The WLFI token, associated with the Donald Trump-backed crypto venture World Liberty Financial, has experienced a significant drop, reaching an all-time low as investors reacted to reports regarding questionable lending practices. On the trading platform, WLFI was valued at $0.08, marking an approximately 82% decline from its previous high of $0.46 recorded last September.
The downturn in WLFI’s price aligned with revelations that Corey Caplan, the company’s Chief Technology Officer, had leveraged the project’s reserve of WLFI tokens to issue loans on a third-party crypto platform he co-founded. Blockchain data indicates that World Liberty Financial’s wallets had lent WLFI tokens valued at hundreds of millions of dollars to Dolomite, a decentralized lending platform ranked 13th in size by DeFiLlama data. This decision has raised eyebrows given Dolomite’s relatively smaller standing in the crypto sphere.
Following a report by CoinDesk, which unveiled the Dolomite loan transactions, WLFI’s price plunged nearly 15%. The risky nature of these loans has become a point of concern for market analysts. Nicolas Vaiman, CEO of the crypto analytics firm Bubblemaps, noted that around 5% of WLFI’s total supply is currently being used as collateral on Dolomite. This precarious situation poses a threat; should WLFI’s value decline further, the collateral positioned on Dolomite could be liquidated, thereby forcing World Liberty Financial to sell more tokens to cover the loans. Such a scenario would likely exacerbate the downward spiral of WLFI’s price.
In response to these concerns, World Liberty Financial took to its social media platform to address investor fears. The company asserted that its loan positions are “nowhere near liquidation,” and described itself as the “anchor borrower” for WLFI, maintaining that it is effectively generating returns that would benefit the broader WLFI market.
Investor apprehension has also been fueled by the amount of USD1 stablecoins that World Liberty Financial has borrowed against its WLFI assets. Reports suggest that the company has borrowed extensively from Dolomite, leaving minimal available liquidity for users who wish to withdraw their deposits.
Despite the turmoil, World Liberty Financial’s social media communications reflected a sense of confidence. The organization reassured its followers, stating that in the event of adverse market movements, it would simply provide additional collateral to mitigate risk. “That’s not a risk. That’s how this works,” the company stated, aiming to instill reassurance among its investors amid these turbulent events.
