TL;DR
- WLFI minted $25M USD1 and burned $3M net $22M increase.
- Repaid $25M of $75M loan backed by its WLFI tokens.
- Dolomite’s USD1 pool faces high utilization and severe liquidity risk.
World Liberty Financial (WLFI), just executed an operation that raises more questions than answers. The company created $25 million worth of its USD1 stablecoin and burned $3 million of the same coin in a single day. The net result: $22 million in fresh tokens enter circulation. The maneuver happens amid a controversy over a $75 million loan that left other users unable to withdraw their funds from a decentralized lending platform.
Last Friday, WLFI claimed it had repaid $25 million of the debt. On-chain data shows that new token creations match the repayment timeline perfectly. The company issued $12.5 million the night before InsideCrypto published its report, $8 million the day after the first declared payment, and $18 million the day after the second. Now, on Monday, it adds another $25 million. One question hangs in the air: did WLFI use existing money to repay the loan and then reprint tokens to replenish its treasury, or did it create the tokens specifically to make the payment? The company does not respond to requests for comment.
The underlying problem began on April 9. WLFI deposited billions of its own governance tokens as collateral on Dolomite, a small lending platform. Then, it borrowed stablecoins against the collateral. The operation drained Dolomite’s USD1 lending pool to nearly 100% utilization. In simple terms: other depositors who had left their USD1 expecting to earn interest could no longer withdraw their money. WLFI had taken almost everything.
Justin Sun from Tron, one of the project’s main backers, called the team’s conduct using users as a “personal ATM.” WLFI responded by calling the criticism “FUD” and threatened legal action against Sun in a public post. The company also said there is no liquidation risk and that it would simply add more collateral if the market moved against it. But the market already moved: WLFI’s governance token fell 12% on the day of the report and now trades 20% below the level prior to publication.
The mechanics behind the mint and burn of USD1
A stablecoin like USD1 should back one-to-one with dollars or dollar equivalents held in reserve. When the issuer creates new tokens, new reserve dollars enter the system. When it destroys tokens, someone supposedly redeemed their tokens for actual dollars. WLFI controls the entire process: it decides when to create new USD1 and when to burn the old ones. The $3 million burn happened without explanation. The tokens traveled from an address on BSC to a contract that controls USD1’s rules and then to a dead address. The company does not say why it destroyed the tokens instead of reusing them.
The lack of transparency directly hits confidence. After the declared $25 million repayment, WLFI still owes $50 million on Dolomite. The collateral backing the loan is a token that lost 15% of its value since the controversy exploded. If the price keeps falling, the company will have to add more collateral or face liquidation. But even if it avoids liquidation, the reputational damage is already irreversible.
The operation trapped ordinary investors and depositors in the middle of a game that benefits mainly the project’s controllers. WLFI acts as an “anchor borrower,” according to its own description, generating yields for other users. But the reality shows that other users could not withdraw their funds. The promise of profits crashes against the impossibility of accessing capital.
The World Liberty Financial case exposes a deep risk of decentralized finance: when one actor concentrates enough power and issues its own coin, the rules of the game stop being fair. The company did not violate any technical rule of the smart contract, but it did break a basic principle of any financial system: transparency about the use of funds. Until WLFI clarifies why it mints and burns its own tokens while repaying debts, any depositor would do well to keep their stablecoins away from the project.
