World Liberty Financial (WLFI), backed by the Trump family, has dismissed recent criticism of its borrowing spree as ‘false FUD’.
The DeFi project admitted to being one of the largest suppliers and borrowers in the Dolomite-backed WLFI Markets.
Stating that the ongoing fears of liquidation according to the project are unfounded, he added:
We’re not close to liquidation – and frankly, even if markets move dramatically against us, we’d provide further coverage.
The WLFI team countered that what they were doing was ‘no risk’ and reminded critics that ‘that’s just the way things are’.
Why is the community upset with WLFI?
The community backlash against the DeFi project began after on-chain data revealed that it had deposited 3 billion WLFI tokens as collateral on the lending platform WLFI Markets.
As of the time of writing, the collateral has been increased to 5 billion WLFI tokens (worth $429 million), all from the treasury.
In exchange for this guarantee, the project borrowed over $75 million in USDC. Conclusion? This increased WLFI Markets’ USDC lending rates to a lucrative 13.5%, but also drained its liquidity pool.
As a result, those who invested in Dolomite were unable to withdraw their funds unless the largest borrower, WLFI, repaid the loan.
This sparked further backlash when analysts warned it could become a bad debt. Additionally, as one user noted, it could trigger infection risk for WLFI token holders.
Stay out of Trump’s cartel’s liquidity: These loans will likely never be repaid. If Republicans lose when Trump leaves office or even after the midterm elections, the WLFI dollar will fall and Dolomite faces a bad bet.
In its defense, it said the project had taken out a large loan to provide “very large, attractive returns for everyone”.
Will unlocks crash WLFI?
Another debate was uncertainty. WLFI token unlockedEspecially for early and long-term investors to recoup their investments.
However, the project has announced that a vote will be held next week on a ‘structured, phased approach’ to unlocking.
Currently around 70% of WLFI supply is locked and only 31 billion tokens are in circulation out of a maximum supply of 100 billion. At a time when scrutiny of the project is increasing, early investors will likely divest their holdings once they are unlocked.
Over the past three days, the altcoin has fallen 15% to a yearly low of $0.081 as FUD intensified. Unless it’s strong incentive Expected unlocks to hold the token could send WLFI lower.
Final Summary
- World Liberty Financial explained that the huge loan received in exchange for 5 billion WLFI tokens was not a risk, but “just the way things are.”
- Market watchers have warned that the proposed WLFI unlocks could put further selling pressure on the altcoin.
