WLFI borrowing strategy draws fresh scrutiny

World Liberty Financial’s WLFI token has fallen sharply and reached a new record low, extending losses after renewed debate over the project’s lending activity on Dolomite. The Trump-linked crypto firm defended its position in a public X thread, but the response did not ease concerns among holders, and the token continued to trade lower.

WLFI drops as borrowing model comes under scrutiny

Coincodex data showed WLFI down about 15% over 24 hours. Other market trackers indicated a drop of roughly 15% over three days. The latest selling pressure intensified after traders reviewed the project’s borrowing model, focusing on collateral, liquidity conditions, and token unlock risk.

Collateral and pool impact

Concerns began after on-chain data indicated WLFI was using its own token as collateral. The project then borrowed stablecoins against that position on WLFI Markets, which operates on Dolomite. Reports said the borrowing drained much of the USD1 and USDC lending pools, which limited withdrawals for some existing depositors.

World Liberty Financial did not deny the transactions. Instead, it said the position was intentional and part of normal market activity, writing that it is “one of the largest suppliers and borrowers on WLFI Markets.” The firm added that it was “nowhere near liquidation” and that it could “simply supply more collateral.”

Traders and analysts questioned the logic of adding additional WLFI if the token price continued to fall. A lower token price reduces borrowing power for each unit posted and can leave more collateral exposed to a weakening asset.

Repayment update signals partial reduction

In a separate update, the firm said it had begun repaying part of its borrowing. WLFI stated: “2 days ago, we repaid $15M USD1 on our WLFI Markets position. Today we repaid another $10M USD1.” It added, “Thank you for your attention to this matter.” The repayment figures were presented as evidence that the borrowing position was being reduced.

Liquidity pressure and “circular risk” concerns

Reports said World Liberty Financial posted billions of WLFI tokens from its treasury. Some estimates put the collateral at 5 billion WLFI tokens, against which the project borrowed more than $75 million in stablecoins. While the borrowing supported higher lending rates, it also pushed pool utilization to very high levels.

At one point, pool utilization was reported above 93%, tightening withdrawal conditions for other users. Critics argued the structure could create a circular risk loop: if WLFI declines further, the project may need to post more WLFI, increasing concentration in the same falling token.

Market participants also raised questions about governance and structure, including that Dolomite’s co-founder has advised World Liberty Financial. Traders also pointed to the project’s large weight within Dolomite’s total value locked, adding pressure during an already weak trading environment.

Buybacks, token movements, and unlock vote add to selling pressure

World Liberty Financial also disclosed treasury buybacks. The project said it spent $65.58 million to buy 435.3 million WLFI tokens, at an average price of about $0.1507 per token. With the token trading below those levels, the purchases were described as being “deep underwater,” which traders cited as another negative factor.

Separately, reports said 3 billion additional WLFI tokens were moved into an intermediary wallet earlier this month. Traders highlighted that at lower market prices, the value of that stash would have declined quickly, and they focused on whether more tokens could follow the same lending path.

Another key issue is an upcoming vote on token unlocks. The team said a proposal for early holders would be posted next week and described it as a “structured, phased approach.” Even so, some traders worry that new supply could reach the market soon, keeping WLFI under pressure.