World Liberty Financial’s leverage nears cap as USDI/USDC collateral loop raises risk

World Liberty Financial (WLFI), backed by Donald Trump, has come under renewed scrutiny as on-chain data points to rapid leverage expansion on Dolomite and a growing reliance on governance tokens as collateral. While the project’s team dismissed related claims earlier, new figures from Chaos Labs suggest collateral use is nearing WLFI’s stated borrowing cap across two multisigs.

Borrowing expansion and collateral near the cap

Chaos Labs reported that WLFI has rapidly expanded borrowing on Dolomite, pushing collateral use close to its $5.1 billion cap across two multisigs.

Wallet-level borrowing and liquidation sensitivity

According to Chaos Labs, one wallet borrowed $40.7 million in stablecoins—primarily USDI—against 3 billion WLFI tokens. Those tokens were valued at approximately $242 million, implying a liquidation threshold consistent with a 75% drop in the WLFI price.

The second wallet holds $111 million in USDI borrowed against a maximum of $161 million in WLFI and $98 million in USDC. It also holds $89 million in USDC borrowed against $110 million in USDC.

Collateral recycling loop

Chaos Labs said the structure implies that one USDC debt is already being used as collateral to take out another USDC debt, creating a loop where borrowed funds are recycled as collateral rather than introducing fresh liquidity.

The firm suggested the most likely interpretation of the borrowing is a need to increase the use of USDI and USDC.

Utilization and borrow rates rise

Data cited by Chaos Labs showed USDI utilization rising to 83.4%, with supply rates at 10.64%, including WLFI rewards via Merkl. USDC utilization reached 90.19%, with a supply rate of 9.07%.

As utilization increased, borrow rates for both assets moved into the 5% range. Chaos Labs said this pushed non-WLFI-related lending strategies into negative territory.

Market reaction: derivatives outflows and bearish signals

Alongside the leverage concerns, investors reportedly exited positions. Futures data showed $479.89 million in outflows versus $438.46 million in inflows, resulting in Futures Netflow of -$41.4 million, indicating sustained selling pressure.

On the spot side, netflows remained positive for five straight days, totaling $5.7 million in outflows. Together, the derivative and spot flows were described as leaning bearish.

WLFI price weakness and momentum indicators

At press time, WLFI was trading at $0.079, down 20% on weekly charts.

Chaos Labs also pointed to technical deterioration: WLFI’s Relative Strength Index (RSI) fell to 28, entering oversold territory. The Average Daily Range (ADR) dropped below 1 to 0.9, which the report said further supports the strength of the prevailing trend.

Governance concerns add uncertainty

Sentiment has also been affected by governance-related allegations. Justin Sun recently raised claims regarding WLFI’s contract design and control mechanisms, contributing to fragile market confidence as leverage risks intensified.

Potential downside levels

If selling pressure persists, WLFI could test the $0.07 support level. The report said a recovery above $0.1 would be needed to ease downside momentum. Until then, elevated leverage and recycled collateral may continue to weigh on price stability.

Summary

• WLFI’s borrowing pushed collateral usage close to its $5.1 billion cap, limiting room for additional leverage.
• A collateral recycling loop appears to have formed, where borrowed USDC is reused as collateral, increasing systemic risk without adding fresh liquidity.