What to know:
- WLFI rejects liquidation fears after $75M borrowing backed by 5B tokens on Dolomite.
- Analysts warn WLFI’s collateral structure may raise leverage and increase downside risk.
- WLFI dominates over 50% of Dolomite supply, raising liquidity and stability concerns.
World Liberty Financial (WLFI) has been reacting to growing market fears following on-chain data showing that the company has a significant borrowing position on Dolomite. The team dismissed allegations of liquidation risks and explained that recent concerns were unfounded market speculation.
According to Arkham data, WLFI deposited around 5 billion tokens as collateral on Dolomite. The company borrowed close to $75 million in stablecoins, predominantly USD1 and USDC. Over $40 million is subsequently moved to Coinbase Prime.
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WLFI Borrowing Timing Sparks Liquidity and Risk Debate
This attracted attention regarding the timings of the transaction. This took place immediately prior to the announcement made by US President Donald Trump of a ceasefire between the US and Iran. Analysts started analyzing the issue of liquidity and any possible risk connected with the lending.
There have been doubts concerning the structure of the collateral system among researchers. A researcher, Naeven, suggested that the use of WLFI, ETH, and the stablecoin as collaterals for new loans is indicative of increased leverage during stable periods.
According to Naeven, he expressed his concerns regarding the potential risk in case of a fall in WLFI’s value, as it would create a negative impact on the collateral itself, putting lenders at risk.
According to another analyst, EthanDeFi, there are also risks associated with liquidations due to the low liquidity of WLFI. This means that during stressful times, there might be challenges with executing large transactions.
The platform data shows the risks associated with centralization. The WLFI makes up more than 50% of the $825 million being provided on the Dolomite platform. There have been concerns regarding the stability of the protocol amid volatility.
WLFI Defends Position With Revenue and Buybacks
However, World Liberty Financial dismissed such arguments publicly, saying that the firm’s standing is far from insolvency. Additionally, more collateral can be provided should the market conditions shift.
The firm mentioned that its economic performance is another factor. Specifically, the USD1 stablecoin earned around $159.5 million in annualized revenues, which is presented as an additional argument.
In addition, World Liberty Financial actively operated in the secondary market. Within six months, WLFI paid out $6.558 million to buy back about 43.5 million tokens.
Further, a governance proposal has been submitted, focusing mainly on unlocking tokens for the earliest participants. Such actions may help in addressing supply issues.
Nevertheless, analysts remain vigilant in monitoring the situation. The liquidity level is a key consideration here, as is the issue of the concentrated collateral. Moreover, attention is drawn to how Dolomite handles large positions under pressure.
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