World Liberty Financial says, ‘We are nowhere near liquidation’ – But fears remain

The Trump family-backed World Liberty Financial [WLFI] has dismissed recent criticism against its borrowing spree as a ‘wrong FUD.’ 

The DeFi project admitted that it is one of the largest suppliers and borrowers on the Dolomite-powered WLFI Markets. 

According to the project, the ongoing liquidation fears were unwarranted, adding that, 

WLFI team countered that whatever they are doing is ‘not risk,’ reminding critics that ‘that’s how this works.’

Why the community is uneasy with WLFI

The community backlash against the DeFi project began after on-chain data revealed that it deposited 3 billion WLFI tokens as collateral into the lending platform WLFI Markets. 

As of writing, the collateral was increased to 5 billion WLFI tokens (worth $429M), all from its treasury. 

Against this collateral, the project borrowed over $75 million of USDC. The result? This drove WLFI Markets’ USDC lending rates to a lucrative 13.5%, but also drained the liquidity pool. 

Consequently, those who invested in Dolomite couldn’t withdraw their funds unless the largest borrower, WLFI, repaid the loan. 

This sparked more outcry as analysts warned that this could end up being a bad debt. Additionally, it could trigger contagion risk for WLFI token holders, as one user puts it, 

In its defense, the project said it took the massive loan to drive “outsized, compelling yield for everyone.”

Will the unlocks crash WLFI?

Another contention was uncertainty on WLFI token unlocks, especially for early and long-term investors to recoup their investment. 

However, the project clarified that there will be a vote next week for a ‘structured, phased approach’ for the unlocks. 

Currently, about 70% of the WLFI supply is locked, and only 31 billion tokens are circulating out of the max supply of 100 billion. Amid the rising scrutiny on the project, the early investors will likely dump their holdings when they are unlocked. 

In the past three days, the altcoin has dropped by 15% to a yearly low of $0.081 as the FUD intensified. Unless there is a strong incentive to hold the token, the expected unlocks could send WLFI lower. 

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 warned that the proposed WLFI unlocks could add more selling pressure on the altcoin.