The Trump-backed World Liberty Financial has faced intense scrutiny over its borrowing and use of governance token as collateral. Although the team dismissed these claims days ago, as AMBCrypto reported earlier, the on-chain data has become even clearer.
Chaos Labs reported that World Liberty Financial (WLFI) has rapidly expanded borrowing on Dolomite, pushing collateral use near its 5.1 billion cap across two multisigs.
How stretched is WLFI’s leverage?
According to Chaos Labs, one wallet borrowed $40.7 million in stablecoins, primarily USDI, against 3 billion WLFI tokens.
These tokens were valued at approximately $242 million, suggesting a liquidation threshold corresponding to a 75% drop in the WLFI price.
The second wallet holds $111 million in USDI, borrowed against a maximum of $161 million in World Liberty Financial [WLFI] and $98 million in USDC. Also, the wallet holds $89 million in USDC borrowed againt $110 million in USDC.
This implies that one USDC debt is already used as collateral to take out another USDC debt. This leaves the borrowed funds within a loop of collateral.
Chaos Labs suggested that the most likely interpretation of the borrowing is a need to increase the use of USDI and USDC.
In fact, USDI utilization rose to 83.4% with supply rates at 10.64%, including WLFI rewards via Merkl. USDC utilization reached 90.19%, with a supply rate of 9.07%.
As a result, the borrow rates for both assets moved into the 5% range, pushing non-WLFI-related lopped strategies into the negative zone.
How is the market reacting?
Amid this increased chaos, investors have panicked across the market and exited their positions.
Futures data showed $479.89 million in outflows against $438.46 million in inflows. This pushed Futures Netflow to -$41.4 million, signaling sustained selling pressure.
On the Spot side, Netflows stayed positive for five straight days, totaling $5.7 million in outflows.
That alignment showed both Derivative and Spot markets leaned bearish.
This selling pressure has significantly weakened the market. In fact, WLFI dropped to $0.079 at press time, marking a 20% slip on weekly charts.
This market weakness was further confirmed by the Relative Strength Index (RSI). The altcoin’s RSI dropped to 28, entering oversold territory and signaling intense pressure.
At the same time, ADR dropped below 1 to 0.9, further validating the trend’s strength. When RSI and ADR dip to these levels, it suggests the likelihood of the trend’s continuation.
On top of that, governance concerns added to the uncertainty.
Justin Sun recently raised allegations around WLFI’s contract design and control mechanisms. That backdrop kept sentiment fragile as leverage risks intensified.
If pressure persists, WLFI could test the $0.07 support level. A recovery above $0.1 would be needed to ease downside momentum.
Until then, elevated leverage and recycled collateral may continue to weigh on price stability.
Final Summary
- WLFI’s borrowing pushed collateral usage close to its $5.1 billion cap, leaving little room for further leverage.
- A recycling loop formed where borrowed USDC was reused as collateral, increasing systemic risk without adding fresh liquidity.
