Early WLFI investors face shrinking profits as $1.28 billion supply shock looms

World Liberty Financial, the decentralized finance project co-founded by the Trump family, is hastily preparing to unlock a massive tranche of its WLFI tokens after a nearly two-year holding period.

The impending release will likely target a portion of the remaining 80% of public investors’ allocations to the project. According to Tokenomist data, this translates to over 16 billion WLFI tokens, valued at $1.28 billion.

While the project’s leadership frames the move as a long-awaited reward for early adopters, crypto analysts and retail investors are accusing the team of using the unlock as a smokescreen to distract from a mounting liquidity crisis and questionable on-chain lending practices.

The decision to release the remaining 80% of investor allocations comes just days after early investors filed lawsuits against the protocol.

It also arrives as the project faces intense scrutiny over a massive, highly concentrated borrowing position on the DeFi lending platform Dolomite. Notably, CryptoSlate has previously reported that this position has essentially trapped millions of dollars in retail deposits.

For months, World Liberty Financial has been engaged in a continuous loop of value extraction, utilizing its own highly illiquid governance token as collateral to borrow tens of millions in stablecoins.

According to blockchain data analyzed by multiple independent researchers, the structural integrity of this debt is heavily reliant on a single, insider-controlled treasury.

Understanding WLFI’s Dolomite debt trap

The controversy centers on how World Liberty Financial manages its treasury via Dolomite, a DeFi lending protocol. Dolomite’s co-founder Corey Caplan concurrently serves as a technical advisor to World Liberty Financial.

According to on-chain tracking from Arkham Intelligence and independent DeFi researchers, the WLFI team has deposited over 3 billion WLFI tokens, nominally valued at roughly $300 million, into the Dolomite.

Using this massive pile of their own token as collateral, the team has borrowed an estimated $75 million in stablecoins, including its proprietary USD1 and Circle’s USDC.

This strategy has effectively consumed the Dolomite platform. WLFI now sits at the top of Dolomite’s supplied-assets list, representing more than 50% of the protocol’s total value locked (TVL).

The structural concern, however, lies in Dolomite’s USD1 lending pool. USD1 currently has $180 million supplied against $167.5 million borrowed, creating a staggering utilization ratio of 93%.

Because of this extreme utilization, ordinary retail depositors who lent their stablecoins to the pool, expecting to withdraw at will, are now unable to access their funds. Their capital is effectively locked until the WLFI team decides to repay its massive debt.

To entice these deposits, the pool aggressively inflated its lending rates, with yields climbing as high as 35%.

However, analysts warn that this yield was a symptom of a liquidity crisis, not organic market demand.

Yashas, a prominent DeFi educator, said:

If the WLFI token, which currently suffers from incredibly thin market depth, were to experience a sharp price drop, the resulting liquidation would crash the token’s price long before the collateral could be successfully unwound. The resulting bad debt would fall squarely on the retail depositors.

WLFI’s “trust me bro” economics

Faced with a barrage of criticism on social media, the World Liberty Financial team dismissed concerns of a looming liquidation cascade.

In an April 9 social media post on X, the team wrote:

The team further defended its operations by pointing to its USD1 stablecoin, which it claims is generating a $159.5 million annual revenue run rate, and highlighted that it has executed $65.58 million in open-market buybacks over the last six months.

Yet, veteran crypto analysts were quick to point out that promising to “simply supply more collateral” is a historically disastrous strategy in decentralized finance.

Ethan DeFi, a digital asset analyst, called the response “pathetic,” comparing it to the catastrophic collapses of earlier crypto giants. According to the analyst, this was not the first time a team has opened a massive stablecoin loan against their illiquid shitcoin.

He pointed to 2024, when Curve Finance founder Michael Egorov borrowed nearly $100 million in stablecoins against his own CRV token, eventually saddling lending protocols with bad debt when the price crashed. Egorov repaid these debts.

Prior to that, in 2022, Sam Bankman-Fried’s bankrupt FTX borrowed massive amounts of stablecoins against its native FTT token, leaving protocols like Abracadabra Money with millions in unrecoverable debt upon FTX’s collapse.

If a similar downward spiral hits WLFI, the resulting bad debt on Dolomite would likely fall directly onto the retail depositors who currently cannot exit their positions.

Is WLFI distracting the market with an unlock?

It is against this backdrop of illiquidity and insider dealing that World Liberty Financial has decided to finally unlock WLFI tokens.

The public sale of WLFI raised more than $590 million, with buyers purchasing the tokens at prices between $0.015 and $0.05.

With the token trading at $0.08, this means that early investors are technically sitting on massive, yet inaccessible, paper profits. However, their profit margins continue to shrink significantly amid the current bear market, which has seen the Trump-linked asset drop by 64% over the past year.

For context, blockchain firm Bubblemaps stated that Tron founder Justin Sun, who bought $75 million worth of WLFI and was named a project advisor, has lost an estimated $80 million as the asset’s prices have slid.

As a result, early investors have reportedly begun filing lawsuits against the project’s team.

In response, the protocol announced that a governance proposal to unlock the remaining tokens will be posted next week for a community vote. The team framed it as a “structured, phased approach designed with the long-term health of the ecosystem in mind.”

However, many holders are skeptical that unlocking billions of tokens into an illiquid market will do anything but crash the price.

This means that token unlocking may prove to be a hollow victory for retail investors who bought into the Trump-branded DeFi vision.

With billions in new supply preparing to hit the market and a lending protocol teetering under the weight of insider debt, the long-awaited liquidity event may end up being the very thing that breaks the ecosystem.