Trump’s World Liberty Financial secured millions in loans from a protocol co-founded by its own advisor.

Onchain data indicates that WLFI has deposited 5 billion of its own tokens as collateral to secure stablecoins, which it subsequently transferred to Coinbase Prime. This action has led to a 100% utilization of the lending pool, preventing other depositors from making withdrawals.

Key points:

• World Liberty Financial, a crypto initiative supported by the Trump family, has committed 5 billion WLFI tokens on the Dolomite lending platform to borrow $75 million in stablecoins, depleting the protocol’s USD1 pool and transferring over $40 million to Coinbase Prime.
• The WLFI token experienced a decline of nearly 10 percent, reaching a historic low, as the substantial collateral position, valued at approximately $440 million, exposed Dolomite to potential bad debt, since any forced liquidation could significantly reduce the token’s price due to its thin trading volume.
• This strategy, wherein WLFI utilizes its own governance token to secure its own USD1 stablecoin from a protocol advised by an insider from World Liberty Financial, has raised alarms regarding circular economics and the financing of a single insider borrower using user-funded pools.

World Liberty Financial, the cryptocurrency initiative co-founded by the Trump family, has performed a series of transactions through the decentralized finance (DeFi) lending protocol Dolomite, raising concerns about insider access, circular token economics, and concentrated risk for other depositors.

Onchain records reviewed by CoinDesk, drawn from Etherscan, Arkham, and publicly available wallet data, reveal that the sequence of events commenced on February 8, when WLFI’s treasury placed 14 million USD1, its dollar-pegged stablecoin, into Dolomite as collateral, subsequently borrowing 11.4 million USDC against it.

Shortly thereafter, 11.45 million USDC was transferred to a Coinbase Prime deposit address, according to Arkham. Two days later, 12.5 million USD1 was dispatched from the treasury to another Coinbase Prime deposit address. Coinbase Prime is commonly utilized for converting cryptocurrency to fiat or for institutional OTC trading.

The 12.5 million USD1 was not borrowed from Dolomite, but was sent directly from WLFI’s treasury wallet to the exchange, indicating that the venture transferred its own stablecoin directly to a fiat off-ramp.

However, the WLFI token became involved twelve days later. On February 20, the treasury deposited 890 million WLFI into Dolomite and borrowed 20 million USD1 against it.

On March 24, an additional 1.1 billion WLFI was deposited. In total, 1.99 billion WLFI tokens are now held as collateral within Dolomite, and the treasury has obtained approximately 31.4 million in stablecoins from the protocol throughout both transactions.

The selection of protocol is not coincidental.

Dolomite co-founder Corey Caplan serves as an advisor to World Liberty Financial. WLFI currently occupies the top position on Dolomite’s supplied-assets list with $458.9 million in supplied liquidity, accounting for nearly 55% of the protocol’s overall $835.7 million total.

The structural issue lies within Dolomite’s USD1 pool. USD1, which presently has a circulation of $4.6 billion, is ranked second on the protocol with $180 million supplied against $167.5 million borrowed, resulting in a utilization ratio of about 93%.

The USD1 supply rate stands at 16.24%, while the borrow rate is at 9.18%, indicating concentrated borrowing activity rather than widespread organic demand.

At this level of utilization, ordinary depositors who lent USD1 to the pool, expecting to withdraw at their convenience, are unable to do so simultaneously. Their funds are essentially locked until the large borrower repays.

The collateral supporting the WLFI-denominated borrow presents a separate concern.

WLFI has limited market depth relative to the magnitude of the position. If the token experiences a significant drop and Dolomite’s liquidation mechanism is activated, the forced sale could depress the price before the collateral can be liquidated, resulting in the protocol holding bad debt that would impact the same retail depositors who currently cannot exit.

Activity increased in April through another channel. On April 2, the WLFI treasury transferred 2 billion WLFI to a Gnosis Safe proxy wallet at address 0x44a681DD. Five days later, another 1 billion was sent.

Neither transfer went straight to Dolomite, and onchain data has yet to reveal the destination of those tokens. The three billion additional tokens are valued at approximately $266 million at WLFI’s current price of $0.0888.

World Liberty Financial did not respond promptly to CoinDesk’s inquiry for comments.