Trump family-backed World Liberty Financial (WLFI) has dismissed recent criticism of its borrowing spree as “bad FUD.”
The DeFi project admitted that it is one of the largest providers and borrowers in the WLFI markets powered by Dolomite.
According to the draft, current fears of liquidation were unjustified, adding that:
We are far from being liquidated – and frankly, even if the markets moved significantly against us, we would simply provide more collateral.
The WLFI team countered that whatever they do is “not a risk,” reminding critics that “that’s how it works.”
Why the community is uncomfortable with WLFI
Community backlash against the DeFi project began after on-chain data revealed that it had deposited 3 billion WLFI tokens as collateral on lending platform WLFI Markets.
At the time of writing, the collateral has been increased to 5 billion WLFI tokens (worth $429 million), all from its treasury.
Against this guarantee, the project borrowed more than $75 million USDC. The result? This pushed WLFI Markets’ USDC lending rates to a lucrative 13.5%, but also drained the liquidity pool.
Therefore, those who invested in Dolomite could not withdraw their funds unless the largest borrower, WLFI, repaid the loan.
This sparked further outcry as analysts warned it could end up becoming a bad debt. Additionally, this could trigger a risk of contagion for WLFI token holders, as one user says:
Don’t give cash to the Trump cartel: these loans will probably never be repaid. When Trump leaves office, or even after the midterm elections if the Republicans lose, the $WLFI will empty and Dolomite will be left with a bad bet.
In its defense, the project said it took the massive loan to generate “an outsized and compelling return for everyone.”
Will unlocks crash WLFI?
Another argument was the uncertainty over WLFI token unlocksespecially for early and long term investors to recover their investment.
However, the draft clarified that there would be a vote next week for a “structured and phased approach” to the releases.
Currently, around 70% of the WLFI supply is locked and only 31 billion tokens are circulating out of the maximum supply of 100 billion. Amid the growing attention to the project, early investors will likely abandon their holdings once they are released.
Over the past three days, the altcoin fell 15% to a yearly low of $0.081 as the FUD intensified. Unless there is a strong incentive to keep the token, expected unlocks could bring down WLFI.
Final summary
- World Liberty Financial clarified that its massive loan, borrowed against 5 billion WLFI tokens, was not a risk, but “how things work”.
- Market watchers have warned that WLFI’s proposed unlocks could add more selling pressure on the altcoin.
