When FTX collapsed in November 2022, the postmortem revealed a fatal flaw- the exchange's affiliated trading firm, Alameda Research, had borrowed billions of dollars using FTT, FTX's own proprietary token as collateral, on FTX's own platform.
The circular, self-referential structure concealed massive hidden leverage until it didn't. Billions of dollars evaporated overnight.
This week, blockchain data is telling a disturbingly similar story and this time involving the crypto venture co-founded by the Trump family.
What Is World Liberty Financial?
World Liberty Financial (WLFI) is a decentralized finance (DeFi) project co-founded in 2024 by members of the Trump family, including Eric Trump and Donald Trump Jr., alongside partners Zachary Folkman, Chase Herro, and Zach Witkoff.
A Trump business entity owns 60% of the company and is entitled to 75% of all revenue from token sales, according to Wikipedia's documented record of the project.
WLFI issues two primary crypto assets: a governance token, also called WLFI, and a stablecoin named USD1, which is pegged to the US dollar and backed by US Treasuries and cash equivalents. By April 2026, USD1 had grown to over $4 billion in circulation.
The project raised approximately $550 million from roughly 85,000 participants through two token sales, according to market data. By December 2025, the Trump family had reportedly profited $1 billion from proceeds while holding $3 billion worth of unsold tokens.
The Transaction: What Blockchain Data Shows
The controversy centres on a series of transactions that began in February 2026 and escalated sharply in April, all documented by on-chain analytics firms Arkham Intelligence and Etherscan.
According to CoinDesk's investigation sourced from Etherscan and Arkham data, the sequence unfolded as follows:
February 8: WLFI's treasury deposited 14 million USD1 into a DeFi lending platform called Dolomite, borrowed 11.4 million USDC, and sent those funds to a Coinbase Prime address minutes later. Coinbase Prime is typically used for institutional over-the-counter crypto-to-fiat conversion.
February 20: The treasury deposited 890 million WLFI tokens into Dolomite and borrowed 20 million USD1 against them.
March 24: Another 1.1 billion WLFI tokens followed, bringing the directly deposited total to approximately 1.99 billion WLFI.
April 2 and April 7: WLFI's treasury transferred an additional 3 billion WLFI tokens through an intermediary Gnosis Safe wallet. The destination of those tokens remained unclear as of publication.
In total, WLFI pledged approximately 5 billion WLFI tokens, nominally valued at around $440 million as collateral on Dolomite, borrowing roughly $65.4 million in USD1 and $10.3 million in USDC, for a combined total of approximately $75 million in stablecoins. More than $40 million of those proceeds moved to Coinbase Prime shortly after borrowing.
The Conflict of Interest At The Centre Of It All
The choice of platform is not incidental.
Dolomite was co-founded by Corey Caplan, who also serves as an adviser and reportedly the Chief Technology Officer of World Liberty Financial itself, according to reports.
In effect, WLFI built its flagship lending product (World Liberty Markets) on top of Dolomite's infrastructure, became the dominant borrower on that same platform using its own governance token as collateral, and the person who co-founded the lending platform is simultaneously a senior figure at WLFI. In traditional finance, a related-party transaction of this scale would typically require independent board approval and public disclosure. DeFi, at present, has no equivalent guardrail.
The maneuver means WLFI is essentially borrowing its own stablecoin (USD1) from a protocol advised by its own insider, using its own governance token as collateral. It is, as one analyst described it, a completely closed loop.
Why Ordinary Depositors Are Paying The Price
WLFI's collateral position now represents approximately 55% of Dolomite's entire $835 million in total value locked, according to CoinDesk's analysis of Dolomite's protocol stats.
The immediate consequence for regular users was that Dolomite's USD1 lending pool was pushed to a 93% utilization rate, meaning nearly every dollar available to borrow had been taken by WLFI. Ordinary depositors who had placed USD1 into Dolomite to earn yield found themselves unable to withdraw their funds in a timely manner.
Nicolas Vaiman, CEO of blockchain analytics firm Bubblemaps, told Fortune that roughly 5% of WLFI's entire token supply is now sitting as collateral on Dolomite. If WLFI's price drops significantly, the collateral could be force-liquidated and given WLFI's limited trading depth on exchanges, any large forced sale would likely crash the token's price further, creating a spiral of bad debt that Dolomite's protocol cannot absorb.
DeFi analyst EthanDeFi noted on X, "If that WLFI collateral position ever gets close to liquidation, it's basically unliquidatable without major losses for lenders."
For context, in June 2024, Curve Finance founder Michael Egorov was forced into roughly $80 million in liquidations after borrowing nearly $100 million against CRV tokens, his own project's governance token across multiple lending platforms.
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WLFI's Response: 'That's Not a Risk. That's How This Works'
After CoinDesk published its initial report on April 9, WLFI's price tumbled nearly 15%. The project responded on X, dismissing concerns as "FUD" (Fear, Uncertainty and Doubt).
"We are one of the largest suppliers and borrowers on WLFI Markets," the team wrote. "Yes, we supplied WLFI as collateral and borrowed stablecoins. No, we are nowhere near liquidation and frankly, even if markets moved dramatically against us, we'd simply supply more collateral. That's not a risk. That's how this works."
The team also framed WLFI's role as an "anchor borrower" that generates yield for other users on the platform, and disclosed that over the past six months, it had bought back 435 million WLFI tokens at an average price of $0.1507, totalling $65.58 million in open-market purchases.
Those buybacks are now deeply underwater. As of April 10, WLFI was trading at approximately $0.08, roughly 48% below the buyback average.
Critics pointed out that the offer to "simply supply more collateral" only deepens the circular risk: adding more WLFI tokens to a position already backed by WLFI, on a platform run by a WLFI insider, denominated in WLFI's own stablecoin, makes every part of the structure more concentrated in a single sliding asset.
The FTX Comparison: Real, But With One Key Difference
The structure has drawn widespread comparisons to Alameda Research's use of FTT as collateral on FTX before its collapse.
Alameda borrowed billions against FTT on FTX in the months before the exchange failed, creating self-referential leverage that was concealed from the public until a leaked balance sheet triggered a bank run.
There is, however, one substantive difference. WLFI's borrowing is happening transparently on a public blockchain. Every transaction is visible to anyone with access to Etherscan or Arkham Intelligence. The risk is not hidden — it is simply being dismissed.
Whether that transparency is sufficient protection for ordinary depositors is now the central question facing regulators.
Investors Are Trapped And Have Been for Months
The Dolomite controversy arrives on top of a pre-existing grievance among WLFI token holders: the vast majority of them cannot sell.
When WLFI conducted its token sales between October 2024 and January 2025, buyers received tokens priced between $0.015 and $0.05. Those tokens hit an all-time high of $0.46 when they became tradable in September 2025. But World Liberty Financial's creators, including the Trump family retained sole discretion over who could sell and when, releasing only 20% of the token supply for trading.
According to a January 2026 report, dozens of token holders have been posting on World Liberty Financial's forum, begging the project's creators to unlock their holdings as they watch the token's value decline. One holder wrote, "We have become hostages."
Even WLFI's most prominent backer, Tron (TRX) blockchain founder Justin Sun, had his tokens frozen. After Sun transferred a portion of his holdings to another wallet he controlled in September 2025, World Liberty Financial froze his 545 million WLFI tokens without prior notice, according to blockchain data from Arkham Intelligence. Sun's frozen position, worth approximately $44.65 million as of April 10, is down more than $80 million from earlier valuations, according to Arkham data.
The Wider Web Of Controversy
The Dolomite affair is not the first or even the most serious governance concern to surround World Liberty Financial.
The UAE stake: According to a February 2026 New York Times report and subsequent House of Representatives investigation, days before Donald Trump's January 2025 inauguration, an Abu Dhabi-connected firm led by Sheikh Tahnoon bin Zayed Al Nahyan, the UAE's National Security Adviser agreed to purchase a 49% stake in World Liberty Financial for $500 million, with $187 million paid upfront to Trump family entities.
Eric Trump signed the agreement. The deal was not publicly disclosed at the time. Two of Sheikh Tahnoon's affiliates, Martin Edelman and Peng Xiao, were subsequently placed on WLFI's board, also without disclosure.
Senator Chris Murphy called the arrangement "mind-blowing corruption," particularly after the Trump administration later reversed prior national-security restrictions on the UAE's access to Nvidia AI chips. A House investigation led by Representative Ro Khanna demanded ownership, payment, and governance records.
The Justin Sun settlement: On March 5, 2026, the SEC settled its long-running fraud case against Justin Sun, the billionaire crypto founder and major WLFI investor for $10 million, a fraction of the original allegations. The SEC had accused Sun of orchestrating a wash-trading scheme involving over 600,000 fake trades and generating $31 million in unregistered token sales.
Sun had invested approximately $75 million in WLFI shortly before Trump's inauguration, and the fraud case against him had been paused after Trump took office. Senator Elizabeth Warren stated, "The SEC should not be a lap dog for Trump's billionaire buddies."
Democrats on the House Financial Services Committee, in a January 2026 letter to SEC Chair Paul Atkins, described the arrangement as "the unmistakable appearance of a pay-to-play scheme."
The Cambodia connection: A separate investigation by The Times found that WLFI had integrated USD1 with a Southeast Asian blockchain project, AB DAO, whose flagship project had until recently been promoted by individuals later sanctioned by US and UK authorities for alleged involvement in large-scale fraud linked to Cambodia's Prince Group. WLFI said it was unaware of the connection and had conducted due diligence.
The CZ pardon: The House investigation also examined WLFI's business dealings with Binance, whose founder Changpeng "CZ" Zhao was pardoned by the Trump administration after his conviction for Bank Secrecy Act violations, a pardon described by a former DOJ pardon official as unprecedented.
What Happens Next
As of April 11, 2026, no liquidation of WLFI's Dolomite position has occurred. The token is trading at approximately $0.08, down 82% from its all-time high of $0.46.
Three billion additional WLFI tokens sit in an intermediary wallet after transfers made on April 2 and April 7, according to Arkham data. If those tokens follow the same path into Dolomite, every mathematical pressure on the position worsens: lower prices mean less borrowing power per token, and more tokens flooding the pool make it harder for existing depositors to withdraw.
WLFI has said it will post a governance proposal to its forum in the coming days, outlining a staggered vesting and release schedule for early investors. Whether that proposal, if passed, would increase or decrease selling pressure on the token remains unclear.
What is clear is that roughly 80% of WLFI's presale supply remains locked, thousands of investors are unable to access their funds, and the project's own treasury is executing a borrowing strategy that independent blockchain analysts have described as circular, concentrated, and structurally hazardous, all while the political figures connected to the project face mounting questions from Congress, the SEC, and international regulators.
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