The decentralized finance initiative World Liberty Financial, associated with the Trump family, is set to unlock a significant number of its WLFI tokens after nearly two years. This move will likely affect 80% of public investors’ remaining allocations, translating to over 16 billion WLFI tokens, valued at $1.28 billion according to Tokenomist data.
The project’s leadership describes this as a reward for early supporters, while critics argue it distracts from liquidity issues and questionable practices on DeFi lending platforms like Dolomite. Recent lawsuits by early investors have intensified scrutiny over the team’s handling of a large borrowing position that has trapped millions in retail deposits, with CryptoSlate reporting these concerns.
World Liberty Financial has been leveraging its own illiquid governance token as collateral to secure tens of millions in stablecoins through continuous borrowings. Blockchain data from Arkham Intelligence reveals the team deposited over 3 billion WLFI tokens worth approximately $300 million into Dolomite, borrowing around $75 million in stablecoins such as USD1 and USDC.
This strategy has led to WLFI dominating Dolomite’s supplied-assets list with more than 50% of the protocol’s total value locked. The lending pool for USD1 on Dolomite faces a high utilization ratio of 93%, effectively locking retail deposits due to insufficient liquidity, despite inflated yields reaching up to 35%. Yashas, a DeFi educator, noted that this yield was not reflective of genuine market demand but rather an indication of a liquidity crisis.
Amid criticism about potential liquidation risks, the team reassured on social media that they could supply more collateral if needed. They cited USD1’s revenue and recent buybacks as evidence of stability. However, analysts like Ethan DeFi highlight this strategy’s historical failures in decentralized finance, recalling incidents like Curve Finance’s 2024 crisis when CRV token price drops led to massive bad debt.
As WLFI prepares for a significant token release, early investors are already facing legal challenges against the team due to shrinking profits amid bear market conditions. Despite the protocol’s claim of a structured governance proposal for unlocking tokens, skepticism remains about whether this will stabilize or further destabilize the market. The potential influx of billions in new supply could lead to a price crash and exacerbate existing issues within the ecosystem.