Trump-Backed Crypto Scheme Borrows $75M Against Its Own Token, Locking Up Depositors’ Funds

World Liberty Financial (WLFI), the crypto project backed by the Trump family, has engineered a risky borrowing scheme that has effectively trapped stablecoin depositors in a decentralized lending pool. Onchain data first reported by CoinDesk reveals WLFI deposited billions of its own governance tokens as collateral on the Dolomite lending protocol, borrowing roughly $75 million in stablecoins in the process.

This massive borrowing pushed the utilization rate of Dolomite’s USD1 stablecoin pool above 90 percent—at times nearing full capacity. For depositors who supplied stablecoins to this pool, that means they cannot freely withdraw their funds until WLFI repays its loans or fresh liquidity arrives. While depositors continue to accrue interest, their principal is effectively locked up, exposing them to illiquidity risk.

The borrowed stablecoins were then traced to wallets linked to Coinbase Prime, Coinbase’s institutional custody and trading arm. WLFI has yet to publicly disclose the purpose of these transfers, leaving open questions about whether the funds are being used for trading, treasury management, or something more opaque.

What makes this arrangement especially alarming is the conflict of interest at its core. Dolomite co-founder Corey Caplan also serves as an advisor to WLFI, raising serious governance concerns. A project borrowing tens of millions from a protocol where a key insider holds a founding role—using its own token, which it controls the supply of, as collateral—is a textbook case of related-party risk. In traditional finance, such transactions would require strict disclosure and independent oversight. In decentralized finance (DeFi), those guardrails are missing.

Using a governance token with limited market depth as collateral for large stablecoin loans introduces significant risk to the protocol and its depositors. Lending protocols like Dolomite rely on utilization-based interest models, where borrowing costs rise as utilization climbs to incentivize repayments and new deposits. But when utilization approaches 100 percent, withdrawals become impossible until liquidity returns, leaving depositors stuck.

WLFI’s broader context only deepens the concern. Launched in late 2024 with fanfare tied to the Trump family name, the project’s token sales raised substantial capital despite criticism over restricted token transferability and concentrated ownership. The latest borrowing episode adds a troubling layer: opaque treasury maneuvers, potential insider conflicts, and a lack of transparency on how borrowed funds are deployed.

What happens next depends on several factors. WLFI must repay its loans to free up liquidity for depositors. Dolomite faces pressure to reassess its risk parameters and governance practices to prevent similar conflicts. Regulators like the SEC and CFTC may also take notice given the political connections and potential consumer risks. Most urgently, WLFI owes the public clarity on why it moved millions to Coinbase Prime and how it plans to resolve the liquidity squeeze.

As of now, neither WLFI nor Dolomite has issued a statement addressing the borrowing or the depositors’ frozen funds. For those who trusted the system with their stablecoins, the wait for answers—and access to their money—continues. This episode is a stark reminder that behind the flashy veneer of crypto ventures tied to political figures lie real risks for everyday investors and depositors.