World Liberty Financial stands out as a crypto startup founded in connection with Donald Trump’s family. The company’s transactions over the decentralized finance protocol Dolomite are widely questioned in the crypto community due to the insider access advantage and risks concentrated in the system.
Large-scale guarantees and loans in the Dolomite protocol
In early February, World Liberty Financial’s treasury deposited $14 million worth of USD1, its own dollar-pegged stablecoin, into the Dolomite protocol and borrowed 11.4 million USDC in return. Shortly thereafter, these crypto assets were transferred to Coinbase Prime. In the ongoing transactions, two days later, another 12.5 million USD1 was sent directly to the stock exchange by the treasury; This transfer took place without any borrowing transaction.
In the following period, WLFI tokens came into play. On February 20, the treasury borrowed 20 million USD1 by depositing 890 million WLFI in Dolomite. On March 24, another 1.1 billion WLFI was added as collateral. Thus, in total, approximately 2 billion WLFI is currently held as collateral in Dolomite. It is understood that the company obtained a total of approximately 31.4 million worth of stablecoins in different time periods with these guarantees.
Liquidity concentration and potential risks in the market
It is noteworthy that Corey Caplan, one of the founders of the Dolomite protocol preferred by World Liberty Financial, also acts as a consultant in the company. Currently, WLFI tokens account for the largest share among the offered assets on Dolomite, accounting for 55 percent of the total protocol liquid assets. This ratio shows that most of the liquidity on the platform is concentrated on a single project.
While there is a circulating supply of $4.6 billion in the USD1 pool in the Dolomite protocol, there is also a significant concentration here. There was a high usage rate between collateral and borrowing figures. The supply rate of USD1 in the pool was measured as 93 percent. This high rate indicates that ordinary savers may have difficulty withdrawing their investments whenever they want. For this reason, in case of mass exits from the pool, transactions may proceed slower than expected.
It is stated that the USD1 interest rate is 16.24 percent and the borrowing rate is 9.18 percent. These rates reflect a narrow liquidity cycle rather than an organic and widespread market movement.
Other risks also stand out in the background of WLFI secured debt transactions. The trading volume of the WLFI token in the market lags behind the amount used as collateral. If there is a sudden price drop and Dolomite’s collateral liquidation mechanism is activated, forced sales transactions may drive the price down, revealing the risk of the platform not being able to meet its debt. In such a case, the loss will need to be shared among other investors on the platform.
In April, transactions continued with a different method. On April 2, the company treasury transferred two billion WLFI to a proxy wallet address on Gnosis Safe. Then, five days later, an additional billion tokens were sent to the same address. It has not yet been determined whether these transfers reached the protocol or for what purpose. The current market cap of these three billion additional tokens corresponds to approximately $266 million based on the WLFI price.
It is noted that World Liberty Financial has not yet responded to the press’ questions regarding the transactions in question.
