Trump Family Crypto Scheme Echoes FTX Collapse, Risks Market Meltdown

The Trump family’s World Liberty Financial (WLF) is playing a dangerous game with its crypto project, borrowing tens of millions of dollars against its own WLFI governance tokens in a move reminiscent of the FTX collapse. According to CoinDesk, WLF’s treasury funneled about five billion WLFI tokens to Dolomite, a decentralized finance (DeFi) lending platform. Using these tokens as collateral, WLF borrowed roughly $75 million in stablecoins, including $65.4 million of its own USD1 stablecoin and $10.3 million in USDC.

This circular borrowing has pushed Dolomite’s USD1 pool utilization to an alarming 93%, making it difficult for other depositors to withdraw funds. The situation is made more precarious by Dolomite’s co-founder Corey Caplan doubling as WLF’s chief technology officer, highlighting a close-knit relationship that raises conflict-of-interest alarms.

WLF’s collateral now accounts for about 55% of Dolomite’s total value locked, creating a systemic risk. A drop in WLFI’s price could trigger massive liquidations, generating bad debt and hurting other users on the platform. The token’s limited market liquidity means forced selling could trigger a steep price crash, worsening the collateral shortfall and threatening the stability of the entire lending pool.

This scheme mirrors the infamous FTX collapse, where Alameda Research borrowed billions against FTX’s own FTT token, creating hidden leverage that blew up spectacularly. Unlike FTX’s opaque dealings, WLF’s borrowing is fully visible on the blockchain, but transparency alone does not mitigate the financial risk.

WLF dismissed concerns on social media as “FUD,” claiming to be an “anchor borrower” that boosts yields for lenders and insisting it is “nowhere near liquidation.” The company vowed to add more WLFI tokens as collateral if prices fall. Despite these reassurances, the WLFI token has dropped nearly 20% since the borrowing activity became public.

Beyond financial risks, World Liberty Financial and its USD1 stablecoin are embroiled in corruption allegations linked to the Trump administration. The SEC recently settled a $10 million case against crypto figure Justin Sun for unregistered securities sales and wash trading involving WLFI and the TRUMP memecoin. Democrats on the House Financial Services Committee have accused the Trump family of pay-to-play schemes, especially after a UAE-linked firm led by Sheikh Tahnoon bin Zayed Al Nahyan paid $187 million upfront for a 49% stake in WLF—an agreement signed by Eric Trump.

Critics including Senator Chris Murphy have called this deal blatant corruption, particularly after the Trump administration lifted national security restrictions on UAE access to Nvidia AI chips. Meanwhile, the White House controversially pardoned Binance founder Changpeng Zhao following Bank Secrecy Act violations, a move condemned as “unprecedented corruption” by former DOJ pardon chief Elizabeth Oyer. Binance now holds a $2 billion position in USD1, while smaller crypto developers face harsher penalties.

Democrats are pushing for stronger ethics rules in the pending CLARITY Act, which aims to regulate the U.S. crypto industry and prevent administration insiders from profiting off crypto ventures while shaping policy. However, the bill’s future remains uncertain amid lobbying battles between crypto and banking interests.

World Liberty Financial’s FTX-style borrowing is not just a risky financial stunt—it’s a glaring example of how the Trump family continues to exploit crypto markets for personal gain, with dangerous consequences for investors and the broader financial system. We’ll be watching closely as this story unfolds.