WLFI's $75M DeFi Loan Program Raises Concerns Over Conflict of Interest and Liquidity Risks

Original author: ChandlerZ, Foresight News

On April 9, CoinDesk reported that World Liberty Financial (WLFI), a crypto project co-founded by the Trump family, executed multiple collateralized borrowing transactions via the DeFi lending protocol Dolomite, sparking market concerns over insider relationships, circular financing, and liquidity risks. WLFI borrowed approximately $75 million in stablecoins on the Dolomite protocol, using around 5 billion WLFI tokens as collateral, with over $40 million flowing to Coinbase Prime—suspected for fiat conversion or over-the-counter trading.

Operationally, on February 8, the WLFI treasury deposited 14 million USD1 as collateral into Dolomite and borrowed 11.4 million USDC. Minutes later, 11.45 million USDC was transferred to the Coinbase Prime deposit address. Coinbase Prime is typically used for cryptocurrency-to-fiat conversions or institutional OTC trades.

Two days later, WLFI transferred another 12.5 million USD1 directly from its treasury to another Coinbase Prime address. These funds bypassed Dolomite lending entirely, sending the stablecoin it issued directly to a fiat exit point.

On February 20, the WLFI token was launched. The treasury deposited 890 million WLFI into Dolomite and borrowed 20 million USD1. On March 24, an additional 1.1 billion WLFI were deposited. In total, 1.99 billion WLFI were locked as collateral in Dolomite, and the treasury received approximately $31.4 million in stablecoins from the protocol.

In April, the scale was further increased. On April 2, the WLFI treasury transferred 2 billion WLFI tokens to a Gnosis Safe proxy wallet (address 0x44a681DD); on April 7, an additional 1 billion WLFI tokens were transferred. These 3 billion tokens are currently worth approximately $266 million, but they were not directly deposited into Dolomite, and their ultimate destination remains unclear.

Including borrowing and direct transfers across all channels, WLFI has moved approximately $75 million in stablecoins through Dolomite and Coinbase Prime.

The choice of this protocol was no accident; public information shows that Corey Caplan, co-founder of Dolomite, also serves as an advisor to WLFI, and WLFI’s lending platform, “WLFI Markets,” is built on the Dolomite protocol. In other words, WLFI borrowed its own stablecoin, using its own issued token as collateral, on a protocol co-created by its advisor.

In traditional finance, such related-party transactions require disclosure and approval by independent directors. This time, these safeguards were almost nonexistent.

WLFI currently accounts for approximately 55% of the $458.9 million in supply liquidity across the entire Dolomite platform, with total platform supply at $835.7 million.

Regarding the USD1 pool, out of a $180 million supply, $167.5 million has been borrowed, resulting in an utilization rate of approximately 93%. Only about $12.5 million in usable liquidity remains in the pool, making it practically difficult for large depositors to withdraw their full funds. The pool's utilization rate once reached 100%.

The supply rate for USD1 is 16.24%, and the borrowing rate is 9.18%. These rates reflect concentrated lending activity dominated by a single large borrower, rather than broad organic demand.

The risks on the collateral side are equally significant: the WLFI token has extremely limited market depth, with daily trading volume far below the amount of collateralized tokens. If a sharp price drop triggers Dolomite’s liquidation mechanism, forced selling will drive the token price below its collateral value before the collateral can be unwound, leaving bad debts to be borne by ordinary depositors who are currently unable to withdraw.

Dolomite lending is merely the latest link in the chain of WLFI conflicts of interest.

According to The Wall Street Journal, company documents and informed sources reveal that in the four days before Trump’s inauguration, a close associate of an Abu Dhabi royal family member secretly signed an agreement with the Trump family to acquire a 49% stake in the Trump family’s cryptocurrency project, World Liberty Financial, for $500 million. The buyer will prepay half the amount, $187 million, directly into entities controlled by the Trump family.

The transaction is supported by Sheikh Tahnoon bin Zayed Al Nahyan, a prince of Abu Dhabi who has been advocating for the United States to allow access to tightly controlled AI chips. Often referred to as the "Spy Prince," he is the brother of the UAE president and national security advisor, as well as the leader of the country’s largest wealth fund, which manages over $1.3 trillion in assets.

The documents show that of the first $250 million investment from Aryam Investment 1, backed by Tahnoon, $187 million flowed to DT Marks DEFI LLC and DT Marks SC LLC, entities owned by the Trump family. In addition to payments to entities associated with the Witkoff family, an additional $31 million was directed to entities linked to co-founders Zak Folkman and Chase Herro.

Under the agreement, Aryam will become the largest shareholder of World Liberty and the only known investor in the company aside from its founders. The agreement also arranges for two Aryam executives—who are also executives at G42, a company under Tahnoon—to join the five-member board of World Liberty, whose members at the time included Eric Trump and Zach Witkoff, son of Steve Witkoff.

Steve Witkoff’s wealth surged 15% in 2025 to $2.3 billion, up from an estimated $2 billion when he first began working for the government. WLFI was the primary driver, with his family accumulating at least $200 million in profits from token sales and related transactions. Meanwhile, House Democrats revealed that the federal ethics office has not signed off on Witkoff’s financial disclosure filings for seven months.

Additionally, WLFI’s stablecoin USD1 previously partnered with the Southeast Asian blockchain project AB DAO, which had prior ties to Cambodia’s Prince Group. The group’s leader, Chen Zhi, was sanctioned by the United States and the United Kingdom in November 2025 over allegations of large-scale cyber fraud, during which the U.S. Department of Justice seized approximately $12.7 billion in Bitcoin. WLFI responded that it was unaware of AB DAO’s past associations.

On February 23, USD1 briefly de-pegged, dropping to $0.994, triggering a $270 million outflow amid panic. WLFI claimed it was subjected to a "coordinated attack," including the hacking of its co-founder's X account, hired KOLs spreading fear, and shorting WLFI tokens—but never provided any technical evidence.

On-chain data also shows that, in early April, WLFI transferred approximately 300 million tokens to multiple addresses, with a nominal value of about $266 million, though the destination remains unclear. Amid mounting controversies, the current price of WLFI has dropped to $0.0858, hitting its lowest level since listing.

On April 10, WLFI responded on Twitter to market concerns regarding its lending positions on WLFI Markets, stating that WLFI is currently one of the largest providers and borrowers on WLFI Markets, borrowing stablecoins using WLFI as collateral, with no liquidation risk and the ability to add collateral at any time, even during significant market fluctuations.

In terms of data, WLFI has disclosed that USD1's current annualized revenue is approximately $159.5 million, and over the past six months, approximately 435 million WLFI tokens have been repurchased on the secondary market, totaling approximately $65.58 million. The project also stated that it will propose a governance proposal next week to discuss unlocking early-locked tokens and enhancing USD1’s functionality, including support for gas-free transfers and integration with AI payment infrastructure.

USD1 currently has a market capitalization of approximately $4.3 billion and ranks among the top stablecoins. WLFI’s response attempts to shift the narrative from “conflict of interest” to “business growth,” but fails to address how WLFI ensures that it will not cause losses to ordinary depositors under extreme market conditions, given that it is the largest borrower in the lending pool. When the co-founder of Dolomite also serves as an advisor to WLFI, who guarantees the protocol’s risk management independence?

Currently, neither Dolomite nor WLFI has outlined governance procedures for related-party transactions.