33–$0.46 shortly after.
But it has since crumbled. As of April 10, 2026, WLFI trades around $0.088–$0.093, down roughly 75–80% from its peak and recently hitting all-time lows near $0.083.
The April 9 borrowing news triggered an immediate ~10% drop.
This pushed the token to record lows amid thin liquidity and liquidation fears.
Over the past year, WLFI has suffered repeated sell-offs tied to regulatory probes, sanctions rumors, locked-token frustration, and now this self-borrowing controversy.
Market depth remains shallow, making price recovery difficult even with buybacks.
WLFI Responds: “No Liquidation Risk”
In its April 9 statement, WLFI said it is both a major supplier and borrower on its own platform.
The team emphasized zero near-term liquidation risk:
“Even if markets moved dramatically against us, we’d simply supply more collateral. That’s not a risk. That’s how this works.”
It also described the strategy as a way to support stablecoin yields and broader ecosystem activity.
WLFI cited USD1’s revenue generation and disclosed ongoing token buybacks as part of its broader approach.
A governance proposal related to token unlocks is expected soon.
What Comes Next
The situation remains under close watch from the crypto community.
Supporters view the strategy as a form of treasury optimization, while critics continue to question its structure and risk profile.
With a governance vote approaching and ongoing market volatility, the coming weeks are likely to be important for how the project is assessed by users and investors.
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Prashant Jha is a seasoned crypto journalist based in Delhi, India, with a Bachelor’s Degree in Computer Science Engineering. Passionate about the evolving world of blockchain and cryptocurrencies, he has been a dedicated voice in the industry since 2018. Prashant’s expertise lies in regulatory reporting, where he unravels complex legal and financial developments with clarity and precision. Before joining CCN in 2024, he honed his craft at Cointelegraph, establishing himself as a trusted name in crypto journalism.
His coverage spans major industry events, including the high-profile collapses of FTX, Three Arrows Capital (3AC), and LUNA, offering readers insightful analyses of their regulatory and market implications. Prashant’s technical background enables him to bridge the gap between intricate blockchain technology and its real-world applications, making his work accessible to novices and experts.
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