Trump-Backed Crypto Project Embroiled in Collateral Controversy

The controversy surrounding World Liberty Financial (WLFI) has drawn comparisons to FTX's collapse in November 2022. WLFI, a decentralized finance project co-founded by members of the Trump family, has been borrowing billions of its own governance token as collateral on a platform advised by one of its insiders.

In February 2026, WLFI deposited 14 million USD1 into Dolomite, a DeFi lending platform, and borrowed $11.4 million in USDC. Over the next few months, WLFI continued to deposit more tokens and borrow stablecoins, eventually pledging approximately 5 billion WLFI tokens as collateral.

The transaction has left ordinary depositors unable to withdraw their funds due to a 93% utilization rate on Dolomite's USD1 lending pool. Analysts warn that if WLFI's price drops significantly, the collateral could be force-liquidated, leading to a spiral of bad debt that Dolomite cannot absorb.

WLFI's response to the controversy has been dismissive, with the project claiming that its borrowing is not a risk and that it can simply supply more collateral. However, critics point out that this would only deepen the circular risk, making every part of the structure more concentrated in a single sliding asset.