The governance token of World Liberty Financial (WLFI), a cryptocurrency project backed by former President Donald Trump and his sons, experienced a significant drop in value on Friday. This decline followed the announcement that the project is preparing a proposal to unlock tokens for early holders while defending $150 million in stablecoin loans.
Initially released as a non-transferable digital asset last year, WLFI’s token price fell approximately 14% to around $0.08, according to CoinGecko data. This drop resulted in the market cap falling by $427 million, bringing it down to $2.58 billion from nearly $3 billion.
On Thursday, World Liberty addressed what it termed as ‘FUD’—the industry’s term for ‘fear, uncertainty, and doubt’—that emerged on X after the project secured loans in USDC via the decentralized finance protocol Dolomite.
Observers voiced concerns about potential losses or difficulties in withdrawing funds if World Liberty’s loans were liquidated due to WLFI’s limited liquidity. They noted that Dolomite’s USD1 lending pool seemed restricted, with borrowing reaching high utilization levels for World Liberty’s stablecoins.
World Liberty countered these fears by emphasizing its role as the anchor borrower, generating yields that make WLFI Markets attractive to other users. It highlighted that everyday users are currently earning significant stablecoin yields at a time when traditional markets offer minimal returns.
Despite this, concerns persisted about Dolomite’s potential exposure to bad debt if forced to unwind World Liberty’s loans, recovering less than the borrowed stablecoins’ value. However, World Liberty dismissed the risk of liquidation, asserting they could supply additional collateral if needed.
The project also positioned its actions as advantageous for those supplying stablecoins on Dolomite, where Corey Caplan, one of its advisors and Dolomite’s co-founder, plays a role. World Liberty claimed that Dolomite’s users are deliberately earning higher yields in the current market climate.
Some critics found World Liberty’s defense unsatisfactory due to its lack of clarity on repaying the stablecoin debt. Another point of concern was the transfer of some borrowed stablecoins to Coinbase Prime, where trading could occur.
Decrypt reached out to World Liberty for a response but did not receive an immediate reply. According to Arkham Intelligence, World Liberty has pledged approximately $400 million in WLFI as collateral on Dolomite across two wallets, representing about 98% of the token’s supply on the platform and concentrating risk.
World Liberty announced it is also preparing a governance proposal allowing WLFI holders to vote on unlocking tokens. Currently, roughly 75% of the token’s supply remains locked, preventing trading by investors, according to Token Unlocks data.
In March last year, World Liberty reported raising $550 million through two sets of WLFI sales involving 85,000 participants. It later acknowledged strong demand from early adopters for making the token tradable. Public sales have allocated about 20% of the token’s total supply, valued at $2 billion in paper terms.
In a subsequent X post on Thursday, World Liberty clarified that its governance proposal would not immediately unlock all tokens. Instead, it planned to introduce a ‘long-term vesting and unlock schedule’ to safeguard the ecosystem’s health.