Minting Activity Follows Dolomite Withdrawal Issues
World Liberty Finance ($WLF), a project reportedly linked to the Trump family, minted $25 million in new $USD1 stablecoins and concurrently burned $3 million in $USD1. This activity followed $WLF's substantial borrowing positions on the Dolomite lending platform, which led to depositors experiencing difficulties withdrawing funds. The project's governance token, $WLFI, decreased in value by 15%.
Dolomite's liquidity strain was evident, with $USD1 utilization reaching 98.26% and $USDC reaching 92.3%. These high utilization rates stemmed from large $WLFI collateral deposits, primarily via $WLF's multisig-connected wallets, totaling over $3 billion in $WLFI. On-chain data showed $WLF borrowed over $150 million in stablecoins from Dolomite. One wallet borrowed $40.7 million in stables against 3 billion $WLFI tokens, while a second wallet borrowed $111 million in $USD1, collateralized by $WLFI and $USDC positions.
The Architecture of a Liquidity Squeeze
World Liberty Finance operates the $USD1 stablecoin. Dolomite's CTO is also reportedly a founder of $WLF. Launched a year prior, the $USD1 stablecoin reached a $4.2 billion market cap, positioning it as a top 5 stablecoin. It has also been associated with high yields, with a base Annual Percentage Rate (APR) of 4.42% and a boosted APR of 5.30% offered in an airdrop campaign. Yields up to 35% APY were observed, attributed to high demand and utilization of $USD1 within the platform.
Analytics firm Chaos Labs detailed how $WLF's borrowing on Dolomite rapidly expanded. This pushed $WLFI collateral utilization near its $5.1 billion cap, concentrated across two multisig addresses. The strategy involved a complex borrowing loop: $WLFI collateralized $USD1, which then collateralized $USDC, with $USDC recycled. This complex borrowing loop, a pattern seen in previous DeFi liquidity crises, led to $WLF's positions accounting for 82.7% of Dolomite's Total Value Locked (TVL).
Sequence of Events and Allegations
$WLF claimed it had fully repaid its debt to Dolomite. WLF reported specific repayment activities: $15 million in $USD1 two days prior to minting, followed by another $10 million on the reporting day, totaling $25 million in a week. This repayment coincided with $WLF's minting and burning activity.
Justin Sun publicly called for $WLF to disclose the identities controlling the single guardian Externally Owned Account (EOA) and the 3/5 multisig that govern the $WLFI smart contract. Sun alleged hidden wallet controls, undisclosed fund freezing capabilities, and accused the $WLF team of freezing his $75 million investment, stating investors have a right to know who holds power to freeze assets. While $WLFI representatives rejected these allegations, a public dispute ensued between Sun and $WLF over claims of opaque governance, hidden contract controls, frozen funds, and accountability.
Market and Community Reaction
Events surrounding WLF and Dolomite generated notably bearish sentiment. Initial reports indicated low sentiment, turning sharply negative as details emerged, with analysts reporting scores as low as -80 (Guar Emperor, Cryptosatred) and -90 (BlocksterCom) following Justin Sun's accusations and market cap losses.
The project's market capitalization dropped by $700 million. $USD1 also saw a $1.7 million net sell and a 0.5% supply decrease. Community members expressed transparency concerns, with social sentiment around $WLF dropping to 28% positive following $WLF's debt repayment claims.
Ongoing Operations and Unresolved Disputes
Justin Sun's allegations of opaque governance, hidden contract controls, and freezing his $75 million investment remain unresolved, with $WLF rejecting the accusations and indicating an intent to pursue legal action.
Despite the controversies, the $USD1 stablecoin continues to operate. The stablecoin is actively integrated across various DeFi protocols, serving as a top 3 borrowed asset on platforms like JustLendDAO, and is being bridged to other networks for perpetual trading on platforms such as AsterDEX.