WLFI's $75 Million Lending Game: Dolomite Depositors Deeply Trapped

Original Author: ChandlerZ, Foresight News

On April 9, CoinDesk reported that the crypto project World Liberty Financial (WLFI), co-founded by the Trump family, conducted multiple collateralized lending operations through the DeFi lending protocol Dolomite, sparking market concerns regarding insider relationships, circular financing, and liquidity risks. On the Dolomite DeFi lending protocol, WLFI used approximately 5 billion WLFI tokens as collateral to borrow a cumulative total of about $75 million in stablecoins, with over $40 million flowing to Coinbase Prime, suspected to be used for fiat conversion or over-the-counter (OTC) trading.

Two Months, Five Transactions, One Complete Funding Chain

In terms of specific operations, 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 a Coinbase Prime deposit address. Coinbase Prime is typically used for cryptocurrency-to-fiat conversion or institutional OTC trades.

Two days later, WLFI transferred another 12.5 million USD1 directly from its treasury to another Coinbase Prime address. This capital did not go through Dolomite lending but instead sent its own issued stablecoin directly to a fiat off-ramp.

On February 20, the WLFI token made its appearance. The treasury deposited 890 million WLFI into Dolomite and borrowed 20 million USD1. On March 24, an additional 1.1 billion WLFI was deposited. Combined, these two rounds of operations locked 1.99 billion WLFI as collateral in Dolomite, with the treasury obtaining approximately $31.4 million in stablecoins from the protocol.

In April, the scale escalated again. On April 2, the WLFI treasury transferred 2 billion WLFI to a Gnosis Safe proxy wallet (address 0x44a681DD); on April 7, another 1 billion WLFI was transferred. These 3 billion tokens are worth approximately $266 million at current prices but were not directly deposited into Dolomite, and their destination remains unclear.

Combining all borrowing and direct transfer channels, WLFI has mobilized approximately $75 million in stablecoins through Dolomite and Coinbase Prime.

The choice of this protocol was not coincidental. Public information shows that Dolomite co-founder Corey Caplan also serves as an advisor to WLFI, and WLFI's lending platform, "WLFI Markets," is also built on the Dolomite protocol. In other words, WLFI used its own issued token as collateral on a protocol co-created by its advisor to borrow its own issued stablecoin.

In traditional finance, such related-party transactions require information disclosure and approval from independent directors. In this case, these firewalls were almost non-existent.

Depositors' Liquidity is Being Squeezed

WLFI currently accounts for about 55% of Dolomite's total platform supply liquidity of $458.9 million, out of a total platform supply of $835.7 million.

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

The USD1 supply rate is 16.24%, while the borrowing rate is 9.18%. This set of rates reflects concentrated borrowing activity dominated by a single large borrower, not broad organic demand.

Risks on the collateral side are equally prominent. The WLFI token has extremely limited market depth, with daily trading volume far below the collateral scale. If a sharp price decline triggers Dolomite's liquidation mechanism, forced selling could crash the token price before the collateral is unwound, and the resulting bad debt would ultimately be borne by ordinary depositors who currently cannot exit.

This Isn't the First Time: From 'Spy Prince' to Sanctions Links

The Dolomite lending is just the latest link in WLFI's chain of conflicts of interest.

According to The Wall Street Journal, based on related company documents and informed sources, four days before Trump's inauguration, a confidant 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 crypto project, World Liberty Financial, for $500 million. The buyer would prepay half, amounting to $187 million, flowing directly into Trump family entities.

The deal was backed by Abu Dhabi Prince Sheikh Tahnoon bin Zayed Al Nahyan, who has been pushing for U.S. permission to acquire tightly controlled AI chips. Often referred to as the "Spy Prince," he is the brother of the UAE President and National Security Advisor and also leads the country's largest sovereign wealth fund, managing over $1.3 trillion in assets.

Documents show that of the first $250 million investment by Tahnoon-backed company Aryam Investment 1, $187 million flowed to two Trump family entities: DT Marks DEFI LLC and DT Marks SC LLC. Apart from payments to entities of the Witkoff family, another $31 million flowed to entities associated with co-founders Zak Folkman and Chase Herro.

Under the agreement, Aryam would become the largest shareholder of World Liberty and the only known investor besides the founders. The agreement also arranged for two Aryam executives (who are also executives at Tahnoon's G42 company) to join World Liberty's five-member board, which at the time included Eric Trump and Steve Witkoff's son, Zach Witkoff.

Steve Witkoff's wealth surged 15% in 2025 to $2.3 billion, while his estimated wealth when he began government work was $2 billion. WLFI was a major driver, with his family accumulating at least $200 million in profits from token sales and related transactions. According to disclosures by House Democrats, the Office of Government Ethics had not signed off on Witkoff's financial disclosure forms for 7 months.

Furthermore, WLFI's stablecoin USD1 had established a partnership with the Southeast Asian blockchain project AB DAO, which was previously linked to Cambodia's Prince Group. The head of that group, Chen Zhi, was sanctioned by the U.S. and UK in November 2025, involving allegations of large-scale online fraud. The U.S. Department of Justice seized approximately $12.7 billion worth of Bitcoin in related actions. WLFI responded that it was unaware of AB DAO's past associations.

On February 23, USD1 briefly depegged, falling to $0.994, with $270 million flowing out in panic. WLFI claimed it was a "coordinated attack," including hacking of co-founders' X accounts, hiring KOLs to spread panic, and shorting the WLFI token, but never provided any technical evidence.

On-chain data also shows that WLFI transferred approximately 3 billion tokens to multiple addresses in early April, with a nominal value of about $266 million, and the destination remains unclear. With multiple controversies piling up, the WLFI token price has currently fallen to $0.0858, its lowest since launch.

WLFI's Response: No Liquidation Risk

On April 10, WLFI tweeted in response to market questions about its lending positions on WLFI Markets, stating that WLFI is currently one of the largest suppliers and borrowers on WLFI Markets, borrowing stablecoins using WLFI as collateral, but there is no liquidation risk, and additional collateral can be added at any time even in the event of significant market fluctuations.

Regarding data, WLFI disclosed that USD1's current annualized revenue is approximately $159.5 million, and over the past 6 months, it has repurchased about 435 million WLFI 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 to upgrade USD1's functionality, including support for gas-free transfers and compatibility with AI payment infrastructure.

USD1 currently has a market cap of about $4.3 billion, ranking high in the stablecoin market. WLFI's response attempts to shift the narrative from "conflicts of interest" to "business growth," but it does not answer how WLFI, as the largest borrower in the lending pool, ensures that ordinary depositors will not suffer losses under extreme market conditions? When Dolomite's co-founder is also a WLFI advisor, who guarantees the risk control independence of this protocol?

Currently, neither Dolomite nor WLFI has explained the governance process for related-party transactions.