Trump-Backed World Liberty Financial’s Token Crashes Amid Questionable DeFi Moves, Company Dismisses Concerns as ‘FUD’

World Liberty Financial, a crypto venture backed by the family of former President Donald Trump, is facing a fresh crisis as its WLFI token plummeted to an all-time low amid revelations of dubious financial engineering that put investors at risk.

On Thursday, WLFI tokens were trading near $0.93 before reports emerged that the company had used 5 billion WLFI tokens as collateral to borrow $75 million in stablecoins, including its own USD1 stablecoin. This maneuver was executed through Dolomite, a decentralized finance (DeFi) protocol founded by Corey Caplan, who also serves as an adviser to World Liberty Financial.

The tangled transaction left Dolomite exposed to a sharp drop in the WLFI token’s value and effectively trapped lenders who had provided USD1 stablecoins in the USD1-WLFI market. According to CoinDesk, these lenders cannot withdraw their funds until World Liberty Financial closes its borrowing position, a move that could further destabilize the token’s price.

By Friday afternoon in New York, the token’s price had fallen 13% to roughly $0.79, marking a new low and placing the asset over 75% below its all-time high. This steep decline underscores the precarious state of the token’s market and raises serious questions about the sustainability of World Liberty Financial’s operations.

In response to the fallout, World Liberty Financial dismissed the concerns as “FUD” — a common crypto acronym for fear, uncertainty, and doubt. The company acknowledged the collateralized borrowing but insisted it was “nowhere near liquidation” and would simply supply more collateral if market conditions worsened.

However, the company’s statement notably sidestepped the issue of investors trapped in the Dolomite liquidity pool, a critical factor in the token’s instability. By borrowing such a large amount of USD1 stablecoins, World Liberty Financial effectively drained the liquidity pool, leaving lenders stuck and unable to exit their positions.

Adding to the uncertainty, World Liberty Financial announced plans to hold a vote allowing WLFI holders to unlock their tokens in the coming weeks. Initially, this sparked fears of a mass sell-off that could further tank the token’s value. The company quickly clarified that the vote would focus on a phased, long-term vesting and unlocking schedule aimed at protecting the ecosystem’s health rather than an immediate unlock of all tokens.

This episode is yet another example of the Trump family’s crypto venture engaging in opaque and risky financial practices, leveraging their political connections to push unregulated and potentially self-serving schemes. As the WLFI token’s value continues to erode and investors remain in limbo, questions about accountability and transparency loom large.

For a project backed by one of the most scrutinized political families in the US, the stakes are high. World Liberty Financial’s latest troubles highlight the dangers of mixing political influence with speculative crypto ventures that lack clear oversight — a toxic mix that leaves everyday investors holding the bag.

Aleks Gilbert, DL News’ New York-based DeFi correspondent, contributed reporting.