A wallet tied to World Liberty Financial has deposited billions of WLFI tokens into Dolomite and borrowed about $75 million in stablecoins, before sending over $40 million to Coinbase raising concerns for a good reason. The move represents about 5% of WLFI’s total token supply being used as collateral. The timing of the transfers has fueled speculation, though no direct link to trading activity has been confirmed.

WLFI borrowing strategy draws scrutiny

Indeed, Arkham onchain data shows the team deposited about 5 billion WLFI tokens across multiple wallets (including lending protocol Dolomite), alongside additional assets including Ethereum (ETH) and stablecoins. It appears the company then used these positions to borrow tens of millions in USD1 and USDC, with part of the funds later moved to Coinbase Prime.

Coincidentally, as decentralized finance (DeFi) analyst Ethan DeFi noted in an X post on April 8, World Liberty Advisor Corey Caplan is the co-founder or Dolomite, leading the researcher to conclude that the platform had a financial incentive to let this happen.

Some analysts, like Naeven, argue the structure creates an artificial yield loop, recylcing borrowed funds to generate returns while maintaining a large collateral base. Others point to concentration risk, as WLFI now represents a significant share of liquidity on Dolomite.

A key concern centers on liquidity. Though WLFI’s fully diluted valuation is high, its actual market depth appears thinner, raising questions about what would happen if a need arises to quickly liquidate a large collateral position.

WLFI pushes backs as liquidation concerns grow

Critics warn that if WLFI’s price drops sharply, the position could become difficult to unwind without impacting lenders. In extreme scenarios, this could lead to bad debt across the protocol, especially given the size of the position relative to total liquidity.

The WLFI team has dismissed these concerns, calling them “FUD” and stating the position is far from liquidation. According to the project, it’s possible to bring in additional collateral if necessary, and the strategy by design generates yield for users by acting as a major borrower in the system.

The debate highlights a familiar tension in DeFi: large, complex positions can boost yields and activity, but also introduce systemic risk when there’s collateral concentrated and liquidity is uncertain.